The Glass-Steagall Act technically refers to 2 separate federal laws, the first was passed on February 27, 1932 and the second was passed on June 16, 1933. The second act, also known as the Banking Act of 1933, is the law most people refer to as the Glass-Steagall Act prohibited commercial banks from engaging in the investment business and created the Federal Deposit Insurance Corporation (FDIC).
Facts about Glass-Steagall Act aka 1933 Banking Act
The law was originally enacted as part of President Franklin D. Roosevelt's New Deal program as an emergency response to the collapse of nearly 5,000 banks and the banking crisis during the Great Depression. The law became a permanent measure in 1945.
The sponsors of the Glass-Steagall Act were Senator Carter Glass of Virginia, and Representative Henry B. Steagall of Alabama.
The "Fed" is the central bank of the United States and controls the money supply. The first Glass-Steagall Act of 1932 was passed on February 27, 1932 during the administration of President Hoover to allow the "Fed" to back its notes with government securities, rather than gold, and secondly to loan out the countries gold reserves.
The second act, aka the Banking Act of 1933, is the law most people refer to as the Glass-Steagall Act and was passed into law on June 16, 1933.
Definition: The second Glass-Steagall Act of 1933 separated investment banking from commercial banking and established the Federal Deposit Insurance Corporation (FDIC)
Purpose: The purpose of the second Glass-Steagall Act of 1933 was to prohibit speculation in securities making banking safer.
Before this law was passed banks were able to risk their depositors money by using it to speculate on the stock market. The law prohibited commercial banks from owning securities brokerage firms and forced a separation of commercial and investment banks
Commercial Banking Definition: The commercial banks were allowed to conduct everyday banking transactions such as cashing checks, taking deposits, paying interest on deposits and loaning money to businesses and for mortgages. Banks were no longer allowed to speculate vast amounts of their customers money on the Stock Exchange.
The purpose of the creation of the Federal Deposit Insurance Corporation (FDIC) was to protect bank customers further by providing Government insurance for bank deposits.
'Regulation Q' was another part of the law that enabled the Federal Reserve Board to prohibit banks from being able to pay interest on deposits within checking accounts to prevent the activities of loan sharks
The passing of the law reflected the general desire to “restore” commercial banking to the progressive purposes envisioned by the 1913 Federal Reserve Act and the drive for new regulations for the banks and the Stock Exchange
The effect of the law and the establishment of the FDIC was to further restore public confidence in banking practices and the banking system during the Great Depression.
Repeal: Significant changes were later made to the law was repealed during the administration of President Bill Clinton with the passing Gramm-Leach-Bilely Act of 1999
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