Glass Steagall Act Essay
BACKGROUND
Pre -1930’s the US economy showed strong resistance to central control and therefore the idea that every state should set up their own banks in order to constrain credit migration amongst the states thrived. Coupled with decentralisation of power there was also an antitrust sentiment that led to proliferation of multiple small and medium sized banks.
The experience of the great depression changed attitudes regarding the regulation of financial markets. In 1930-32, 20% of banks in US closed down. This led to severe banking crises and Roosevelt declared a bank holiday. To bring some stability to the system many experiments began in various states in varying degrees with two main objectives
• Protect the depositor’s money
• Prevent bank failures In 1933,
Congress fundamentally reformed banking with the Glass-Steagall Act. It symbolised a regulatory regime, so much so that in a debate after the 2008 crisis the suggestion of partially going back to glass Steagall act was propagated.
Glass Steagall act had the following 5 features
1) established a system of deposit insurance for consumers with the creation of the Federal Deposit …show more content…
US banks began operations in developing countries which also led to external debt boom and debt crisis in Mexico in 1982.
4) Socialisation of credit risk- there seemed to be a perception that asset securitisation or bundling of securitised assets lowers the average risk
With high inflation and competitive pressure for deposits pushing up the interest rates they had to pay, most thrift institutions reported huge losses in the early 1980s. Net worth of the entire industry approached zero. Institutions failed at a regular pace as a result of this pressure, but no large-scale action was taken for a variety of
Pre -1930’s the US economy showed strong resistance to central control and therefore the idea that every state should set up their own banks in order to constrain credit migration amongst the states thrived. Coupled with decentralisation of power there was also an antitrust sentiment that led to proliferation of multiple small and medium sized banks.
The experience of the great depression changed attitudes regarding the regulation of financial markets. In 1930-32, 20% of banks in US closed down. This led to severe banking crises and Roosevelt declared a bank holiday. To bring some stability to the system many experiments began in various states in varying degrees with two main objectives
• Protect the depositor’s money
• Prevent bank failures In 1933,
Congress fundamentally reformed banking with the Glass-Steagall Act. It symbolised a regulatory regime, so much so that in a debate after the 2008 crisis the suggestion of partially going back to glass Steagall act was propagated.
Glass Steagall act had the following 5 features
1) established a system of deposit insurance for consumers with the creation of the Federal Deposit …show more content…
US banks began operations in developing countries which also led to external debt boom and debt crisis in Mexico in 1982.
4) Socialisation of credit risk- there seemed to be a perception that asset securitisation or bundling of securitised assets lowers the average risk
With high inflation and competitive pressure for deposits pushing up the interest rates they had to pay, most thrift institutions reported huge losses in the early 1980s. Net worth of the entire industry approached zero. Institutions failed at a regular pace as a result of this pressure, but no large-scale action was taken for a variety of