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GlassSteagall Act

GlassSteagall Act
The GlassSteagall Act is a term often applied to the entire Banking Act of 1933, after its Congressional sponsors, Senator Carter Glass (D) of Virginia, and Representative Henry B. Steagall (D) of Alabama.[] The term GlassSteagall Act, however, is most often used to refer to four provisions of the Banking Act of 1933 that limited commercial bank securities activities and affiliations between commercial banks and securities firms.[1] This article deals with that limited meaning of the GlassSteagall Act. A separate article describes the entire Banking Act of 1933. Starting in the early 1960s federal banking regulators interpreted provisions of the GlassSteagall Act to permit commercial banks and especially commercial bank affiliates to engage in an expanding list and volume of securities activities.[] By the time the affiliation restrictions in the GlassSteagall Act were repealed through the GrammLeachBliley Act of 1999 (GLBA), many commentators argued GlassSteagall was already dead.[2] Most notably, Citibanks 1998 affiliation with Salomon Smith Barney, one of the largest US securities firms, was permitted under the Federal Reserve Boards then existing interpretation of the GlassSteagall Act.[3] President Bill Clinton publicly declared "the GlassSteagall law is no longer appropriate."[4] Many commentators have stated that the GLBAs repeal of the affiliation restrictions of the GlassSteagall Act was an important cause of the late-2000s financial crisis.[5][6][7] Some critics of that repeal argue it permitted Wall Street investment banking firms to gamble with their depositors' money that was held in affiliated commercial banks.[8] Others have argued that the activities linked to the financial crisis were not prohibited (or, in most cases, even regulated) by the GlassSteagall Act.[9] Commentators, including former President Clinton in 2008 and the American Bankers Association in January 2010, have also argued that the ability of commercial banking firms to acquire securities firms (and of securities firms to convert into bank holding companies) helped mitigate the financial crisis.[10]

Name confusion: 1932 and 1933 GlassSteagall Acts

Two separate United States laws are known as the GlassSteagall Act. Both bills were sponsored by Democratic Senator Carter Glass of Lynchburg, Virginia, a former Secretary of the Treasury, and Democratic Congressman Henry B. Steagall of Alabama, Chairman of the House Committee on Banking and Currency. The GlassSteagall Act of 1932 authorized Federal Reserve Banks to (1) lend to five or more Federal Reserve System member Sen. Carter Glass (DVa.) and Rep. Henry B. Steagall (DAla.-3), the banks on a group basis or to any individual co-sponsors of the GlassSteagall Act. member bank with capital stock of $5 million or less against any satisfactory collateral, not only eligible paper, and (2) issue Federal Reserve Bank Notes (i.e., paper currency) backed by US government securities when a shortage of eligible paper held by Federal Reserve banks would have required such currency to be backed by gold.[11] The Federal Reserve Board explained that the special lending to Federal Reserve member banks permitted by the 1932 GlassSteagall Act would only be permitted in unusual and temporary circumstances.[12] The entire Banking Act of 1933 (the 1933 Banking Act), which is described in a separate article, is also often referred to as the GlassSteagall Act.[13] Over time, however, the term GlassSteagall Act came to be used most

GlassSteagall Act often to refer to four provisions of the 1933 Banking Act that separated commercial banking from investment banking.[1] Congressional efforts to repeal the GlassSteagall Act referred to those four provisions (and then usually to only the two provisions that restricted affiliations between commercial banks and securities firms).[14] Those efforts culminated in the 1999 GrammLeachBliley Act (GLBA), which repealed the two provisions restricting affiliations between banks and securities firms.[15]

Legislative history of the GlassSteagall Act

The article on the 1933 Banking Act describes the legislative history of that Act, including the GlassSteagall provisions separating commercial and investment banking. As described in that article, 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] On January 25, 1933, during the lame duck session of Congress following the 1932 elections, the Senate passed a version of the Glass bill that would have required commercial banks to eliminate their securities affiliates.[17] The final GlassSteagall provisions contained in the 1933 Banking Act reduced from five years to one year the period in which commercial banks were required to eliminate such affiliations.[18] Although the deposit insurance provisions of the 1933 Banking Act were very controversial, and drew veto threats from President Franklin Delano Roosevelt, President Roosevelt supported the GlassSteagall provisions separating commercial and investment banking, and Representative Steagall included those provisions in his House bill that differed from Senator Glasss Senate bill primarily in its deposit insurance provisions.[19] As described in the 1933 Banking Act article, many accounts of the Act identify the Pecora Investigation as important in leading to the Act, particularly its GlassSteagall provisions, becoming law.[20] While supporters of the GlassSteagall separation of commercial and investment banking cite the Pecora Investigation as supporting that separation,[21] GlassSteagall critics have argued that the evidence from the Pecora Investigation did not support the separation of commercial and investment banking.[22]

The GlassSteagall provisions separating commercial and investment banking

The GlassSteagall separation of commercial and investment banking was in four sections of the 1933 Banking Act (sections 16, 20, 21, and 32).[1]

Section 16
Section 16 prohibited national banks from purchasing or selling securities except for a customers account (i.e., as a customers agent) unless the securities were purchased for the banks account as investment securities identified by the Comptroller of the Currency as permitted national bank investments. Section 16 also prohibited national banks from underwriting or distributing securities.[23] Section 16, however, permitted national banks to buy, sell, underwrite, and distribute US government and general obligation state and local government securities. Such securities became known as bank-eligible securities.[23] Section 5(c) of the 1933 Banking Act (sometimes referred to as the fifth GlassSteagall provision) applied Section 16s rules to Federal Reserve System member state chartered banks.[24]

GlassSteagall Act

Section 20
Section 20 prohibited any member bank of the Federal Reserve System (whether a state chartered or national bank) from being affiliated with a company that engaged principally in the issue, flotation, underwriting, public sale, or distribution of securities.[25]

Section 21
Section 21 prohibited any company or person from taking deposits if it was in the business of issuing, underwriting, selling, or distributing securities.[26]

Section 32
Section 32 prohibited any Federal Reserve System member bank from having any officer or director in common with a company engaged primarily in the business of purchasing, selling, or negotiating securities, unless the Federal Reserve Board granted an exemption.[27]

1935 clarifying amendments

Sections 16 and 21 contradicted each other. The Banking Act of 1935 clarified that Section 21 would not prevent a deposit taking company from engaging in any of the securities underwriting and dealing activities permitted by Section 16. It also amended Section 16 to permit a bank to purchase stocks, not only debt securities, for a customers account.[28] The Banking Act of 1935 amended Section 32 to make it consistent with Section 20 and to prevent a securities company and bank from having any employee (not only any officer) in common. With the amendment, both Sections 20 and 32 applied to companies engaged in the issue, flotation, underwriting, public sale, or distribution of securities.[29]

Prohibitions apply to dealing in and underwriting or distributing securities

The GlassSteagall Act was primarily directed at restricting banks and their affiliates underwriting or distributing securities. Senator Glass, Representative Steagall, Ferdinand Pecora, and others claimed banks had abused this activity to sell customers (including correspondent banks) high risk securities.[30] As particular conflicts of interest, they alleged bank affiliates had underwritten corporate and foreign government bonds to repay loans made by their affiliated banks or, in the opposite direction, banks had lent to or otherwise supported corporations that used the banks affiliate to underwrite their bonds.[31] Sections 16 and 5(c) meant no member bank of the Federal Reserve System could underwrite or distribute corporate or other non-governmental bonds.[23] Sections 20 and 32 meant such a bank could not own (directly or through the same bank holding company) a company engaged primarily in such underwriting or other securities activities nor have any director or employee that was also a director or employee of such a company.[32] Senator Glass, Representative Steagall, and others claimed banks had made too many loans for securities speculation and too many direct bank investments in securities.[33] As described in the article on the Banking Act of 1933, non-GlassSteagall provisions of the 1933 Banking Act restricted those activities.[34] Among the GlassSteagall provisions, Sections 16 and 5(c) prevented a Federal Reserve member bank from investing in equity securities[35] or from dealing in debt securities as a market maker or otherwise.[36] Section 16 permitted national banks (and Section 5(c) permitted state member banks) to purchase for their own accounts marketable debt securities that were investment securities approved by the Comptroller of the Currency. The Comptroller interpreted this to mean marketable securities rated investment grade by the rating agencies or, if not rated, a security that is the credit equivalent.[36]

