Glass–Steagall Legislation
Glass-Steagall Act is the name of two federal laws of the United States of America. Namesake of this American federal laws were Senator Carter Glass of Virginia and Congressman Henry B. Steagall, both of the Democratic Party.
The first Glass-Steagall Act (1932 )
The first law was adopted on 27 February 1932 by President Herbert Hoover and served the curb deflation during the Great Depression.
The second Glass-Steagall Act (1933 )
The second, more important law, the Banking Act of 1933, the House of Representatives as HR was 5661 presented by Henry B. Steagall, approved by the U.S. House Committee on Banking and Currency, signed on 16 June 1933 by President Franklin D. Roosevelt as a law. The in a row as the Glass-Steagall Act designated Banking Act wrote the introduction of a two-tier banking system, ie an institutional separation between the deposit and lending business and the securities business, before. Banks had to decide the extent to operate either as a commercial bank for the classic deposits and lending and related services such as account management and payment transactions (commercial banking ) or as an investment bank for the securities industry ( investment banking ). As banks the investment and commercial banking massive losses suffered on both the securities side by price falls and on the credit side by credit losses during the banking crisis from 1929 to 1933 due to the strong integration and networking between, should be ensured by the separation at that time that any repetition of those events. The main objective of the Glass- Steagall Act, it was in particular to prevent the so-called proprietary trading by commercial banks. This is to trade in financial instruments ( cash, securities, foreign exchange, varieties, precious metals or derivatives ), which takes place in its own name and for its own account and the bank is not triggered directly by a client business. Behind the separation in investment activity and traditional banking activities was a belief that seemed confirmed by the then historical events of the financial crisis that commercial banks are unlikely to be exposed to the risks of the investment business, as they were responsible for the deposits of the general public and it is an essential part of monetary policy and control being enforced. Furthermore, the Glass-Steagall Act saw the creation of the Federal Deposit Insurance Corporation ( FDIC ), the American form of national deposit guarantee fund, before. By FDIC banks were the first to guarantee their customers a deposit insurance. Meaning of these measures, it was next to the protection of depositors also to create public confidence in the banking system and to promote sound banking practices. The Act also facilitated the refinancing of banks by the U.S. Federal Reserve (FED ).
Through the Bank Holding Company Act of 1956, the restrictions described above were confirmed and supplemented. Bank holding companies was only the activity in the commercial banking and so "closely related " areas allows existing holdings were to disentangle. The securities business was just not considered to be closely related to banking business. The acquisition of interests in investment banks was denied a bank holding company therefore. Likewise, were insurance activities that were not directly related to credit transactions not permitted. 1956, the banks were also permitted to take over competitors in other U.S. states.
The second Glass-Steagall Act was modified several times and under President Bill Clinton with the Gramm-Leach- Bliley Act finally abolished completely in 1999. In this way, globalization into account, as well as the competitiveness of U.S. commercial banks should be strengthened. Many critics see the abolition of the Glass- Steagall Act, however, the cause of the faulty development in the financial sector that ultimately that is led to the demise of investment bank Lehman Brothers for disaster in the fall of 2008. In the fall of 2008, the Glass- Steagall Act experienced at the height of the financial crisis at that time a renaissance: the U.S. investment banks were forced to transform themselves into commercial banks. This meant a more stringent supervision, but also turn better access to funding by the Fed.