User:Poroubalous/Sandbox

From Wikipedia, the free encyclopedia

Poroubalous/Sandbox
Full title Banking Act of 1933
Acronym / colloquial name Glass-Steagall Act
Enacted by the 73rd United States Congress
Effective June 16, 1934
Citations
U.S. Statutes at Large 48 Stat. 162 (1933)
Codification
Legislative history
Major amendments
American Homeownership and Economic Opportunity Act, Gramm-Leach-Bliley Act, Depository Institutions Deregulation and Monetary Control Act


The Banking Act of 1933, also known as the Glass-Steagall Act, was an act of Congress in response to the banking crisis of the Great Depression and was part of Franklin D. Roosevelt's set of New Deal legislation. It separated commercial banking from investment banking, established deposit insurance in the United States, prohibited interest payments on checking accounts, and limited interest payments on savings accounts. [1] In all, 21 changes were made to the Federal Reserve Act of 1914, and according to one legal historian, "The net result was a considerable alteration of the banking structure of the United States."[2]

[3] Although the portions of the act that regulated interest payments and bank mergers were repealed in 1980 by the Depository Institutions Deregulation and Monetary Control Act and in 1999 by the Gramm-Leach-Bliley Act, a major component of the act, deposit insurance, remains in place. The Federal Deposit Insurance Corporation originally insured bank deposits up to $5,000, and now insures deposits up to $100,000 in accounts at member institutions.

Contents

[edit] Development and signing

The act was sponsored by Senator Carter Glass of (D-VA), a former Secretary of the Treasury, and Rep. Henry B. Steagall, (D-AL), Chairman of the House Committee on Banking and Currency. According to a New York Times article, Sen. Glass said during the signing of the act that "the bank reforms provided in the act are almost as important to the banks and the public as the Federal Reserve Act itself. It supplements and strengthens the Federal Reserve Law."[4]

[edit] Impact

According to the New York Times, the act's "most revolutionary feature" was the establishment of deposit insurance, via a portion of the act called the Federal Reserve Act of 1933.[5] Additionally, Franklin Roosevelt called the law the "best such legislation since the Reserve Act [of 1913]." [6]

The first person to receive a deposit insurance disbursement from the FDIC was Lydia Lobsiger on July 5, 1934, after the failure of the Fon Du Lac State Bank in East Peoria, Illinois.[7]


Seal of the Federal Deposit Insurance Corporation
Seal of the Federal Deposit Insurance Corporation

[edit] Establishment of the FDIC

The Banking Act of 1933 stated that the FDIC would be run by a board of three directors, one of whom would be the U.S. Comptroller of the Currency. Of the capital funds initially provided to the FDIC, the U.S. Treasury provided $150,000,000, the Federal Reserve Bank system provided $139,300,000, and member bank subscriptions provided $190,000,000.[8] The original plans also called for insuring all deposits up to $10,000, with 75% up to $50,000, and 50% of other deposits insured.[9] In practice, a temporary agreement became permanent and provided for insurance of deposits up to $5,000.[10] The act also provided the FDIC with investigative powers of member banks, and it had authority over the liquidation of closed banks.

On September 1, 1935, a shareholder of a member bank filed suit against the FDIC and the Banking Act of 1933 because it required member banks to pay a percentage of their deposits for insurance, when only deposits up to $5,000 were insured.[11] The portion of the act providing for the FDIC also was attacked as violating the 10th Amendment to the U.S. Constitution.[12]

[edit] Separation of commercial and investment banking

Another requirement of the act was that banks separate their commercial and investment business. This was accomplished by requiring that stocks of commercial banks represent only commercial banks. The second method of separation was the requirement that banks and securities institutions could not share directors or personnel; this was amended by the Banking Act of 1935 to exempt certain banks and institutions.[13]

The act also had an influence on the financial systems of countries such as China, which maintains a separation between commercial banking and the securities industries.[14] [15]

[edit] Revisions to the act

Regulation Q of the act, which allowed the Federal Reserve to regulate interest rates in savings accounts, was repealed by the Depository Institutions Deregulation and Monetary Control Act of 1980.[16] On November 12, 1999, President Bill Clinton signed the Gramm-Leach-Bliley Act, which repealed other portions of the Banking Act of 1933. One of the effects was to allow commercial and investment banks to consolidate. Some economists have criticized these changes as partially contributing to the 2007 subprime mortgage financial crisis.[17] [18]

[edit] External links

[edit] Reference List

  1. ^ Harvard Law Review 1933, p.325.
  2. ^ Hanna 1936, p.628.
  3. ^ “The Glass-Steagall Banking Act of 1933”, Harvard Law Review 47: 325-334, Dec. 1933 
  4. ^ New York Times June 17, 1933, p.2
  5. ^ August 29 1955
  6. ^ NYTIMES June 14 1933
  7. ^ fdic.gov
  8. ^ Hanna 1936, p.629
  9. ^ Hanna 1936, p.629
  10. ^ Hanna 1936, p.630
  11. ^ New York Times, Sept. 12, 1935
  12. ^ New York Times, Sept. 12, 1935
  13. ^ Hanna 1936, p.630
  14. ^ Developing Institutional Investors in the People's Republic of China, paragraph 24, <http://www.worldbank.org.cn/english/content/insinvnote.pdf> 
  15. ^ Langlois, John D. (2001), “The WTO and China's Financial System”, China Quarterly 167: 610-629, DOI doi:10.1017/S0009443901000341 
  16. ^ The Repeal of Glass-Steagall and the Advent of Broad Banking.
  17. ^ Kuttner, Robert (2007-09-24), “The Bubble Economy”, The American Prospect, <http://www.prospect.org/cs/articles?article=the_bubble_economy> 
  18. ^ Tsang, Michael (2008-03-17), “Buy Signals Abound in U.S. Stocks Shadowed by 1970s”, Bloomberg.com, <http://www.bloomberg.com/apps/news?pid=20601109&sid=aDSFgf3DHR_A&refer=exclusive> 
v • d • e
New Deal
Causes and legacy
Policies and acts
Individuals
Category · Commons