GlassSteagall Act Even before GlassSteagall, however, national banks had been prohibited from investing in equity securities and could only purchase as investments debt securities approved by the Comptroller. Section 16s major change was (through the Comptrollers interpretation) to limit the investments to investment grade debt and to repeal the McFadden Act permission for national banks to act as dealers in buying and selling debt securities. Section 5(c) applied these national bank restrictions to state chartered banks that were members of the Federal Reserve System.[37] The Comptroller ruled national banks could trade investment securities they had purchased, based on a banks power to sell its assets, so long as this trading did not cause the bank to be a dealer. Section 16 itself required banks to purchase only marketable securities, so that it contemplated (and required) that the securities be traded in a liquid market. The Office of the Comptroller, like the Securities and Exchange Commission, distinguished between a trader and a dealer. A trader buys and sells securities opportunistically based on when it thinks prices are low or high. A dealer buys and sells securities with customers to provide liquidity or otherwise provides buy and sell prices on a continuous basis as a market maker or otherwise.[38] The Comptroller of the Currency, therefore, ruled that Section 16 permitted national banks to engage in proprietary trading of investment securities for which it could not act as a dealer.[39] Thus, GlassSteagall permitted banks to invest in and trade securities to a significant extent and did not restrict trading by bank affiliates, although the Bank Holding Company Act did restrict investments by bank affiliates.[40] None of these prohibitions applied to bank-eligible securities (i.e., US government and state general obligation securities). Banks were free to underwrite, distribute, and deal in such securities.[23]

GlassSteagall loopholes
Except for Section 21, GlassSteagall only covered Federal Reserve member commercial banks As explained in the article on the Banking Act of 1933, if the 1933 Banking Act had not been amended, it would have required all federally insured banks to become members of the Federal Reserve System.[41] Instead, because that requirement was removed through later legislation, the United States retained a dual banking system in which a large number of state chartered banks remained outside the Federal Reserve System.[42] This meant they were also outside the restrictions of Sections 16, 20, and 32 of the GlassSteagall Act.[43] As described below, this became important in the 1980s when commentators worried large commercial banks would leave the Federal Reserve System to avoid GlassSteagalls affiliation restrictions.[44] Although Section 21 of the GlassSteagall Act was directed at preventing securities firms (particularly traditional private partnerships such as J.P. Morgan & Co.) from accepting deposits, it prevented any firm that accepted deposits from underwriting or dealing in securities (other than bank-eligible securities after the 1935 Banking Acts clarification). This meant Section 21, unlike the rest of GlassSteagall, applied to savings and loans and other thrifts, state nonmember banks, and any other firm or individual in the business of taking deposits.[26] This prevented such depository institutions from being securities firms. It did not prevent securities firms, such as Merrill Lynch, from owning separate subsidiaries that were thrifts or state chartered, non-Federal Reserve member banks.[45] As described below, this became important when securities firms used unitary thrifts and nonbank banks to avoid both GlassSteagall affiliation restrictions and holding company laws that generally limited bank holding companies to banking businesses[46] and savings and loan holding companies to thrift businesses.[47] Different treatment of bank and affiliate activities Section 21 was not the only GlassSteagall provision that treated differently what a company could do directly and what it could do through a subsidiary or other affiliate. As described in the Banking Act of 1933 article, Senator Glass and other proponents of separating commercial banks from investment banking attacked the artificiality of distinguishing between banks and their securities affiliates.[48] Sections 20[25] and 32[27] of the GlassSteagall Act, however, distinguished between what a bank could do directly and what an affiliated company could do.[49]

GlassSteagall Act No bank covered by Section 16s prohibitions could buy, sell, underwrite, or distribute any security except as specifically permitted by Section 16.[23] Under Section 21, no securities firm (understood as a firm in the business of underwriting, distributing, or dealing in securities) could accept any deposit.[26] GlassSteagalls affiliation provisions did not contain such absolute prohibitions. Section 20 only prohibited a bank from affiliating with a firm engaged principally in underwriting, distributing, or dealing in securities.[25] Under Section 32, a bank could not share employees or directors with a company primarily engaged in underwriting, distributing, or dealing in securities.[27] This difference (which would later be termed a loophole) provided the justification for the long demise of GlassSteagall through regulatory actions that largely negated the practical significance of Sections 20 and 32 before they were repealed by the GLBA.[] The fact Sections 16, 20, and 32 only restricted Federal Reserve member banks was another feature that made the GlassSteagall Act less than comprehensive and, in the words of a 1987 commentator, provided opportunities for banking institutions and their lawyers to explore (or, perhaps more accurately, to exploit).[50]

GlassSteagall developments from 1935 to 1991

Commercial banks withdrew from the depressed securities markets of the early 1930s even before the GlassSteagall prohibitions on securities underwriting and dealing became effective.[51] Those prohibitions, however were controversial. A 1934 study of commercial bank affiliate underwriting of securities in the 1920s found such underwriting was not better than the underwriting by firms that were not affiliated with banks. That study disputed GlassSteagall critics who suggested securities markets had been harmed by prohibiting commercial bank involvement.[52] A 1942 study also found that commercial bank affiliate underwriting was not better (or worse) than nonbank affiliate underwriting, but concluded this meant it was a myth commercial bank securities affiliates had taken advantage of bank customers to sell worthless securities.[53]

Senator Glasss repeal effort

In 1935 Senator Glass attempted to repeal the GlassSteagall prohibition on commercial banks underwriting corporate securities. Glass stated GlassSteagall had unduly damaged securities markets by prohibiting commercial bank underwriting of corporate securities.[54] The first Senate passed version of the Banking Act of 1935 included Glasss revision to Section 16 of the GlassSteagall Act to permit bank underwriting of corporate securities subject to limitations and regulations.[55] President Roosevelt opposed this revision to Section 16 and wrote Glass that the old abuses would come back if underwriting were restored in any shape, manner, or form. In the conference committee that reconciled differences between the House and Senate passed versions of the Banking Act of 1935, Glasss language amending Section 16 was removed.[56]

Comptroller Saxons GlassSteagall interpretations

President John F. Kennedys appointee as Comptroller of the Currency, James J. Saxon, was the next public official to challenge seriously GlassSteagalls prohibitions. As the regulator of national banks, Saxon was concerned with the competitive position of commercial banks. In 1950 commercial banks held 52% of the assets of US financial institutions. By 1960 that share had declined to 38%. Saxon wanted to expand the powers of national banks.[57] In 1963, the Saxon-led Office of the Comptroller of the Currency (OCC) issued a regulation permitting national banks to offer retail customers commingled accounts holding common stocks and other securities.[58] This amounted to permitting banks to offer mutual funds to retail customers.[59] Saxon also issued rulings that national banks could underwrite municipal revenue bonds.[60] Courts ruled that both of these actions violated GlassSteagall.[61]

GlassSteagall Act In rejecting bank sales of accounts that functioned like mutual funds, the Supreme Court explained in Investment Company Institute v. Camp that it would have given deference to the OCCs judgment if the OCC had explained how such sales could avoid the conflicts of interest and other subtle hazards GlassSteagall sought to prevent and that could arise when a bank offered a securities product to its retail customers.[62] Courts later applied this aspect of the Camp ruling to uphold interpretations of GlassSteagall by federal banking regulators.[] As in the Camp case, these interpretations by bank regulators were routinely challenged by the mutual fund industry through the Investment Company Institute or the securities industry through the Securities Industry Association as they sought to prevent competition from commercial banks.[63]

1966 to 1980 developments

Increasing competitive pressures for commercial banks Regulation Q limits on interest rates for time deposits at commercial banks, authorized by the 1933 Banking Act, first became effective in 1966 when market interest rates exceeded those limits.[64] This produced the first of several credit crunches during the late 1960s and throughout the 1970s as depositors withdrew funds from banks to reinvest at higher market interest rates.[65] When this disintermediation limited the ability of banks to meet the borrowing requests of all their corporate customers, some commercial banks helped their best customers establish programs to borrow directly from the capital markets by issuing commercial paper.[66] Over time, commercial banks were increasingly left with lower credit quality, or more speculative, corporate borrowers that could not borrow directly from the capital markets.[67] Eventually, even lower credit quality corporations and (indirectly through securitization) consumers were able to borrow from the capital markets as improvements in communication and information technology allowed investors to evaluate and invest in a broader range of borrowers.[68] Banks began to finance residential mortgages through securitization in the late 1970s.[69] During the 1980s banks and other lenders used securitizations to provide capital markets funding for a wide range of assets that previously had been financed by bank loans.[70] In losing their preeminent status as expert intermediaries for the collection, processing, and analysis of information relating to extensions of credit, banks were increasingly bypassed as traditional depositors invested in securities that replaced bank loans.[71] In 1977 Merrill Lynch introduced a cash management account that allowed brokerage customers to write checks on funds held in a money market account or drawn from a line of credit Merrill provided.[72] The Securities and Exchange Commission (SEC) had ruled that money market funds could redeem investor shares at a $1 stable net asset value despite daily fluctuations in the value of the securities held by the funds. This allowed money market funds to develop into near money as investors wrote checks (redemption orders) on these accounts much as depositors wrote checks on traditional checking accounts provided by commercial banks.[73] Also in the 1970s savings and loans, which were not restricted by GlassSteagall other than Section 21,[45] were permitted to offer negotiable order of withdrawal accounts (NOW accounts). As with money market accounts, these accounts functioned much like checking accounts in permitting a depositor to order payments from a savings account.[74] Helen Garten concluded that the traditional regulation of commercial banks established by the 1933 Banking Act, including GlassSteagall, failed when nonbanking firms and the capital markets were able to provide replacements for bank loans and deposits, thereby reducing the profitability of commercial banking.[75] While he agreed traditional bank regulation was unable to protect commercial banks from nonbank competition, Richard Vietor also noted that the economic and financial instability that began in the mid-1960s both slowed economic growth and savings (reducing the demand for and supply of credit) and induced financial innovations that undermined commercial banks.[76]

