Glass-Steagall Act

The Glass-Steagall Act, enacted in 1933 following the Great Depression, separated commercial banking (deposits and loans) from investment banking (securities underwriting and trading). The law aimed to prevent banks from using depositors’ funds for risky securities activities blamed for the 1929 crash. For decades, commercial banks like Chase couldn’t underwrite securities, while investment banks like Goldman Sachs couldn’t take deposits. The Act also created the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits. Gradual erosion began in the 1980s as banks received exemptions to compete with foreign universal banks. The Gramm-Leach-Bliley Act of 1999 formally repealed Glass-Steagall, allowing creation of financial conglomerates like Citigroup combining commercial banking, investment banking, and insurance. Some argue repeal contributed to the 2008 crisis by allowing excessive risk-taking and conflicts of interest. The Volcker Rule in Dodd-Frank partially restored separation by restricting proprietary trading. Debate continues about fully reinstating Glass-Steagall, with proposals periodically introduced in Congress.