Glass Steagall Act

The Glass-Steagall Act is the unofficial name for the U.S. Banking Act of 1933, passed by Congress and signed into law by President Franklin D. Roosevelt, intended to address abuses of the financial sector that precipitated the Great Depression. The act is named after its Congressional sponsors, Senator Carter Glass (D-VA) and Representative Henry B. Steagall (D-AL).

The main thrust of the Glass-Steagall Act was to separate commercial and investment banking in the United States. Under the act commercial banks that were members of the Federal Reserve System were prevented from dealing in non-governmental securities, investing in securities for themselves, underwriting or distributing non-governmental securities, and sharing employees with institutions that participated in such activities. The Glass-Steagall Act also prevented investment banks from accepting deposits.

Beginning in the 1960s, increasing pressure from commercial banks pushed for repeal of Glass-Steagall. By 1987, large banks were arguing that Glass-Steagall was preventing them from competing on an international level. Finally, Congress repealed much of the Glass-Steagall Act in 1999 with the Gramm-Leach-Bliley Act, signed into law by President Clinton.

In the aftermath of the 2007/2008 financial crisis, critics have charged that the repeal of Glass-Steagall led to reckless behavior on the part of large financial institutions. The merging of commercial and investment banking in the early years of the 21st century in many ways mirrored that of the 1920s.