GlassSteagall Act Hyman Minsky agreed financial instability had returned in 1966 and had only been constrained in the following 15 years through Federal Reserve Board engineered credit crunches to combat inflation followed by lender of last resort rescues of asset prices that produced new inflation. Minsky described ever worsening periods of inflation followed by unemployment as the cycle of rescues followed by credit crunches was repeated.[65] Minsky, however, supported traditional banking regulation[77] and advocated further controls of finance to promote smaller and simpler organizations weighted more toward direct financing.[78] Writing from a similar neo-Keynesian perspective, Jan Kregel concluded that after World War II non-regulated financial companies, supported by regulatory actions, developed means to provide bank products (liquidity and lending accommodation) more cheaply than commercial banks through the capital markets.[79] Kregel argued this led banking regulators to eliminate GlassSteagall restrictions to permit banks to duplicate these structures using the capital markets until there was virtually no difference in the activities of FDIC-insured commercial banks and investment banks.[80] Comptroller Saxon had feared for the competitive viability of commercial banks in the early 1960s.[57] The capital markets developments in the 1970s increased the vulnerability of commercial banks to nonbank competitors. As described below, this competition would increase in the 1980s.[81] Limited congressional and regulatory developments In 1967 the Senate passed the first of several Senate passed bills that would have revised GlassSteagall Section 16 to permit banks to underwrite municipal revenue bonds.[82] In 1974 the OCC authorized national banks to provide automatic investment services, which permitted bank customers to authorize regular withdrawals from a deposit account to purchase identified securities.[83] In 1977 the Federal Reserve Board staff concluded GlassSteagall permitted banks to privately place commercial paper. In 1978 Bankers Trust began making such placements.[84] As described below, in 1978, the OCC authorized a national bank to privately place securities issued to sell residential mortgages in a securitization[] Commercial banks, however, were frustrated with the continuing restrictions imposed by GlassSteagall and other banking laws.[85] After many of Comptroller Saxons decisions granting national banks greater powers had been challenged or overturned by courts, commercial banking firms had been able to expand their non-securities activities through the one bank holding company.[86] Because the Bank Holding Company Act only limited nonbanking activities of companies that owned two or more commercial banks, one bank holding companies could own interests in any type of company other than securities firms covered by GlassSteagall Section 20. That loophole in the Bank Holding Company Act was closed by a 1970 amendment to apply the Act to any company that owned a commercial bank.[87] Commercial banking firms continuing desire for greater powers received support when Ronald Reagan became President and appointed banking regulators who shared an attitude towards deregulation of the financial industry.[88]

Reagan Administration developments

State non-member bank and nonbank bank loopholes In 1982, under the chairmanship of William Isaac, the FDIC issued a policy statement that state chartered non-Federal Reserve member banks could establish subsidiaries to underwrite and deal in securities. Also in 1982 the OCC, under Comptroller C. Todd Conover, approved the mutual fund company Dreyfus Corporation and the retailer Sears establishing nonbank bank subsidiaries that were not covered by the Bank Holding Company Act. The Federal Reserve Board, led by Chairman Paul Volcker, asked Congress to overrule both the FDICs and the OCCs actions through new legislation.[89] The FDICs action confirmed that GlassSteagall did not restrict affiliations between a state chartered non-Federal Reserve System member bank and securities firms, even when the bank was FDIC insured.[43] State laws differed in how they regulated affiliations between banks and securities firms.[90] In the 1970s, foreign banks had taken advantage of this in establishing branches in states that permitted such affiliations.[91] Although the International

GlassSteagall Act Banking Act of 1978 brought newly established foreign bank US branches under GlassSteagall, foreign banks with existing US branches were grandfathered and permitted to retain their existing investments. Through this loophole Credit Suisse was able to own a controlling interest in First Boston, a leading US securities firm.[92] After the FDICs action, commentators worried that large commercial banks would leave the Federal Reserve System (after first converting to a state charter if they were national banks) to free themselves from GlassSteagall affiliation restrictions, as large commercial banks lobbied states to permit commercial bank investment banking activities.[44] The OCCs action relied on a loophole in the Bank Holding Company Act (BHCA) that meant a company only became a bank holding company supervised by the Federal Reserve Board if it owned a bank that made commercial loans (i.e., loans to businesses) and provided demand deposits (i.e., checking accounts). A nonbank bank could be established to provide checking accounts (but not commercial loans) or commercial loans (but not checking accounts). The company owning the nonbank bank would not be a bank holding company limited to activities closely related to banking. This permitted Sears, GE, and other commercial companies to own nonbank banks.[46] GlassSteagalls affiliation restrictions applied if the nonbank bank was a national bank or otherwise a member of the Federal Reserve System. The OCCs permission for Dreyfus to own a nationally chartered nonbank bank was based on the OCCs conclusion that Dreyfus, as a mutual fund company, earned only a small amount of its revenue through underwriting and distributing shares in mutual funds. Two other securities firms, J. & W. Seligman & Co. and Prudential-Bache, established state chartered non-Federal Reserve System member banks to avoid GlassSteagall restrictions on affiliations between member banks and securities firms.[93] Legislative response Although Paul Volcker and the Federal Reserve Board sought legislation overruling the FDIC and OCC actions, they agreed bank affiliates should have broader securities powers. They supported a bill sponsored by Senate Banking Committee Chairman Jake Garn (R-UT) that would have amended GlassSteagall Section 20 to cover all FDIC insured banks and to permit bank affiliates to underwrite and deal in mutual funds, municipal revenue bonds, commercial paper, and mortgage-backed securities. On September 13, 1984, the Senate passed the Garn bill in an 89-5 vote, but the Democratic controlled House did not act on the bill.[94] In 1987, however, the Senate (with a new Democratic Party majority) joined with the House in passing the Competitive Equality Banking Act of 1987 (CEBA). Although primarily dealing with the savings and loan crisis, CEBA also established a moratorium to March 1, 1988, on banking regulator actions to approve bank or affiliate securities activities, applied the affiliation restrictions of GlassSteagall Sections 20 and 32 to all FDIC insured banks during the moratorium, and eliminated the nonbank bank loophole for new FDIC insured banks (whether they took demand deposits or made commercial loans) except industrial loan companies. Existing nonbank banks, however, were grandfathered so that they could continue to operate without becoming subject to BHCA restrictions.[95] The CEBA was intended to provide time for Congress (rather than banking regulators) to review and resolve the GlassSteagall issues of bank securities activities. Senator William Proxmire (D-WI), the new Chairman of the Senate Banking Committee, took up this topic in 1987.[96] International competitiveness debate Wolfgang Reinicke argues that GlassSteagall repeal gained unexpected Congressional support in 1987 because large banks successfully argued that GlassSteagall prevented US banks from competing internationally.[97] With the argument changed from preserving the profitability of large commercial banks to preserving the competitiveness of US banks (and of the US economy), Senator Proxmire reversed his earlier opposition to GlassSteagall reform.[98] Proxmire sponsored a bill that would have repealed GlassSteagall Sections 20 and 32

