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Glass Steagall Act Pros And Cons

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Glass Steagall Act Pros And Cons
Advanced Macroeconomics Assignment

“The Takedown of Glass Steagall Act”

Submitted By : Amanjot Singh Roll No : A006

Passed during the time of Great Depression, The Glass- Steagall Act of 1933 (officially known as The Banking Act) bared commercial banks from trading risky securities with their client’s deposits such that it will detach commercial banking from investment banking. Also, this Act created the Federal Deposit Insurance Corporation (FDIC), which assured bank deposits up to a certain amount ($2500 in 1933, now it is $250,000). However, after 25 long years and $300 millions worth of lobbying efforts by banking …show more content…
In September 2008, when it all came down, the crises was a lot bigger, deeper and precarious than it was expected by the authorities. Often there are debates among economists, politicians and analysts regarding the causes of financial crises and some experts believe that the repeal of the Glass-Steagall Act contributed to the …show more content…
Those who were against the repeal of the Act like Joseph E. Stiglitz, Elizabeth Warren and John McCain are of the view that it is essential to draw a line between Commercial banks and Investment Banks. Commercial banks are suppose to manage the people’s money conservatively such that in case bank fails, the government will come forward for people interest. Investment banks on the other hand manage money of rich people and institutions, which can take higher risks so as to get higher returns. With the repeal of Glass-Stealgall, investment bank culture came out and banks started aspiring for higher profit, which was only possible through high leverage and risk taking which led to crises. In 2009, legislation was proposed to bring back the repealed provisions of Glass-Steagall Act, which was dropped by Congress because of lobbying efforts of financial
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