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Glass Steagall Background

Glass-Steagall did more than separate commercial and investment banking.

The Banking Act of 1933, commonly referred to as "Glass-Steagall" was much broader legislation than many realize.

Among other things, it created the FDIC, established our deposit insurance system, prohibited banks from paying interest on demand deposits, and regulated bank affiliate transactions.

Glass-Steagall was never repealed.

  • Contrary to popular belief, the 1999 enactment of the “Gramm-Leach-Bliley Act” (GLBA) did not repeal Glass-Steagall. The FDIC and the deposit insurance system weren’t repealed by GLBA.
  • Glass-Steagall still imposes restrictions on investment banking and commercial banking, including limits on bank interactions with their affiliates.

The supposed repeal of Glass-Steagall did not cause the financial crisis.

  • Leading up to the financial crisis, banks and securities firms were still subject to the prohibitions of Glass-Steagall including a general prohibition against banks underwriting or dealing in any securities that were not “bank eligible” remained intact.
  • The housing market’s collapse precipitated the financial crisis, causing losses to mount throughout the entire financial system. Both banks and securities firms lost money by doing activities expressly permitted by Glass-Steagall.
  • Allowing banks to offer a diverse set of financial products makes them stronger and the financial system safer.

Restoring Glass-Steagall is not a sensible policy.

  • The financial system has evolved and looks much different now than it did when Glass-Steagall became law in 1933.
  • The financial system is safer when banks can diversify their investments and product offerings.
  • Policymakers from both parties including former Rep. Barney Frank and Treasury Secretary Steven Mnuchin have said reinstating Glass-Steagall does not make sense.