GlassSteagall Act and replaced those prohibitions with a system for regulating (and limiting the amount of) bank affiliate securities activities.[99] He declared GlassSteagall a protectionist dinosaur.[100] By 1985 commercial banks provided 26% of short term loans to large businesses compared to 59% in 1974. While banks cited such statistics to illustrate the decline of commercial banking, Reinicke argues the most influential factor in Congress favoring GlassSteagall repeal was the decline of US banks in international rankings. In 1960 six of the ten largest banks were US based, by 1980 only two US based banks were in the top ten, and by 1989 none was in the top twenty five.[81] In the late 1980s the United Kingdom and Canada ended their historic separations of commercial and investment banking.[101] GlassSteagall critics scornfully noted only Japanese legislation imposed by Americans during the Occupation of Japan kept the United States from being alone in separating the two activities.[102] As noted above, even in the United States seventeen foreign banks were free from this GlassSteagall restriction because they had established state chartered branches before the International Banking Act of 1978 brought newly established foreign bank US branches under GlassSteagall.[92] Similarly, because major foreign countries did not separate investment and commercial banking, US commercial banks could underwrite and deal in securities through branches outside the United States. Paul Volcker agreed that, broadly speaking, it made no sense that US commercial banks could underwrite securities in Europe but not in the United States.[103] 1987 status of GlassSteagall debate Throughout the 1980s and 1990s scholars published studies arguing that commercial bank affiliate underwriting during the 1920s was no worse, or was better, than underwriting by securities firms not affiliated with banks and that commercial banks were strengthened, not harmed, by securities affiliates.[104] More generally, researchers attacked the idea that integrated financial services firms had played a role in creating the Great Depression or the collapse of the US banking system in the 1930s.[105] If it was debatable whether GlassSteagall was justified in the 1930s, it was easier to argue that GlassSteagall served no legitimate purpose when the distinction between commercial and investment banking activities had been blurred by market developments since the 1960s.[106] Along with the nonbank bank loophole from BHCA limitations, in the 1980s the unitary thrift loophole became prominent as a means for securities and commercial firms to provide banking (or near banking) products.[107] The Savings and Loan Holding Company Act (SLHCA) permitted any company to own a single savings and loan. Only companies that owned two or more savings and loan were limited to thrift related businesses.[47] Already in 1973 First Chicago Bank had identified Sears as its real competitor.[108]Citicorp CEO Walter Wriston reached the same conclusion later in the 1970s.[109] By 1982, using the unitary thrift and nonbank bank loopholes, Sears had built the Sears Financial Network, which combined Super NOW accounts and mortgage loans through a large California-based savings and loan, the Discover Card issued by a nonbank bank as a credit card, securities brokerage through Dean Witter Reynolds, home and auto insurance through Allstate, and real estate brokerage through Coldwell Banker.[110] By 1984, however, Walter Wriston concluded the bank of the future already exists, and its called Merrill Lynch.[111] In 1986 when major bank holding companies threatened to stop operating commercial banks in order to obtain the competitive advantages enjoyed by Sears and Merrill Lynch, FDIC Chairman William Seidman warned that could create chaos.[112] In a 1987 issue brief the Congressional Research Service (CRS) summarized some of the major arguments for preserving GlassSteagall as: 1. Conflicts of interest characterize the granting of credit (lending) and the use of credit (investing) by the same entity, which led to abuses that originally produced the Act. 2. Depository institutions possess enormous financial power, by virtue of their control of other peoples money; its extent must be limited to ensure soundness and competition in the market for funds, whether loans or investments. 3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of deposits. In turn, the Government insures deposits and could be required to pay large sums if depository institutions were to

GlassSteagall Act collapse as the result of securities losses. 4. Depository institutions are supposed to be managed to limit risk. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. An example is the crash of real estate investment trusts sponsored by bank holding companies a decade ago. and against preserving GlassSteagall as: 1. Depository institutions now operate in deregulated financial markets in which distinctions between loans, securities, and deposits are not well drawn. They are losing market shares to securities firms that are not so strictly regulated, and to foreign financial institutions operating without much restriction from the Act. 2. Conflicts of interest can be prevented by enforcing legislation against them, and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms. 3. The securities activities that depository institutions are seeking are both low-risk by their very nature, and would reduce the total risk of organizations offering them by diversification. 4. In much of the rest of the world, depository institutions operate simultaneously and successfully in both banking and securities markets. Lessons learned from their experience can be applied to our national financial structure and regulation.[113] Reflecting the significance of the international competitiveness argument, a separate CRS Report stated banks were losing historical market shares of their major activities to domestic and foreign competitors that are less restricted.[114] Separately, the General Accounting Office (GAO) submitted to a House subcommittee a report reviewing the benefits and risks of GlassSteagall repeal. The report recommended a phased approach using a holding company organizational structure if Congress chose repeal. Noting GlassSteagall had already been eroded and the erosion is likely to continue in the future, the GAO explained coming to grips with the GlassSteagall repeal question represents an opportunity to systematically and rationally address changes in the regulatory and legal structure that are needed to better address the realities of the marketplace. The GAO warned that Congresss failure to act was potentially dangerous in permitting a continuation of the uneven integration of commercial and investment banking activities.[115] As Congress was considering the Proxmire Financial Modernization Act in 1988, the Commission of the European Communities proposed a Second Banking Directive[116] that became effective at the beginning of 1993 and provided for the combination of commercial and investment banking throughout the European Economic Community.[117] Whereas United States law sought to isolate banks from securities activities, the Second Directive represented the European Unions conclusion that securities activities diversified bank risk, strengthening the earnings and stability of banks.[118] The Senate passed the Proxmire Financial Modernization Act of 1988 in a 94-2 vote. The House did not pass a similar bill, largely because of opposition from Representative John Dingell (D-MI), chairman of the House Commerce and Energy Committee.[119]


Section 20 affiliates
In April 1987, the Federal Reserve Board had approved the bank holding companies Bankers Trust, Citicorp, and J.P. Morgan & Co. establishing subsidiaries (Section 20 affiliates) to underwrite and deal in residential mortgage-backed securities, municipal revenue bonds, and commercial paper. GlassSteagalls Section 20 prohibited a bank from affiliating with a firm primarily engaged in underwriting and dealing in securities. The Board decided this meant Section 20 permitted a bank affiliate to earn 5% of its revenue from underwriting and dealing in these types of securities that were not bank-eligible securities, subject to various restrictions including firewalls to separate a commercial bank from its Section 20 affiliate.[120] Three months later the Board added asset-backed securities backed by pools of credit card accounts or other consumer finance assets to the list of bank-ineligible securities a Section 20 affiliate could underwrite. Bank holding companies, not commercial banks directly, owned

GlassSteagall Act these Section 20 affiliates.[121] In 1978 the Federal Reserve Board had authorized bank holding companies to establish securities affiliates that underwrote and dealt in government securities and other bank-eligible securities.[122] Federal Reserve Board Chairman Paul Volcker supported Congress amending GlassSteagall to permit such affiliates to underwrite and deal in a limited amount of bank-ineligible securities, but not corporate securities.[123] In 1987, Volcker specifically noted (and approved the result) that this would mean only banks with large government securities activities would be able to have affiliates that would underwrite and deal in a significant volume of bank-ineligible securities.[124] A Section 20 affiliate with a large volume of government securities related revenue would be able to earn a significant amount of bank-ineligible revenue without having more than 5% of its overall revenue come from bank-ineligible activities.[125] Volcker disagreed, however, that the Board had authority to permit this without an amendment to the GlassSteagall Act. Citing that concern, Volcker and fellow Federal Reserve Board Governor Wayne Angell dissented from the Section 20 affiliate orders.[126] Senator Proxmire criticized the Federal Reserve Boards Section 20 affiliate orders as defying Congressional control of GlassSteagall. The Boards orders meant GlassSteagall did not prevent commercial banks from affiliating with securities firms underwriting and dealing in bank-ineligible securities, so long as the activity was executed in a separate subsidiary and limited in amount.[127] After the Proxmire Financial Modernization Act of 1988 failed to become law, Senator Proxmire and a group of fellow Democratic senior House Banking Committee members (including future Committee Ranking Member John LaFalce (D-NY) and future Committee Chairman Barney Frank (D-MA)) wrote the Federal Reserve Board recommending it expand the underwriting powers of Section 20 affiliates.[128] Expressing sentiments that Representative James A. Leach (R-IA) repeated in 1996,[129] Proxmire declared Congress has failed to do the job and [n]ow its time for the Fed to step in.[130] Following Senator Proxmires letter, in 1989 the Federal Reserve Board approved Section 20 affiliates underwriting corporate debt securities and increased from 5% to 10% the percentage of its revenue a Section 20 affiliate could earn from bank-ineligible activities. In 1990 the Board approved J.P. Morgan & Co. underwriting corporate stock. With the commercial (J.P. Morgan & Co.) and investment (Morgan Stanley) banking arms of the old House of Morgan both underwriting corporate bonds and stocks, Wolfgang Reinicke concluded the Federal Reserve Board order meant both firms now competed in a single financial market offering both commercial and investment banking products, which GlassSteagall sought to rule out. Reinicke described this as de facto repeal of GlassSteagall.[131] No Federal Reserve Board order was necessary for Morgan Stanley to enter that single financial market. GlassSteagall only prohibited investment banks from taking deposits, not from making commercial loans, and the prohibition on taking deposits had been circumvented by the development of deposit equivalents, such as the money market fund.[132] GlassSteagall also did not prevent investment banks from affiliating with nonbank banks[46] or savings and loans.[47][133] Citing this competitive inequality, before the Federal Reserve Board approved any Section 20 affiliates, four large bank holding companies that eventually received Section 20 affiliate approvals (Chase, J.P. Morgan, Citicorp, and Bankers Trust) had threatened to give up their banking charters if they were not given greater securities powers.[134] Following the Federal Reserve Boards approvals of Section 20 affiliates a commentator concluded that the GlassSteagall wall between commercial banking and the securities and investment business was porous for commercial banks and nonexistent to investment bankers and other nonbank entities.[135]


