Carter Glass D — Va. Henry B. Steagall D — Ala. Steagall of Alabama who had been in the House for the preceding 17 years. Main article: Banking Act Between and Senator Carter Glass D-VA introduced several versions of a bill known in each version as the Glass bill to regulate or prohibit the combination of commercial and investment banking and to establish other reforms except deposit insurance similar to the final provisions of the Banking Act. Glass originally introduced his banking reform bill in January
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Sources The Glass-Steagall Act, part of the Banking Act of , was landmark banking legislation that separated Wall Street from Main Street by offering protection to people who entrust their savings to commercial banks. Millions of Americans lost their jobs in the Great Depression, and one in four lost their life savings after more than 4, U. As the Great Depression of the s devastated the U.
By June 16, , President Franklin D. FDIC Created The Glass-Steagall Act set up a firewall between commercial banks, which accept deposits and issue loans, and investment banks that negotiate the sale of bonds and stocks. As chief counsel to the U. If that company then failed, the bank suffered no losses while its investors were left holding the bag.
National City Bank, testimony uncovered, had taken on bundles of bad loans, packaged them as securities and unloaded them on unsuspecting customers. In testimony from financier J. Morgan , the public learned that Morgan had issued stocks at discounted rates to a small circle of privileged clients, including former President Calvin Coolidge. Under the act, bankers could take deposits and issue loans and brokers at investment banks could raise capital and sell securities, but no banker at a single firm could do both.
Over time, however, barriers set up by Glass-Steagall were gradually chipped away. The argument, embraced by Federal Reserve Chairman Alan Greenspan, who was appointed by President Ronald Reagan in , was that if banks were permitted to engage in investment strategies, they could increase the return for their banking customers while avoiding risk by diversifying their businesses.
Soon, several banks began crossing the line once established by the Glass—Steagall Act through loopholes in the act. Gramm-Leach-Bliley Act One of the most prominent deals that exploited this loophole was the merger of banking giant Citicorp with Travelers Insurance, which owned the now-defunct investment bank Salomon Smith Barney.
Joseph E. There was a demand for the kind of high returns that could be obtained only through high leverage and big risk-taking. In any case, less than 10 years following the dismantling of the Glass-Steagall Act, the nation suffered through the Great Recession, the largest financial meltdown since the stock market crash that had originally inspired the act. Kennedy, June 24, , Time.
Department of the Treasure, Office of Public Affairs. Stiglitz, January , Vanity Fair. The American Presidency Project.