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Glass-Steagall Act

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The Glass-Steagall Act is a landmark bill in Federal banking and securities law. Passed in 1933, in the middle of the Great Depression, the Glass-Steagall Act was aimed at restoring confidence in the banking system. Notably, the Glass-Steagall Act established the Federal Deposit Insurance Corporation, which insures customer deposits. But the Glass-Steagall Act is probably better known for prohibiting banks from participating in both commercial banking and investment banking activities. Specifically, under the Glass-Steagall Act, banks could not both accept deposits and underwrite securities. Moreover, the Glass-Steagall Act provided that commercial banks could receive no more than 10% of their income from securities markets. Under the Glass-Steagall Act, financial institutions were given one year to decide if they would become commercial or investment banks. Whether these provisions of the Glass-Steagall Act made good economic sense or were an overreaction to the Crash of 1929 remain topics of debate. In 1999, the provisions of the Glass-Steagall Act that segregated commercial and investment banking were effectively repealed with the passage of the Gramm-Leach-Bliley Act.

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