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Glass-Steagall Act - Further Readings

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The Glass-Steagall Act, also known as the Banking Act of 1933 (48 Stat. 162), was passed by

A group of congressmen look on as President Franklin D. Roosevelt signs the Glass-Steagall Act on June 16, 1933. Senators Carter Glass (light suit) and Henry S. Steagall stand on either side of the president.
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Congress in 1933 and prohibits commercial banks from engaging in the investment business.

It was enacted as an emergency response to the failure of nearly 5,000 banks during the Great Depression. The act was originally part of President FRANKLIN D. ROOSEVELT's NEW DEAL program and became a permanent measure in 1945. It gave tighter regulation of national banks to the Federal Reserve System; prohibited bank sales of SECURITIES; and created the FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), which insures bank deposits with a pool of money appropriated from banks.

Beginning in the 1900s, commercial banks established security affiliates that floated bond issues and underwrote corporate stock issues. (In underwriting, a bank guarantees to furnish a definite sum of money by a definite date to a business or government entity in return for an issue of bonds or stock.) The expansion of commercial banks into securities underwriting was substantial until the 1929 STOCK MARKET crash and the subsequent Depression. In 1930, the BANK OF THE UNITED STATES failed, reportedly because of activities of its security affiliates that created artificial conditions in the market. In 1933, all of the banks throughout the country were closed for a four-day period, and 4,000 banks closed permanently.

As a result of the bank closings and the already devastated economy, public confidence in the U.S. financial structure was low. In order to restore the banking public's confidence that banks would follow reasonable banking practices, Congress created the Glass-Steagall Act. The act forced a separation of commercial and investment banks by preventing commercial banks from underwriting securities, with the exception of U.S. Treasury and federal agency securities, and municipal and state general-obligation securities. More specifically, the act authorizes Federal Reserve banks to use government obligations and COMMERCIAL PAPER as collateral for their note issues, in order to encourage expansion of the currency. Banks also may offer advisory services regarding investments for their customers, as well as buy and sell securities for their customers. However, information gained from providing such services may not be used by a bank when it acts as a lender. Likewise, investment banks may not engage in the business of receiving deposits.

A bank is defined as an institution organized under the laws of the United States, any state of the United States, the District of Columbia, any territory of the United States, Puerto Rico, Guam, American Samoa, or the Virgin Islands, that both accepts demand deposits (deposits that the depositor may withdraw by check or similar means for payment to third parties or others) and is engaged in the business of making commercial loans (12 U.S.C.A. § 1841 (c)(1) [1988]). Investment banking consists mostly of securities underwriting and related activities; making a market in securities; and setting up corporate mergers, acquisitions, and restructuring. Investment banking also includes services provided by brokers or dealers in transactions in the secondary market. A secondary market is one where securities are bought and sold subsequent to their original issuance.

Despite attempts to reform Glass-Steagall, the legislature has not passed any major changes—although it has passed bills that relax restrictions. Banks may now set up brokerage subsidiaries, and underwrite a limited number of issues such as asset-backed securities, corporate bonds, and commercial paper.

The Glass-Steagall Act restored public confidence in banking practices during the Great Depression. However, many historians believe that the commercial bank securities practices of the time had little actual effect on the already devastated economy and were not a major contributor to the Depression. Some legislators and bank reformers argued that the act was never necessary, or that it had become outdated and should be repealed.

Congress responded to these criticisms in passing the Gramm-Leach-Bilely Act of 1999, which made significant changes to Glass-Steagall. The 1999 law did not make sweeping changes in the types of business that may be conducted by an individual bank, broker-dealer or insurance company. Instead, the act repealed the Glass-Steagall Act's restrictions on bank and securities-firm affiliations. It also amended the Bank Holding Company Act to permit affiliations among financial services companies, including banks, securities firms and insurance companies. The new law sought financial modernization by removing the very barriers that Glass-Steagall had erected.

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over 3 years ago

Thank you for uploading this article.

I am (as underneath) also writing a dissertation concerning banking in the United States and am in need for the author's name for citing the statements made.

Thank you

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about 6 years ago

Please get your facts straight. The Act that repealed the Glass-Steagall Act was called the Gramm-Leach-Bliley Act (or Financial Services Modernization Act). It was introduced by three Republicans, Phil Gramm (R-TX), James Leach (R-IA), and Republican Thomas J. Bliley, Jr (R-VA). It first passed the Senate with 54-44 party line vote. ALL Republicans voted for it, all but 1 Democrat voted against. After it went through committee it passed with a 90 vote veto proof majority. So Clinton signed this Act because HE COULDN'T VETO IT ANYWAY. So please don't talk about this act and only say, In defense of Bush.. Cliton signed a Bill.. No the Republican led congress introduced a passed a bill that Clinton had no choice but to sign.

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over 3 years ago

At first I would like to thank you for putting this article in your library.



