GlassSteagall

The Glass-Steagall Act, officially part of the Banking Act of 1933, was enacted in response to the Great Depression and the wave of bank failures that followed. It was named after its principal sponsors, Senator Carter Glass and Representative Henry B. Steagall. The act aimed to restore public confidence in the banking system by imposing a formal separation between traditional commercial banking and investment banking activities.

The core provisions of Glass-Steagall restricted the affiliations between commercial banks and securities firms. It barred commercial banks from underwriting and dealing in most securities and limited the ability of banks to engage in investment banking. It also separated depository activities from securities activities, reinforcing the idea that ordinary consumer banking and capital markets should operate largely independently. In addition, Glass-Steagall established the Federal Deposit Insurance Corporation (FDIC) to insure bank deposits, a key component of the reform framework. The act thereby created a more regulated and supervised banking system under federal authorities.

For decades, Glass-Steagall shaped the structure of the U.S. financial sector by maintaining a boundary between depository institutions and securities firms. It contributed to a period of relative stability in the banking system, though it also faced ongoing debates about whether the separation hindered competitiveness or innovation.

The act was largely repealed by the Gramm-Leach-Bliley Act of 1999, which permitted commercial banks, investment banks, and insurance companies to consolidate under financial holding companies. The repeal ended many of Glass-Steagall’s prohibitions, and its legacy continues to be cited in discussions about financial regulation, regulatory boundaries, and financial stability.