Following the Wall Street crash of 1929 the United States sought to reduce the risk of savings being used to pay losses incurred on bad investments with the Glass–Steagall legislation of 1933 which restricted affiliations between banks and securities firms.
This triggered a spate of international mergers, creating companies so vital to the running of the global financial system that they were "too big to fail".
Investment losses in the financial crisis of 2007–2008 threatened to bankrupt these systemically important banks and national governments felt obliged to bail them out at great cost.
The United States response came in the form of the Dodd-Frank Act of 2010, although full implementation of the Volcker Rule that restricts proprietary trading by retail banks has been postponed until at least 2017.
Most notably, Citibank's 1998 affiliation with Salomon Smith Barney, one of the largest US securities firms, was permitted under the Federal Reserve Board's then existing interpretation of the Glass–Steagall Act.
[7][8] Economists at the Federal Reserve, such as 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.