Glass-Steagall Act

The Glass-Steagall Act, officially known as the Banking Act of 1933, was a piece of legislation passed in the United States in response to the banking crises during the Great Depression. The act aimed to restore public confidence in the banking system and regulate the financial industry. It primarily sought to separate commercial banking from investment banking activities and establish the Federal Deposit Insurance Corporation (FDIC).

• The Glass-Steagall Act was named after its two main sponsors: Senator Carter Glass (D-VA) and Representative Henry B. Steagall (D-AL)
• The act required commercial banks to separate their investment banking activities, such as underwriting securities, to reduce the risk of bank failures and protect depositors.
• The establishment of the FDIC provided deposit insurance for individual bank accounts, initially covering up to $2,500 per depositor (later raised over time)
• The act also restricted banks from paying interest on checking accounts and imposed various reserve requirements and other regulations on banks.
• The Glass-Steagall Act stabilized the US banking system and prevented bank failures for several decades.
• Some have criticized the act as an over-regulation of the financial industry and a hindrance to economic growth.
• Over time, some provisions of the Glass-Steagall Act were relaxed or repealed, most notably with the passage of the Gramm-Leach-Bliley Act 1999, which allowed commercial banks to engage in investment banking activities again.
• The repeal of key provisions of the Glass-Steagall Act has been cited by some experts as a contributing factor to the 2008 financial crisis, leading to calls for a return to stricter banking regulations.

In summary, the Glass-Steagall Act was a pivotal piece of legislation passed in the United States in 1933 in response to the banking crises during the Great Depression. The act sought to separate commercial and investment banking activities and establish the FDIC to insure individual bank accounts. Although the act successfully stabilized the US banking system for several decades, some of its key provisions were eventually repealed, leading to debates about the need for stricter banking regulations in the 21st century.