The Purpose Of The Glass Stegall Act

Congress passed the Glass-Steagall Act in June of 1933 as an emergency measure after the failure of nearly five thousand (5000) banks mainly due of the disturbing banking practices which contributed to the Great Depression of the 1930s and the public’s demand that the banks be reeled in. This Act had two main purposes, to restore the public’s confidence in the banking system and to cut the links between commercial and investment banks. It can be said with certainty that this act achieved both of its purposes. The legislation got its name from two of the senators responsible for drafting it. Senator Carter Glass and Representative Henry Steagall .
The Act had in it several provision from which the financial institutions of American would
This Act renewed investor confidence in the banking system and as such fostered investment, at the time the United States financial sector was considered the “poster child” for other countries because of the transparency and reliability.
From the inception of the Act, banks were uncomfortable with the amount of restrictions it placed on them and as such they were numerous attempts by banks to repel the act through the mechanism of lobbying. Throughout the 1970s and 1980s these lobbying attempts intensified. In the mid 1980s congressional debates were underway to repel the act. The congressional research service produced a document outlining the pros and cons of maintaining the Glass Stegall Act. One advantage of keeping the it they posit was “Deposity institutions are supposed to be managed to limit risk. Their managers, thus may not be conditioned to operate prudently in more speculative securities businesses. ” Conversely a disadvantages proposed was that “In much of the rest of the world, depository institutions operate simultaneously and successfully in both banking and securities markets. Lessons learned from their experiences can be applied to our national financial structure and