GlassSteagall Act


Greenspan-led Federal Reserve Board

Alan Greenspan had replaced Paul Volcker as Chairman of the Federal Reserve Board when Proxmire sent his 1988 letter recommending the Federal Reserve Board expand the underwriting powers of Section 20 affiliates. Greenspan testified to Congress in December 1987, that the Federal Reserve Board supported GlassSteagall repeal.[136] Although Paul Volcker had changed his position on GlassSteagall reform considerably during the 1980s, he was still considered a conservative among the board members. With Greenspan as Chairman, the Federal Reserve Board spoke with one voice in joining the FDIC and OCC in calling for GlassSteagall repeal.[137] By 1987 GlassSteagall repeal had come to mean repeal of Sections 20 and 32. The Federal Reserve Board supported repeal of GlassSteagall insofar as it prevents bank holding companies from being affiliated with firms engaged in securities underwriting and dealing activities.[138] The Board did not propose repeal of Glass Steagall Section 16 or 21. Bank holding companies, through separately capitalized subsidiaries, not commercial banks themselves directly, would exercise the new securities powers.[14] Banks and bank holding companies had already gained important regulatory approvals for securities activities before Paul Volcker retired as Chairman of the Federal Reserve Board on August 11, 1987.[139] Aside from the Boards authorizations for Section 20 affiliates and for bank private placements of commercial paper, by 1987 federal banking regulators had authorized banks or their affiliates to (1) sponsor closed end investment companies,[140] (2) sponsor mutual funds sold to customers in individual retirement accounts,[141] (3) provide customers full service brokerage (i.e., advice and brokerage),[142] and (4) sell bank assets through securitizations.[143] In 1982 E. Gerald Corrigan, president of the Federal Reserve Bank of Minneapolis and a close Volcker colleague, published an influential essay titled Are banks special? in which he argued banks should be subject to special restrictions on affiliations because they enjoy special benefits (e.g., deposit insurance and Federal Reserve Bank loan facilities) and have special responsibilities (e.g., operating the payment system and influencing the money supply). The essay rejected the argument that it is futile and unnecessary to distinguish among the various types of companies in the financial services industry.[144] While Paul Volckers January 1984, testimony to Congress repeated that banks are special in performing a unique and critical role in the financial system and the economy, he still testified in support of bank affiliates underwriting securities other than corporate bonds.[123] In its 1986 Annual Report the Volcker led Federal Reserve Board recommended that Congress permit bank holding companies to underwrite municipal revenue bonds, mortgage-backed securities, commercial paper, and mutual funds and that Congress undertake hearings or other studies in the area of corporate underwriting.[145] As described above, in the 1930s GlassSteagall advocates had alleged that bank affiliate underwriting of corporate bonds created conflicts of interest.[31] In early 1987 E. Gerald Corrigan, then president of the Federal Reserve Bank of New York, recommended a legislative overhaul to permit financial holding companies that would in time provide banking, securities, and insurance services (as authorized by the GLBA 12 years later).[146] In 1990 Corrigan testified to Congress that he rejected the status quo and recommended allowing banks into the securities business through financial service holding companies.[147] In 1991 Paul Volcker testified to Congress in support of the Bush Administration proposal to repeal GlassSteagall Sections 20 and 32.[] Volcker rejected the Bush Administration proposal to permit affiliations between banks and commercial firms (i.e., non-financial firms) and added that legislation to allow banks greater insurance powers could be put off until a later date.[148]

GlassSteagall Act


1991 Congressional action and firewalls

Paul Volcker gave his 1991 testimony as Congress considered repealing GlassSteagall sections 20 and 32 as part of a broader Bush Administration proposal to reform financial regulation.[149] In reaction to market developments and regulatory and judicial decisions that had homogenized commercial and investment banking, Representative Edward J. Markey (D-MA) had written a 1990 article arguing Congress must amend GlassSteagall.[150] As chairman of a subcommittee of the House Commerce and Energy Committee, Markey had joined with Committee Chairman Dingell in opposing the 1988 Proxmire Financial Modernization Act. In 1990, however, Markey stated GlassSteagall had lost much of its effectiveness through market, regulatory, and judicial developments that were tantamount to an ill-coordinated, incremental repeal of GlassSteagall. To correct this disharmony Markey proposed replacing GlassSteagalls prohibitions with regulation.[151] After the House Banking Committee approved a bill repealing GlassSteagall Sections 20 and 32, Representative Dingell again stopped House action. He reached agreement with Banking Committee Chairman Henry B. Gonzalez (D-TX) to insert into the bill firewalls that banks claimed would prevent real competition between banks and securities firms.[152] The banking industry strongly opposed the bill in that form, and the House rejected it. The House debate revealed that Congress might agree on repealing Sections 20 and 32 while being divided on how bank affiliations with securities firms should be regulated.[153]

1980s and 1990s bank product developments

Throughout the 1980s and 1990s, as Congress considered whether to repeal GlassSteagall, commercial banks and their affiliates engaged in activities that commentators later linked to the late-2000s financial crisis.[154] Securitization, CDOs, and subprime credit In 1978 Bank of America issued the first residential mortgage-backed security that securitized residential mortgages not guaranteed by a government-sponsored enterprise (private label RMBS).[69] Also in 1978, the OCC approved a national bank, such as Bank of America, issuing pass-through certificates representing interests in residential mortgages and distributing such mortgage-backed securities to investors in a private placement.[] In 1987 the OCC ruled that Security Pacific Bank could sell assets through securitizations that transferred cash flows from those assets to investors and also distribute in a registered public offering the residential mortgage-backed securities issued in the securitization.[155] This permitted commercial banks to acquire assets for sale through securitizations under what later became termed the originate to distribute model of banking.[156] The OCC ruled that a national banks power to sell its assets meant a national bank could sell a pool of assets in a securitization, and even distribute the securities that represented the sale, as part of the business of banking.[157] This meant national banks could underwrite and distribute securities representing such sales, even though GlassSteagall would generally prohibit a national bank underwriting or distributing non-governmental securities (i.e., non-bank-eligible securities).[158] The federal courts upheld the OCCs approval of Security Pacifics securitization activities, with the Supreme Court refusing in 1990 to review a 1989 Second Circuit decision sustaining the OCCs action. In arguing that the GLBAs repeal of GlassSteagall played no role in the late-2000s financial crisis, Melanie Fein notes courts had confirmed by 1990 the power of banks to securitize their assets under GlassSteagall.[159] The Second Circuit stated banks had been securitizing their assets for ten years before the OCCs 1987 approval of Security Pacifics securitization.[160] As noted above, the OCC had approved such activity in 1978.[] Jan Kregel argues that the OCCs interpretation of the incidental powers of national banks ultimately eviscerated GlassSteagall.[125] Continental Illinois Bank is often credited with issuing the first collateralized debt obligation (CDO) when, in 1987, it issued securities representing interests in a pool of leveraged loans.[161]

GlassSteagall Act By the late 1980s Citibank had become a major provider of subprime mortgages and credit cards.[162] Arthur Wilmarth argued that the ability to securitize such credits encouraged banks to extend more subprime credit.[163] Wilmarth reported that during the 1990s credit card loans increased at a faster pace for lower-income households than higher-income households and that subprime mortgage loan volume quadrupled from 199399, before the GLBA became effective in 2000.[164] In 1995 Wilmarth noted that commercial bank mortgage lenders differed from nonbank lenders in retaining a significant portion of their mortgage loans rather than securitizing the entire exposure.[165] Wilmarth also shared the bank regulator concern that commercial banks sold their best assets in securitizations and retained their riskiest assets.[166] ABCP conduits and SIVs In the early 1980s commercial banks established asset backed commercial paper conduits (ABCP conduits) to finance corporate customer receivables. The ABCP conduit purchased receivables from the bank customer and issued asset-backed commercial paper to finance that purchase. The bank advising the ABCP conduit provided loan commitments and credit enhancements that supported repayment of the commercial paper. Because the ABCP conduit was owned by a third party unrelated to the bank, it was not an affiliate of the bank.[167] Through ABCP conduits banks could earn fee income and meet customers needs for credit without the need to maintain the amount of capital that would be required if loans were extended directly to those customers.[168] By the late 1980s Citibank had established ABCP conduits to buy securities. Such conduits became known as structured investment vehicles (SIVs).[169] The SIVs arbitrage opportunity was to earn the difference between the interest earned on the securities it purchased and the interest it paid on the ABCP and other securities it issued to fund those purchases.[170] OTC derivatives, including credit default swaps In the early 1980s commercial banks began entering into interest rate and currency exchange swaps with customers. This over-the-counter derivatives market grew dramatically throughout the 1980s and 1990s.[171] In 1996 the OCC issued guidelines for national bank use of credit default swaps and other credit derivatives. Banks entered into credit default swaps to protect against defaults on loans. Banks later entered into such swaps to protect against defaults on securities. Banks acted both as dealers in providing such protection (or speculative exposure) to customers and as hedgers or speculators to cover (or create) their own exposures to such risks.[172] Commercial banks became the largest dealers in swaps and other over-the-counter derivatives. Banking regulators ruled that swaps (including credit default swaps) were part of the business of banking, not securities under the GlassSteagall Act.[173] Commercial banks entered into swaps that replicated part or all of the economics of actual securities. Regulators eventually ruled banks could even buy and sell equity securities to hedge this activity.[173] Jan Kregel argues the OCCs approval of bank derivatives activities under bank incidental powers constituted a complete reversal of the original intention of preventing banks from dealing in securities on their own account.[125]


