Glass–Steagall legislation
[6] Most notably, Citibank's 1998 affiliation with Salomon Smith Barney, one of the largest U.S. securities firms, was permitted under the Federal Reserve Board's then existing interpretation of the Glass–Steagall Act.
[10][11] Economists at the Federal Reserve, such as Chairman Ben Bernanke, have argued that the activities linked to the financial crisis were not prohibited (or, in most cases, even regulated) by the Glass–Steagall Act.
Between 1930 and 1932, Senator Carter Glass (D-VA) introduced several versions of a bill (known in each version as the Glass bill) to regulate or prohibit the combination of commercial and investment banking and to establish other reforms (except deposit insurance) similar to the final provisions of the 1933 Banking Act.
[16] The Senate passed a version of the Glass bill that would have required commercial banks to eliminate their securities affiliates.
Aside from the Section 21 prohibition on securities firms taking deposits, neither savings and loans nor state-chartered banks that did not belong to the Federal Reserve System were restricted by Glass–Steagall.
S&Ls and securities firms took advantage of these loopholes starting in the 1960s to create products and affiliated companies that chipped away at commercial banks' deposit and lending businesses.
In the 1960s, the Office of the Comptroller of the Currency issued aggressive interpretations of Glass–Steagall to permit national banks to engage in certain securities activities.
Some believe that major U.S. financial sector firms established a favorable view of deregulation in American political circles, and in using its political influence in Congress to overturn key provisions of Glass-Steagall and to dismantle other major provisions of statutes and regulations that govern financial firms and the risks they may take.
Economics Nobel Memorial laureate Joseph Stiglitz, for instance, argued that "[w]hen repeal of Glass-Steagall brought investment and commercial banks together, the investment-bank culture came out on top", and banks which had previously been managed conservatively turned to riskier investments to increase their returns.
[citation needed] Because the Federal Reserve's interpretations of the act had already weakened restrictions previously in place, commentators did not find much significance in the repeal, especially of sections 20 and 32.
[14] Instead, the five year anniversary of its repeal was marked by numerous sources explaining that the GLBA had not significantly changed the market structure of the banking and securities industries.
[citation needed] It provided litigators validation involving cases against such sub-prime investment instruments on behalf of their clients who were impacted by such injustices.
[citation needed] Although the magnitude may be questionable, the repeal of the Glass-Steagall Act is considered a factor in the global financial crisis revealed in 2008.
Following the financial crisis of 2007–2008, legislators unsuccessfully tried to reinstate Glass–Steagall Sections 20 and 32 as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act.
