Wall Street Regulation 1933
Wall Street Regulation 1933
The Glass-Steagall Act was enacted as part of the Banking Act of 1933 by the United States Congress. Senator Carter Glass, a former Treasury Secretary, and Representative Henry Steagall, chair of the House Banking and Currency Committee, co-sponsored the bill, which forbade commercial banks from engaging in investment banking and vice versa.
During the Great Depression, an emergency procedure was implemented to prevent the failure of nearly 5,000 banks. Glass-effectiveness Steagall’s waned over time, and it was largely repealed in 1999. However, a new financial crisis in the twenty-first century has prompted discussions in political and economic circles about renewing the act.
The Glass-Steagall Act had two primary goals: to stop an unprecedented bank run and restore public confidence in the United States banking system; and to break the links between banking and investing activities that were thought to have caused—or at the very least, greatly contributed to—the 1929 market crash and the Great Depression that followed.
The conflict of interest that occurred when banks invested in securities with their own assets, which were, of course, their account-holders assets, was the reason for the separation. The bill’s proponents contended that banks that held people’s savings and checking accounts had a fiduciary duty to protect them and not engage in unduly speculative behavior. Separating the banking and investing businesses would prevent banks from providing loans to boost the prices of securities in which they had a stake, using depositors’ money to underwrite stock offerings or funds, or persuading clients to make investments that benefited the institution but were detrimental to the individual’s interests.
SEE ALSO:
The Securities Exchange Act (1934);
Wall Street Reform (2010).
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