GlassSteagall developments from 1995 to GrammLeachBliley Act

Leach and Rubin support for GlassSteagall repeal; need to address market realities
On January 4, 1995, the new Chairman of the House Banking Committee, Representative James A. Leach (R-IA), introduced a bill to repeal GlassSteagall Sections 20 and 32.[174] After being confirmed as Treasury Secretary Robert Rubin announced on February 28, 1995, that the Clinton Administration supported such GlassSteagall repeal.[175] Repeating themes from the 1980s, Leach stated GlassSteagall was out of synch with reality[176] and Rubin argued it is now time for the laws to reflect changes in the worlds financial system.[175]

GlassSteagall Act Leach and Rubin expressed a widely shared view that GlassSteagall was obsolete or outdated.[177] As described above, Senator Proxmire[100] and Representative Markey[151] (despite their long-time support for GlassSteagall) had earlier expressed the same conclusion. With his reputation for being conservative on expanded bank activities,[137] former Federal Reserve Board Chairman Paul Volcker remained an influential commentator on legislative proposals to permit such activities.[178] Volcker continued to testify to Congress in opposition to permitting banks to affiliate with commercial companies and in favor of repealing GlassSteagall Sections 20 and 32 as part of rationalizing bank involvement in securities markets.[179] Supporting the Leach and Rubin arguments, Volcker testified that Congressional inaction had forced banking regulators and the courts to play catch-up with market developments by sometimes stretching established interpretations of law beyond recognition.[180] In 1997 Volcker testified this meant the GlassSteagall separation of commercial and investment banking is now almost gone and that this accommodation and adaptation has been necessary and desirable.[181] He stated, however, that the ad hoc approach had created uneven results that created almost endless squabbling in the courts and an increasingly advantageous position competitively for some sectors of the financial service industry and particular institutions.[181] Similar to the GAO in 1988[115] and Representative Markey in 1990[151] Volcker asked that Congress provide clear and decisive leadership that reflects not parochial pleadings but the national interest.[181] Reflecting the regulatory developments Volcker noted, the commercial and investment banking industries largely reversed their traditional GlassSteagall positions. Throughout the 1990s (and particularly in 1996), commercial banking firms became content with the regulatory situation Volcker described. They feared financial modernization legislation might bring an unwelcome change.[182] Securities firms came to view GlassSteagall more as a barrier to expanding their own commercial banking activities than as protection from commercial bank competition. The securities industry became an advocate for financial modernization that would open a two way street for securities firms to enter commercial banking.[183]


Status of arguments from 1980s

While the need to create a legal framework for existing bank securities activities became a dominant theme for the financial modernization legislation supported by Leach, Rubin, Volcker, and others, after the GLBA repealed GlassSteagall Sections 20 and 32 in 1999, commentators identified four main arguments for repeal: (1) increased economies of scale and scope, (2) reduced risk through diversification of activities, (3) greater convenience and lower cost for consumers, and (4) improved ability of U.S. financial firms to compete with foreign firms.[184] By 1995, however, some of these concerns (which had been identified by the Congressional Research Service in 1987[113]) seemed less important. As Japanese banks declined and U.S.-based banks were more profitable, international competitiveness did not seem to be a pressing issue.[185] International rankings of banks by size also seemed less important when, as Alan Greenspan later noted, Federal Reserve research had been unable to find economies of scale in banking beyond a modest size.[186] Still, advocates of financial modernization continued to point to the combination of commercial and investment banking in nearly all other countries as an argument for modernization, including GlassSteagall repeal.[187] Similarly, the failure of the Sears Financial Network and other nonbank financial supermarkets that had seemed to threaten commercial banks in the 1980s undermined the argument that financial conglomerates would be more efficient than specialized financial firms.[188] Critics questioned the diversification benefits of combining commercial and investment banking activities. Some questioned whether the higher variability of returns in investment banking would stabilize commercial banking firms through negative correlation (i.e., cyclical downturns in commercial and investment banking occurring at different times) or instead increase the probability of the overall banking firm failing.[][189] Others questioned whether any theoretical benefits in holding a passive investment portfolio combining commercial and investment banking would be lost in managing the actual combination of such activities.[190] Critics also argued that specialized, highly competitive commercial and investment banking firms were more efficient in competitive global markets.[191]

GlassSteagall Act Starting in the late 1980s, John H. Boyd, a staff member of the Federal Reserve Bank of Minneapolis, consistently questioned the value of size and product diversification in banking.[][192] In 1999, as Congress was considering legislation that became the GLBA, he published an essay arguing that the moral hazard created by deposit insurance, too big to fail (TBTF) considerations, and other governmental support for banking should be resolved before commercial banking firms could be given universal banking powers.[193] Although Boyds 1999 essay was directed at universal banking that permitted commercial banks to own equity interests in non-financial firms (i.e., commercial firms), the essay was interpreted more broadly to mean that expanding bank powers, by, for example, allowing nonbank firms to affiliate with banks, prior to undertaking reforms limiting TBTF-like coverage for uninsured bank creditors is putting the cart before the horse.[194] Despite these arguments, advocates of financial modernization predicted consumers and businesses would enjoy cost savings and greater convenience in receiving financial services from integrated financial services firms.[195] After the GLBA repealed Sections 20 and 32, commentators also noted the importance of scholarly attacks on the historic justifications for GlassSteagall as supporting repeal efforts.[196] Throughout the 1990s, scholars continued to produce empirical studies concluding that commercial bank affiliate underwriting before GlassSteagall had not demonstrated the conflicts of interest and other defects claimed by GlassSteagall proponents.[197] By the late 1990s a remarkably broad academic consensus existed that GlassSteagall had been thoroughly discredited.[198] Although he rejected this scholarship, Martin Mayer wrote in 1997 that since the late 1980s it had been clear that continuing the GlassSteagall prohibitions was only permitting a handful of large investment houses and hedge funds to charge monopoly rents for their services without protecting corporate America, investors, or the banks.[199]Hyman Minsky, who disputed the benefits of universal banking, wrote in 1995 testimony prepared for Congress that repeal of the GlassSteagall Act, in itself, would neither benefit nor harm the economy of the United States to any significant extent.[200] In 1974 Mayer had quoted Minsky as stating a 1971 presidential commission (the Hunt Commission) was repeating the errors of history when it proposed relaxing GlassSteagall and other legislation from the 1930s.[201] With banking commentators such as Mayer and Minsky no longer opposing GlassSteagall repeal, consumer and community development advocates became the most prominent critics of repeal and of financial modernization in general. Helen Garten argued that bank regulation became dominated by consumer issues, which produced a largely unregulated, sophisticated wholesale market and a highly regulated, retail consumer market.[202] In the 1980s Representative Fernand St. Germain (D-RI), as chairman of the House Banking Committee, sought to tie any GlassSteagall reform to requirements for free or reduced cost banking services for the elderly and poor.[203] Democratic Representatives and Senators made similar appeals in the 1990s.[204] During Congressional hearings to consider the various Leach bills to repeal Sections 20 and 32, consumer and community development advocates warned against the concentration of economic power that would result from permitting financial conglomerates and argued that any repeal of Sections 20 and 32 should mandate greater consumer protections, particularly free or low cost consumer services, and greater community reinvestment requirements.[][205]


Failed 1995 Leach bill; expansion of Section 20 affiliate activities; merger of Travelers and Citicorp
By 1995 the ability of banks to sell insurance was more controversial than GlassSteagall repeal. Representative Leach tried to avoid conflict with the insurance industry by producing a limited modernization bill that repealed GlassSteagall Sections 20 and 32, but did not change the regulation of bank insurance activities.[206] Leachs efforts to separate insurance from securities powers failed when the insurance agent lobby insisted any banking law reform include limits on bank sales of insurance.[207] Similar to Senator Proxmire in 1988,[130] Representative Leach responded to the Houses inaction on his GlassSteagall repeal bill by writing the Federal Reserve Board in June 1996 encouraging it to increase the limit on Section 20 affiliate bank-ineligible revenue.[129] When the Federal Reserve Board increased the limit to 25% in

