Categorized | US

Glass Steagall Repeal

This is not the first time America is passing through economic turbulent times. In fact, if you rewind and look at history, then in 1933, in the wake of the 1929 stock market crash and during a nationwide commercial bank failure and the Great Depression, two members of Congress put their names on what is known today as the Glass-Steagall Act (GSA).

This act separated investment and commercial banking activities. At the time, “improper banking activity”, or what was considered overzealous commercial bank involvement in stock market investment, was deemed the main culprit of the financial crash.

According to that reasoning, commercial banks took on too much risk with depositors’ money. Additional and sometimes non-related explanations for the Great Depression evolved over the years, and many questioned whether the GSA hindered the establishment of financial services firms that can equally compete against each other.

The first Glass-Steagall Act was the first time currency (non-specie, paper currency etc.) was permitted to be allocated for the federal reserve. In addition, the G.S.A. separated investment banking from commercial banking, in effect curbing speculation. The resulting FDIC (Federal Deposit Insurance Corporation) insured all bank deposits up to $5000.

The second Glass-Steagall Act, passed on 16 June 1933, and officially named the Banking Act of 1935, introduced the separation of bank types according to their business (commercial and investment banking), and it founded the Federal Deposit Insurance Company for insuring bank deposits.

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