Glass-Steagall act (banking act of 1933)


The Glass-Steagall act also refers to the Banking Act of 1933 where it limits the capabilities of commercial banks to engage in securities or investment banking activities. This is in response to the chain of failing banks that happened in the middle of the great depression which accounts to a total of 11,000 US banks by the end of 1933. The Glass-Steagall act enfoced a new approach to commercial banking. An insurance on deposits backed by the government delivered confidence to depositors which reduced the possibility of bank runs. The separation of commercial banking and investment banking ensures that commercial banks does not risk their depositor's money on securities speculation which was widespread during the late 1920s. However, the act still allowed banks to underwrite government-issued bonds and would allow commercial banks to engage in limited securities business under the approval of the Federal Reserve bank. Glass-Steagall act was sponsored in the US congress by Representative Henry Steagall and Senator Carter Glass. This act was amended by the Bank Holding Company Act of 1956 and relaxed by the the Financial Services Modernization Act of 1999.

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