GlassSteagall Act December 1996, the Board noted the Securities Industry Association (SIA) had complained this would mean even the largest Wall Street securities firms could affiliate with commercial banks.[208] The SIAs prediction proved accurate two years later when the Federal Reserve Board applied the 25% bank-ineligible revenue test in approving Salomon Smith Barney (SSB) becoming an affiliate of Citibank through the merger of Travelers and Citicorp to form the Citigroup bank holding company. The Board noted that, although SSB was one of the largest US securities firms, less than 25% of its revenue was bank-ineligible.[209] Citigroup could only continue to own the Travelers insurance underwriting business for two (or, with Board approval, five) years unless the Bank Holding Company Act was amended (as it was through the GLBA) to permit affiliations between banks and underwriters of property, casualty, and life insurance. Citigroups ownership of SSB, however, was permitted without any law change under the Federal Reserve Boards existing Section 20 affiliate rules.[3] In 2003, Charles Geisst, a GlassSteagall supporter, told Frontline the Federal Reserve Boards Section 20 orders meant the Federal Reserve got rid of the GlassSteagall Act.[210] Former Federal Reserve Board Vice-Chairman Alan Blinder agreed the 1996 action increasing bank-ineligible revenue limits was tacit repeal of GlassSteagall, but argued that the market had practically repealed GlassSteagall, anyway.[211] Shortly after approving the merger of Citicorp and Travelers, the Federal Reserve Board announced its intention to eliminate the 28 firewalls that required separation of Section 20 affiliates from their affiliated bank and to replace them with operating standards based on 8 of the firewalls. The change permitted banks to lend to fund purchases of, and otherwise provide credit support to, securities underwritten by their Section 20 affiliates.[212] This left Federal Reserve Act Sections 23A (which originated in the 1933 Banking Act and regulated extensions of credit between a bank and any nonbank affiliate) and 23B (which required all transactions between a bank and its nonbank affiliates to be on arms-length market terms) as the primary restrictions on banks providing credit to Section 20 affiliates or to securities underwritten by those affiliates.[213] Sections 23A and B remained the primary restrictions on commercial banks extending credit to securities affiliates, or to securities underwritten by such affiliates, after the GLBA repealed GlassSteagall Sections 20 and 32.[214]


1997-98 legislative developments: commercial affiliations and Community Reinvestment Act

In 1997 Representative Leach again sponsored a bill to repeal GlassSteagall Sections 20 and 32. At first the main controversy was whether to permit limited affiliations between commercial firms and commercial banks.[215] Securities firms (and other financial services firms) complained that unless they could retain their affiliations with commercial firms (which the Bank Holding Company Act forbid for a commercial bank), they would not be able to compete equally with commercial banks.[216] The Clinton Administration proposed that Congress either permit a small basket of commercial revenue for bank holding companies or that it retain the unitary thrift loophole that permitted a commercial firm to own a single savings and loan.[217] Representative Leach, House Banking Committee Ranking Member Henry Gonzalez (D-TX), and former Federal Reserve Board Chairman Paul Volcker opposed such commercial affiliations.[218] Meanwhile, in 1997 Congressional Quarterly reported Senate Banking Committee Chairman Al DAmato (R-NY) rejected Treasury Department pressure to produce a financial modernization bill because banking firms (such as Citicorp) were satisfied with the competitive advantages they had received from regulatory actions and were not really interested in legislative reforms.[219] Reflecting the process Paul Volcker had described,[181] as financial reform legislation was considered throughout 1997 and early 1998, Congressional Quarterly reported how different interests groups blocked legislation and sought regulatory advantages.[220] The compromise bill the House Republican leadership sought to bring to a vote in March 1998, was opposed by the commercial banking industry as favoring the securities and insurance industries.[221] The House Republican leadership withdrew the bill in response to the banking industry opposition, but vowed to bring it back when Congress returned from recess.[222] Commentators describe the April 6, 1998, merger announcement between

GlassSteagall Act Travelers and Citicorp as the catalyst for the House passing that bill by a single vote (214-213) on May 13, 1998.[223] Citicorp, which had opposed the bill in March, changed its position to support the bill along with the few other large commercial banking firms that had supported it in March for improving their ability to compete with foreign banks.[224] The Clinton Administration issued a veto threat for the House passed bill, in part because the bill would eliminate the longstanding right of unitary thrift holding companies to engage in any lawful business, but primarily because the bill required national banks to conduct expanded activities through holding company subsidiaries rather than the bank operating subsidiaries authorized by the OCC in 1996.[225] On September 11, 1998, the Senate Banking Committee approved a bipartisan bill with unanimous Democratic member support that, like the House-passed bill, would have repealed GlassSteagall Sections 20 and 32.[226] The bill was blocked from Senate consideration by the Committees two dissenting members (Phil Gramm (R-TX) and Richard Shelby (R-AL)), who argued it expanded the Community Reinvestment Act (CRA). Four Democratic senators (Byron Dorgan (D-ND), Russell Feingold (D-WI), Barbara Mikulski (D-MD), and Paul Wellstone (D-MN)) stated they opposed the bill for its repeal of Sections 20 and 32.[][227]


1999 GrammLeachBliley Act

In 1999 the main issues confronting the new Leach bill to repeal Sections 20 and 32 were (1) whether bank subsidiaries (operating subsidiaries) or only nonbank owned affiliates could exercise new securities and other powers and (2) how the CRA would apply to the new financial holding companies that would have such expanded powers.[228] The Clinton Administration agreed with Representative Leach in supporting the continued separation of banking and commerce.[229] The Senate Banking Committee approved in a straight party line 11-9 vote a bill (S. 900) sponsored by Senator Gramm that would have repealed GlassSteagall Sections 20 and 32 and that did not contain the CRA provisions in the Committees 1998 bill. The nine dissenting Democratic Senators, along with Senate Minority Leader Thomas Daschle(D-SD), proposed as an alternative (S. 753) the text of the 1998 Committee bill with its CRA provisions and the repeal of Sections 20 and 32, modified to provide greater permission for operating subsidiaries as requested by the Treasury Department.[230] Through a partisan 54-44 vote on May 6, 1999 (with Senator Fritz Hollings (D-SC) providing the only Democratic Senator vote in support), the Senate passed S. 900. The day before, Senate Republicans defeated (in a 54-43 vote) a Democratic sponsored amendment to S. 900 that would have substituted the text of S. 753 (also providing for the repeal of GlassSteagall Sections 20 and 32).[231] On July 1, 1999, the House of Representatives passed (in a bipartisan 343-86 vote) a bill (H.R. 10) that repealed Sections 20 and 32. The Clinton Administration issued a statement supporting H.R. 10 because (unlike the Senate passed S. 900) it accepted the bills CRA and operating subsidiary provisions.[232] On October 13, 1999, the Federal Reserve and Treasury Department agreed that direct subsidiaries of national banks (financial subsidiaries) could conduct securities activities, but that bank holding companies would need to engage in merchant banking, insurance, and real estate development activities through holding company, not bank, subsidiaries.[233] On October 22, 1999, Senator Gramm and the Clinton Administration agreed a bank holding company could only become a financial holding company (and thereby enjoy the new authority to affiliate with insurance and securities firms) if all its bank subsidiaries had at least a satisfactory CRA rating.[234] After these compromises, a joint Senate and House Conference Committee reported out a final version of S. 900 that was passed on November 4, 1999, by the House in a vote of 362-57 and by the Senate in a vote of 90-8. President Clinton signed the bill into law on November 12, 1999, as the GrammLeachBliley Financial Modernization Act of 1999 (GLBA).[235] The GLBA repealed Sections 20 and 32 of the GlassSteagall Act, not Sections 16 and 21.[15] The GLBA also amended Section 16 to permit well capitalized commercial banks to underwrite municipal revenue bonds (i.e., non-general obligation bonds),[236] as first approved by the Senate in 1967.[82] Otherwise, Sections 16 and 21

GlassSteagall Act remained in effect regulating the direct securities activities of banks and prohibiting securities firms from taking deposits.[15] After March 11, 2000, bank holding companies could expand their securities and insurance activities by becoming financial holding companies.[237]


Commentator response to Section 20 and 32 repeal

President Bill Clintons signing statement for the GLBA summarized the established argument for repealing GlassSteagall Sections 20 and 32 in stating that this change, and the GLBAs amendments to the Bank Holding Company Act, would enhance the stability of our financial services system by permitting financial firms to diversify their product offerings and thus their sources of revenue and make financial firms better equipped to compete in global financial markets.[238] With Salomon Smith Barney already operating as a Section 20 affiliate of Citibank under existing law, commentators did not find much significance in the GLBAs repeal of Sections 20 and 32. Many commentators noted those sections were dead before the GLBA.[2] The GLBAs amendment to the Bank Holding Company Act to permit banks to affiliate with insurance underwriting companies was a new power. Under a 1982 amendment to the Bank Holding Company Act bank affiliates had been prohibited from underwriting most forms of insurance.[239] Because the GLBA permitted banks to affiliate with insurance underwriters, Citigroup was able to retain ownership of the Travelers insurance underwriting business.[3] Overall, however, commentators viewed the GLBA as ratifying and extending changes that had already been made, rather than as revolutionary.[240] At least one commentator found the entire GLBA unnecessary for banks and suggested the OCC had the authority to grant national banks all the insurance underwriting powers permitted to affiliates through the GLBA.[241] As John Boyd had earlier,[192] Minneapolis Federal Reserve Bank president Gary Stern and Arthur Wilmarth warned that the GLBAs permission for broader combinations of banking, securities, and insurance activities could increase the too big to fail problem.[242]

Financial industry developments after repeal of Sections 20 and 32

Citigroup gives up insurance underwriting
The GLBA permitted Citigroup to retain the Travelers property, casualty, and life insurance underwriting businesses beyond the five-year divestiture period the Federal Reserve Board could have permitted under the pre-GLBA form of the BHCA.[3] Before that five-year period elapsed, however, Citigroup spun off the Travelers property and casualty insurance business to Citigroups shareholders.[243] In 2005 Citigroup sold to Metropolitan Life the Travelers life insurance business.[244] Commentators noted that Citigroup was left with selling insurance underwritten by third parties, a business it could have conducted without the GLBA.[245]