Could you please tell me who is a original author of it? I am writting my dissertation on this topic and need to provide author other wise I can not cite it in my work.



Thank you

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about 6 years ago

Clinton signed the bill only because it was veto proof. This bill was designed by Republicans.

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about 3 years ago

without global glass-steagall, every economy operates like casinos, and all will lose through the crap shoot economies created.

No governments are responsible enough to operate without Glass Stegall in place, and operative.

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about 3 years ago

The problems facing us a few years ago had a lot to do with Freddie Mac and Fannie Mae. Republicans fought tooth and nail, saying these entities needed to be fixed, over-hauled, or dumped. It was not to be...

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about 4 years ago

I find it interesting that some of the supporters of Bill Clinton's move to repeal the Glass-Steagall Act were in key positions of some of the first institutions that failed and received bailout funds.

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over 5 years ago

Guess what party had a senate and house majority!

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over 5 years ago

the 1999 repeal of the Glass-Steagall Banking Act is the absolute core of the 2008/09 housing/banking collapse; the minute politicians fought to repeal the act which had kept us safe all bets were off...by the way...President Bush was not in office when the repeal was carried out.

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over 5 years ago

Well I think that it has a lot to do with the current situation as much as it had to do with the economic boom we were seeing up until 18months ago fueled by rising property prices , building and ease of credit. Micro causes and the debates that rage around the "facts" aside the Glass-Steagel act did serve as a doorstop for many years . Once that doorstop was removed and the door flung open alot of money was made off a fundamentally flawed system.There was no moderation by any side Rep or Dem as who really wants to be the killjoy when the party is raging. Contra Wall Street would have been a political deathwarrent 3-5 years ago. Now we pay.
America will always be the consumer, its fundamental to your psychology and well being, unlimited cheap choice.

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over 5 years ago

Okay shut the doors and then what. Can we confront the International market?? We want to compete with the international market but we complain when we lose. Glass Steagall-Act or Gramm-Leach-Billey, they both served the interest for the different types of investor. Its unfortunate that many investors who dumped large sums of money into the market before 1999 suffered.



Its not yours but our parents money invested decades ago. Honestly, the only people that are making money are the people passing the bills- democrat or Republican, its the financial shift that caused chaos in the banking industry that dont have experience in dealing with Securities.duh!



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about 6 years ago

They all voted it in.. Republicans and Democrats... They all should be fired! It happened on Clintons watch and so did the dot com colapse. We been in a smoke and mirror economy since. Greed and Wallstreet is all our Government cared about for the last 30 years. America needs to stop being the consumer and start Manufacturing goods again.. Close the doors unless we can't make it or produce enough of it. This will fix our current situation.

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about 6 years ago

Yes, the bill was passed with a veto proof Senate vote. In a recent interview with Pres. Clinton on the subject he stated that he was in favor of the move and that he was not pressured in anyway to sign it. He also stated that it was his belief that Gramm-Leach-Bliley has little to do with our curent situation.

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about 6 years ago

I am a died in the wool Democratic and I think we need to get our facts straight. Bill Clinton wanted to repeal the Glass-Steagall Act. Read Kevin Phillip's book Bad Money.



There's more then enough blame to pass around.

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about 6 years ago

I just decided to go look at the Congressional record and see who voted for the repeal of the Glaa-Steagall Act. President Clinton had a Republican-controlled Congress at the time, I believe. Not sure though, so I will look and see if the passage of the Act had more to do with Congress. That would be the smart thing to do. The Congressional Voting Record is probably the only place you will find where there is no political bias.

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about 6 years ago

VP to be, Mrs Palin, after today banking crisis, I decided to find out why a country like the united states is in such a mess. I am fifty six years old and never had much money to worry about. But for some strange reason I have always been happy about living in the united states. And have always beena servant of are Lord Jesus Chirst. This in itself can bring lots of joy to one life. Ok back to the banking business I found an act passed by a democratic congress and signed by Franklin D Rosevelt. after the great depression. It was called the Glass

steagall Act. It purpose as you probably know was to seperate the banking initys. well I am sure you know the rest of the story behind its passing. For seventy years the United States has done pretty well. But not with out some troubles. And now we are in a mess. Some say its Presdent Bush fault. Well I know some of his governing hasn't been to good. But in his defence President Clinton signed a bill that amented theGlass steagall act. Now thi was sign into law after the head of the largest bank in the united state or lobbyist what ever you want to call them spent 200 Million dollars to get this change into effect. This is all on the Internet. where any one can find it and it can be found on the web page winnapeg. So this information is not from some one who is mad about some politican. what I would like you to tell me in some town meeting durning the debates what happen to all that money that those lobbist spent to get the Glass Steagall act changed. and tell me why I shouldn't believe that change didn't lead to the collaspe of all these banking inities.