Glass-Steagall Act

(noun)

The Banking Act of 1933 was a law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and imposed banking reforms, several of which were intended to control speculation. It is often referred to as the Glass–Steagall Act, after its Congressional sponsors, Senator Carter Glass (D) of Virginia, and Representative Henry B. Steagall (D) of Alabama.

Related Terms

Examples of Glass-Steagall Act in the following topics:

  • The Glass Steagall Banking Act

    • Thus, the United States government passed the Glass-Steagall Banking Act in 1933.
    • In practice, the Glass-Steagall Banking Act insulated investment banking from the competition.
    • The United States government repealed pieces of the Glass-Steagall Act in 1999 to allow U.S. investment banks to compete internationally as they moved into commercial banking and insurance.
    • The Glass-Steagall Act also created the Federal Deposit Insurance Corporation (FDIC).

  • Securities Market Institutions

    • The U.S. government passed the Glass–Steagall Act of 1933 to separate the functions of commercial and investment banking.A commercial bank is a standard bank that accepts deposits and makes loans.Many countries, such as the European Union, Great Britain, and South Korea do not legally separate commercial and investment banking.Then the U.S. government repealed parts of the Glass-Steagall Act in 1999 and allowed U.S. investment banks to branch into commercial banking and insurance, so they could compete internationally.Unfortunately, the largest commercial and investment banks in the world teetered on bankruptcy during the 2008 Financial Crisis.Consequently, many government leaders across the world are debating to enact similar laws to the Glass-Seagall Act.
    • Process of issuing new stock is called underwriting.Underwriting lowers information costs.Investment bank guarantees a stock or bond price to the corporation.Then the investment bank sells the new stock or bond for a higher price.Greater price reflects the investment banker's profit.Furthermore, investment banks may work together, which we call syndicates.Oneinvestment bank acts as the manager and retains part of the profits while other investment banks help sell the new securities.

  • The Special Case of Banking

    • Determined to prevent that from happening again, Depression-era politicians enacted the Glass-Steagall Act, which prohibited the mixing of banking, securities, and insurance businesses.
    • Then, in late 1999, Congress enacted the Financial Services Modernization Act of 1999, which repealed the Glass-Steagall Act.
    • In 1989, Congress and the president agreed on a taxpayer-financed bailout measure known as the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA).
    • This act provided $50 billion to close failed S&Ls, totally changed the regulatory apparatus for savings institutions, and imposed new portfolio constraints.

  • Clintonomics

    • The only laws of the Clinton administration that could be considered deregulatory were the Telecom Reform Act of February 8, 1996, which eliminated ownership restrictions on radio and television; the pesticides legislation of 1996; and the Food and Drug Administration overhaul of 1997.
    • All were signed into law by Clinton, along with the Financial Services Modernization Act of 1999, which allowed banks, insurance companies and investment houses to merge, thus repealing the Glass-Steagall Act, which had been in place since 1932.
    • Clinton signed the Omnibus Budget Reconciliation Act of 1993 into law.
    • This Act cut taxes for 15 million low-income families, made tax cuts available to 90% of small businesses, and raised taxes on the wealthiest 1.2% of taxpayers.
    • The Personal Responsibility and Work Opportunity Act of 1996 represented a fundamental shift in both methods and goal of the federal cash assistance to the poor; the law fulfilled Clinton's 1992 campaign promise to "end welfare as we have come to know it."

  • Banking and Finance Reform

    • On March 9, Roosevelt sent to Congress the Emergency Banking Act, drafted in large part by Hoover's top advisors.
    • The act was passed and signed into law the same day.
    • The Emergency Banking Act, also known as the Glass–Steagall Act, also limited commercial bank securities activities and affiliations between commercial banks and securities firms to regulate speculations.
    • Several provisions of the act sought to restrict "speculative" uses of bank credit.
    • With the passage of the Gold Reserve Act in 1934, the nominal price of gold was changed from $20.67 per troy ounce to $35.

  • The Clinton Administration

    • This act received support from both political parties.
    • He also signed the reversal of the Glass-Steagall Act, which was designed to prevent financial institutions from getting too big to fail.
    • In addition, he signed the Commodity Futures Modernization Act, which legalized over-the-counter derivatives.
    • However, Clinton signed the Defense of Marriage Act, considered by many to be a blow to the LGBT rights movement.
    • The Clinton presidency also saw the passage and signing of the Iraq Liberation Act of 1998, which was a bipartisan measure expressing support for regime change in Iraq.

  • The Great Depression and the New Deal

    • The "Second New Deal" in 1935–38 included the Wagner Act to promote labor unions, the Works Progress Administration (WPA) relief program, the Social Security Act, and new programs to aid tenant farmers and migrant workers.
    • The final major items of New Deal legislation were the creation of the United States Housing Authority and Farm Security Administration, both in 1937, and the Fair Labor Standards Act of 1938, which set maximum hours and minimum wages for most categories of workers.
    • The Supreme Court declared the National Recovery Administration (NRA) and the first version of the Agricultural Adjustment Act (AAA) unconstitutional, although the AAA was rewritten and then upheld.
    • The New Deal regulation of banking (Glass–Steagall Act) was suspended in the 1990s.

  • Wall Street Crash of 1929

    • Congress passed the Glass–Steagall Act, mandating a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities.

  • Politics and the Great Recession of 2008

    • Senate's Levin–Coburn Report asserted that the crisis was the result of "high risk, complex financial products; undisclosed conflicts of interest; the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street. " The 1999 repeal of the Glass–Steagall Act effectively removed the separation between investment banks and depository banks in the United States.

  • Strengthening the Monetary System

    • On March 9, 1933, the Emergency Banking Act was introduced to and passed by Congress.
    • In June of the same year, more long-term solutions were presented in the Banking Act of 1933 (also known as the Glass-Steagall Act although this term is not precise and usually refers to the provisions of the Banking Act of 1933 that dealt with commercial bank).
    • The most important provisions introduced by the 1933 Banking Act were:
    • Some of the provisions of the 1933 Banking Act are still in effect.
    • Senator Carter Glass of Virginia and Representative Henry Steagall of Alabama, the main force behind the 1933 Banking Act.