The Glass-Steagall Act of 1933 created the regulatory framework for banking following the depression-era collapse of much of the banking system. It established theFederal Deposit Insurance Corporation (FDIC) and included other banking reforms, and placed legal restrictions on combined banking and financial service firms.
The 1999 Gramm-Leach-Bliley Act repealed much of the Glass-Steagall Act and is credited with being one direct cause of the 2008 financial collapse.
Provisions of the act
The Glass-Steagall Act consisted of four provisions to address the conflicts of interest that the Congress concluded had helped trigger the 1929 crash:
- Section 16 restricted commercial national banks from engaging in most investment banking activities;
- Section 21 prohibited investment banks from engaging in any commercial banking activities;
- Section 20 prohibited any Federal Reserve-member bank from affiliating with an investment bank or other company “engaged principally” in securities trading;
- Section 32 prohibited individuals from serving simultaneously with a commercial bank and an investment bank as a director, officer, employee, or principal.
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