Historical Facts
The Glass-Steagall Act of 1933 established the Federal Deposit Insurance Corporation (FDIC) and became effective on January 1, 1934 for the purpose of banking reform. It was created in response to the stock market crash when people lost everything they had. Encouraging people to start saving again and to build confidence in the American banking system, this act set more stringent capital requirements and provided depositors with insurance on their deposits beginning at $2,500 worth of coverage. Today, depositors have $100,000 coverage on their deposits per account. The Glass-Steagall Act also banned any connection between commercial banks and investment banking for the purpose of preventing market speculation and causing future banking failures.
Two separate laws became known as the Glass-Steagall Act and both bills were sponsored by Democratic Senator Carter Glass from Lynchburg, Virginia, and a former Secretary of the Treasury, and Democratic Congressman Henry B. Steagall of Alabama who was also the Chairman of the House Committee on Banking and Currency.
* The first Glass-Steagall Act was passed in February 1932 in an effort to stop deflation, and expanded the Federal Reserve’s ability to offer rediscounts on more types of assets such as government bonds as well as commercial paper and providing financing to banks or other financial institutions. One of the provisions of the Glass-Steagall Act is Regulation Q which allowed the Federal Reserve to regulate interest rates in savings accounts. It also prohibited bank holding companies from owning other financial companies. For example, a stock brokerage firm could not own an insurance company or a bank and vice versa.
* The second Glass-Steagall Act, passed on June 6, 1933, was officially named the Banking Act of 1933 and introduced the separation of bank types according to their business (commercial and investment banking). Hence, the FDIC was established and provided and insured bank depositors with coverage.
Repealing the first Glass-Steagall Act
On March 31, 1980, President Carter signed into law the Depository Institutions Continue reading ‘The Repeal of the Glass Steagall Act – Right Or Wrong’ »
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