Glass-Steagall Act
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Two separate United States laws are known as the Glass-Steagall Act. The Acts (Glass & Steagall) were both reactions of the U.S. government to cope with the economic problems which followed the Stock Market Crash of 1929.
Both bills were sponsored by Democratic Senator Carter Glass of Lynchburg, Virginia, a former Secretary of the Treasury, and Democratic Congressman Henry B. Steagall of Alabama, Chairman of the House Committee on Banking and Currency.
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[edit] Glass-Steagall Act of 1933
The first act, enacted February 27, 1933 (ch. 58, 47 Stat. 56 (1933), took the United States off the gold standard and greatly increased the ability of the Federal Reserve to influence the money supply. This act included the following provisions:
- Permitted Federal Reserve banks to use government securities as collateral for the issue of Federal Reserve notes.
- Relaxed the collateral security required by member banks at the discount window.
- Allowed the government to loan out the nation's gold reserves.
[edit] Banking Act of 1933
The second act (ch. 89, 48 Stat. 162), was enacted on June 16, 1933 to make banking safer and less prone to speculation. The Banking Act of 1933 included the following provisions:
- Separated the activities of commercial banks and securities firms and prohibited commercial banks from owning brokerages.
- Introduced Federal Deposit Insurance Corporation insurance.
- Included Regulation Q which prohibited paying interest on commercial demand deposits and capped the interest rate on savings deposits.
[edit] Major Effect of the Acts
The Glass-Steagall Act of 1933 kept banks out of the stock market and created the FDIC that guaranteed one's savings if a bank failed.
[edit] Repeal of the Acts
On November 12, 1999, President Bill Clinton signed into law the Gramm-Leach-Bliley Act, which repealed the Glass-Steagall Act of 1933. One impact of this repeal is that certain advisory activities of the banks are now regulated by the Investment Advisers Act of 1940.
[edit] Note
The Banking Act of 1933 is not the same as the "Emergency Banking Act" of March 9, 1933, which officially took the United States off the gold standard, gave the Secretary of the Treasury the power to compel owners of gold to surrender it to the government, and gave the president wide latitude to dictate fiscal rules and policy.
[edit] References
- Back to the Twenties Through the Looking Glass - Steagall Hour long Wizards of Money MP3 explaining the Glass-Steagall Act, background to it and impact of it.
