Since the Glass-Steagall Act, a group of regulations enacted in 1933, were eliminated in 1999 by Congress and President Bill Clinton, U.S. banks have gotten much bigger. So big that they could be “too big to fail” — a term that entered the Wall Street vernacular during the financial crisis of 2008.
Glass-Steagall has come to represent Wall Street excess, creating financial behemoths that are allowed to both take in consumer deposits and also engage in the trading of stocks, commodities, currencies and risky derivatives.
Most Americans who heard CNN host Anderson Cooper mention the 1933 regulation last night at the Democratic presidential debate likely had little idea of the law’s impact on U.S. banking.
CNN’s Cooper gave this abbreviated version: “Just for viewers at home who may not be reading up on this, Glass-Steagall is the Depression-era banking law repealed in 1999 that prevented commercial banks from engaging in investment banking and insurance activities.”
Glass-Stegall prevented banks such as JPMorgan and Bank of America from inter-mingling Main Street and Wall Street. Banks either had to cater to individual customers by taking deposits, issuing mortgages and small business loans or they could cater to Wall Street by buying and selling stocks and bonds or helping huge companies merge.
The reasoning: The Wall Street component of banking was too risky and would put regular Americans’ savings and loans at risk.
The law was enacted after the stock market crash of 1929 and the Depression that followed.
The official name of the law was the Banking Act of 1933, but it became known as Glass-Steagall because it was championed by Senator Carter Glass, a Virginia Democrat, and Congressman Henry Steagall, an Alabama Democrat and former Treasury secretary.
But it was repealed in 1999 by President Bill Clinton, husband of current Democratic frontrunner for president, Hillary Clinton.
Democrats have proposed new rules that would essentially bring back a Glass-Steagall type of firewall separating a big bank’s consumer operations from its investing division.