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Glass- Steagall vs. Gram-Leach-Bliley Act

Glass- Steagall vs. Gram-Leach-Bliley Act. Presented by Edward Brown April 16, 2013. Passed in 1933 due to pressures brought on by the great depression Senator Carter Glass (D) of Virginia Representative Henry B. Steagall (D) of Alabama Signed by President Franklin Roosevelt

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Glass- Steagall vs. Gram-Leach-Bliley Act

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  1. Glass-Steagallvs. Gram-Leach-Bliley Act Presented by Edward Brown April 16, 2013

  2. Passed in 1933 due to pressures brought on by the great depression • Senator Carter Glass (D) of Virginia • Representative Henry B. Steagall (D) of Alabama • Signed by President Franklin Roosevelt • Part of 1933 Banking Act [1] Glass-Steagal Act

  3. Separated banking activities • Commercial Banking • Investment Banking • Insurance Agencies • Separated Current Affiliations • Reduced what was considered “risky” banking • Eliminated conflicts of interest • Commercial Banks could not underwrite securities [4] Separation of Banking

  4. Section 16: Prohibited national banks from purchasing or selling securities. (except for government securities “bank eligible securities”) • Section 20: Banks could not be affiliated with firms whose primary purpose was trading securities • Section 21: If a bank traded securities, it could not take deposits • Section 32: Officers and directors of commercial banks were barred from holding advisory positions in companies whose primary purpose was trading securities[1] Glass-Steagall

  5. 1930’s Sections 16 and 21 contradicted each other. Later clarified Senator Glass tried to repeal his own act. • 1960’s Federal Bank Regulators began interpreting provisions of the act to apply to expanding activities of volume and securities activities. [3] Senate allows commercial banks to enter municipal bonds market • 1970’s Brokerage firms start acting like commercial banks • By offering checking accounts and other services • 1980’s atmosphere of deregulation laid the ground work for repeal • Commercial banks aloud 5% of revenue from investment banking • Non-bank banks loop hole. Sears, GE. Subsidiaries could provide demand deposits but not business loans, or vice versa • 1990’s Allan Greenspan lead efforts for repeal President Clinton announced publically the act was no longer relevant • 1998 Citibank was aloud affiliation by the Federal Reserve Board with Solomon Smith Barney, a US security firm in 1998 [4,5] Beginning of the end

  6. Due to many revisions in the interpretation of the Glass-Steagall act many believed the act was already “dead”. • According to Alan Greenspan and his supporters, the Act hurt U.S. commercial and investment bank’s competitiveness. Foreign banks were bigger and less regulated, so they were thought to be more competitive at the time. • Separating commercial and investment banks imposed significant financial costs to firms. Many supporters of this theory thought competition between the two types of banks hurt their revenues. • Some academics argued that securities activities in commercial banking had nothing to do with the great depression. This is still highly debated. [4] Reasons for repeal

  7. “An Act to enhance competition in the financial services industry by providing a prudential framework for the affiliation of banks, securities firms, and other financial service providers, and for other purposes.” [2] • Also known as the Financial Services Modernization Act of 1999 • Enacted Nov 12, 1999 Gramm-Leach-Bliley Act repeals the Glass-Steagall Act. Gramm-Leach-Bliley Act (GLBA)

  8. GLBA goal said to “modernize” financial services • This included ending regulations that prevented the merging of banks, stock brokerages and insurance companies. • This gave mega banks an incredible amount of information about you. • Because of this the GLBA included three requirements • Banks must securely store your information • They must advise you of their privacy policy • Must give consumers to option to opt out (of some sharing) • Provides limited privacy protections against the sale of your private financial information • Protects against the obtaining personal info through false pretenses. GLBA

  9. Critics Supporters • Say it allows banks to be irresponsible and creates a conflict of interest • Leads to risky investing • Financial Institutions must be managed • Gives banking institutions too much information • Say it caused the late 2000 financial crisis. [6] • Say it laid the ground work for the 2008 housing crash • US banks have to compete on unfair playing field • Conflicts of interest can be better regulated by being more precise with legislation • Say activities that lead to the financial crisis were not prohibited by the Glass-Steagall Act • Say that banks ability to acquire securities firms helped mitigate the financial crisis [5] • Helped the competitiveness of US banks Both Sides GLBA

  10. The GLBA Vote

  11. Status: This bill was introduced on July 7, 2011, in a previous session of Congress, but was not enacted. “died” • Full Title: To restore certain provisions of the Banking Act of 1933, commonly referred to as the "Glass-Steagall Act", and for other purposes. • Sponsor: Rep. Maurice Hinchey [D] • Last updated Jul 07, 2011 [8] Glass-Steagall Restoration Act of 2011

  12. Introduced: Jan 03, 2013 • Sponsor: Rep. Marcy Kaptur [D] • Status: Referred to Committee • Full Title: To repeal certain provisions of the Gramm-Leach-Bliley Act and revive the separation between commercial banking and the securities business, in the manner provided in the Banking Act of 1933, the so-called "Glass-Steagall Act", and for other purposes. • Cosponsors: 52 cosponsors (49D, 3R) [9] Return to Prudent Banking Act of 2013

  13. Anisha. (2013) Glass Steagall Explained http://www.nerdwallet.com/blog/banking/glass-steagall-act-explained/ • Government bills, GLBA (2013) http://www.govtrack.us/congress/bills/106/s900 • Permissible Securities Activities of Commercial Banks Under the Glass Steagall Act. http://assets.opencrs.com/rpts/R41181_20100412.pdf • Regulation and the Great Recession (n.d.) http://regulation.weebly.com/glass-steagall-repeal.html • Gramm Leach Bliley did not cause the financial Crisis (jan 2010) http://www.aba.com/Issues/Documents/0b044fd57d78482b9ef3f2a7c194e973GrammLeachHelpedtoResolvenotCausetheCreditCrisisJa.pdf • The Alarming Parallels Between 1929 and 2007 (Kuttner R. (Oct, 2, 2007) http://prospect.org/article/alarming-parallels-between-1929-and-2007 • Glass-Steagall Restoration Act of 2011 govpage http://www.govtrack.us/congress/bills/112/hr2451 • http://regulation.weebly.com/glass-steagall-repeal.html info • The full GLBA act http://www.gpo.gov/fdsys/pkg/PLAW-106publ102/pdf/PLAW-106publ102.pdf Resources

  14. GSA vs GLBA Cross word ACROSS 5 Guaranteed bank deposits 7 GLBA also known as 8 Senator ____ Glass 11 Glass Steagall Passed in 19- 12 By 1990s Glass-Steagall was effectively 13 GLBA signed 19- 14 Act that separated Commercial and investment banking 15 90 senate members voted GLBA DOWN 1 Glass-Steagall also known as 1933- 2 Glass Steagall Signed by President 3 GLB 4 GLBA Protects against the obtaining personal info through 6 GLBA signed by President 9 1999 Glass-Steagall was 10 Rep. ____ Steagall

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