Banking, insurance, and securities industries remain structurally unchanged

In November 2003 the Federal Reserve Board and the Treasury Department issued to Congress a report (Joint Report) on the activities of the financial holding companies (FHCs) authorized by the GLBA and the effect of mergers or acquisitions by FHCs on market concentration in the financial services industry.[246] According to the Joint Report, 12% of all bank holding companies had qualified as financial holding companies to exercise the new powers provided by the GLBA, and those companies held 78% of all bank holding company assets.[247] 40 of the 45 bank holding companies with Section 20 affiliates before 2000 had qualified as financial holding companies, and their securities related assets had nearly doubled.[248] The great majority of this increase was at non-U.S. based banks. Such foreign banking companies had acquired several medium sized securities firms (such as UBS acquiring

GlassSteagall Act Paine Webber and Credit Suisse acquiring Donaldson, Lufkin & Jenrette).[249] Despite these increases in securities activities by bank holding companies that qualified as financial holding companies, the Joint Report found that concentration levels among securities underwriting and dealing firms had not changed significantly since 1999.[250] Ranked by capital levels, none of the four largest securities dealing and underwriting firms was affiliated with a financial holding company.[251] Although the market share of financial holding companies among the 25 largest securities firms had increased by 5.7 percentage points from that held in 1999 before the GLBA became effective, all of the increase came from foreign banks increasing their U.S. securities operations.[251] The combined market share of the five largest U.S. based financial holding companies declined by 1 percentage point from 19992003, with the largest, Citigroup, experiencing a 2.4 percentage point reduction from 19992003.[251] Of the 45 bank holding companies that had operated Section 20 affiliates before the GLBA, 40 had qualified as financial holding companies, 2 conducted securities underwriting and dealing through direct bank subsidiaries (i.e., financial subsidiaries), and 3 continued to operate Section 20 affiliates subject to pre-GLBA rules.[252] In a speech delivered shortly before the Joint Report was released, Federal Reserve Board Vice Chairman Roger Ferguson stated that the Federal Reserve had not been able to uncover any evidence that the overall market structure of the [banking, insurance, and securities] segments of the financial services industry has substantially changed since the GLBA.[253] Early in 2004, the Financial Times reported that financial supermarkets were failing around the world, as both diversification and larger size failed to increase profitability.[254] The Congressional Research Service noted that after the GLBA became law the financial services markets in the United States had not really integrated as mergers and consolidations occurred largely within sectors without the expected wholesale integration in financial services.[255] At a July 13, 2004, Senate Banking Committee hearing on the effects of the GLBA five years after passage, the Legislative Director of the Consumer Federation cited Roger Fergusons 2003 speech and stated the extravagant promises of universal banking had proven to be mostly hype. He noted that advocates of repealing Sections 20 and 32 had said [b]anks, securities firms, and insurance companies would merge into financial services supermarkets and, after five years, some mergers had occurred but mostly within the banking industry, not across sectors.[256] Within the banking industry, Federal Reserve Board Chairman Alan Greenspan testified to Congress in 2004 that commercial bank consolidation had slowed sharply in the past five years.[257] At the five-year anniversary of the GLBA in November 2004, the American Banker quoted then retiring Comptroller of the Currency John D. Hawke, Jr. and former FDIC Chairman William Seidman as stating the GLBA had been less significant than expected in not bringing about the combinations of banking, insurance, and investment banking. Hawke described the GLBA provisions permitting such combinations as pretty much a dead letter.[258] Although the article noted other commentators expected this would change in 2005, a May 24, 2005, American Banker article proclaimed 2005 the year of divestiture as many observers described Citigroups sale of the Travelers life and annuity insurance business as a nail in the coffin of financial services convergence.[244] In 2005 the St. Louis Federal Reserve Banks staff issued a study finding that after five years the GLBAs effects have been modest and the new law simply made it easier for organizations to continue to engage in the activities they had already undertaken.[259]


Competition between commercial banking and investment banking firms

Commentators pointed to the Enron, WorldCom, and other corporate scandals of the early 2000s as exposing the dangers of uniting commercial and investment banking.[260] More broadly, Arthur Wilmarth questioned whether those scandals and the stock market bubble of the late-1990s were linked to the growing role of commercial banks in the securities markets during the 1990s.[261] As Wilmarths article indicated, the identified bank or bank affiliate activities linked to the Enron and World Com corporate scandals began in 1996 (or earlier) and most occurred before March 11, 2000, when bank holding companies could first use the new securities powers the GLBA provided to

GlassSteagall Act financial holding companies.[262] In the 1990s investment banks complained that commercial banking firms with Section 20 affiliates had coerced customers into hiring the Section 20 affiliate to underwrite securities in order to receive loans from the affiliated bank, which would have violated the anti-tying provisions of the Bank Holding Company Act. In 1997 the GAO issued a report reviewing those claims.[263] After the GLBA became law, investment banks continued to claim such illegal tying was being practiced. In 2003 the GAO issued another report reviewing those claims.[264] Partly because of the tying issue many commentators expected investment banking firms would need to convert into bank holding companies (and qualify as financial holding companies) to compete with commercial bank affiliated securities firms.[265] No major investment bank, however, became a bank holding company until 2008 in the midst of the late-2000s financial crisis. Then all five major free standing investment banks (i.e., those not part of a bank holding company)[266] entered bankruptcy proceedings (Lehman Brothers), were acquired by bank holding companies (Bear Stearns by JP Morgan Chase and Merrill Lynch by Bank of America), or became bank holding companies by converting their industrial loan companies (nonbank banks) into a national (Morgan Stanley) or state chartered Federal Reserve member bank (Goldman Sachs).[267] At the July 13, 2004, Senate Banking Committee hearing on the GLBAs effects, the Securities Industry Association representative explained securities firms had not taken advantage of the GLBAs financial holding company powers because that would have required them to end affiliations with commercial firms by 2009.[268] GLBA critics had complained that the law had prevented insurance and securities firms from truly entering the banking business by making a faulty distinction between commercial and financial activities.[269] The Consumer Federation of America and other commentators suggested securities firms had avoided becoming financial holding companies because they wanted to avoid Federal Reserve supervision as bank holding companies.[270] The SEC (through its Chairman Arthur Levitt) had supported efforts to permit securities firms to engage in non-FDIC insured banking activities without the Federal Reserves intrusive banking-style oversight of the overall holding company.[271] After the GLBA became law, securities firms continued (and expanded) their deposit and lending activities through the unitary thrifts and nonbank banks (particularly industrial loan companies) they had used before the GLBA to avoid regulation as bank holding companies.[272] Alan Greenspan later noted securities firms only took on the embrace of Federal Reserve Board supervision as bank holding companies (and financial holding companies) after the financial crisis climaxed in September 2008.[273] Melanie Fein has described how the consolidation of the banking and securities industries occurred in the 1990s, particularly after the Federal Reserve Boards actions in 1996 and 1997 increasing Section 20 bank-ineligible revenue limits and removing firewalls.[274] Fein stated that [a]lthough the Gramm-Leach-Blily Act was expected to trigger a cascade of new consolidation proposals, no major mergers of banks and securities firms occurred in the years immediately following and that the consolidation trend resumed abruptly in 2008 as a result of the financial crisis leading to all the large investment banks being acquired by, or converting into, bank holding companies.[275] Fein noted the lack of consolidation activity after 1999 and before September 2008 was perhaps because much of the consolidation had occurred prior to the Act.[276] Commentators cite only three major financial firms from outside the banking industry (the discount broker Charles Schwab, the insurance company Met Life, and the mutual fund company Franklin Resources) for qualifying as financial holding companies after the GLBA became effective and before the late-2000s financial crisis.[277] In 2011 the European Central Bank published a working paper that concluded commercial bank Section 20 affiliate underwriting of corporate bonds in the 1990s had been of lower quality than the underwriting of non-commercial bank affiliated securities firms.[278] The authors suggest the most likely explanation was that commercial bank affiliates had to be initially more aggressive than investment bank houses in order to gain market share, and in pursuing this objective they might have loosened their credit standards excessively.[279] The working paper only examined corporate bonds underwritten from 1991 through 1999, a period before the GLBA permitted financial holding companies.[280]


GlassSteagall Act


GlassSteagall repeal and the financial crisis

Robert Kuttner, Joseph Stiglitz, Elizabeth Warren, Robert Weissman, Richard D. Wolff and others have tied GlassSteagall repeal to the late-2000s financial crisis. Kuttner acknowledged de facto enroads before GlassSteagall repeal but argued the GLBAs repeal had permitted super-banks to re-enact the same kinds of structural conflicts of interest that were endemic in the 1920s, which he characterized as lending to speculators, packaging and securitizing credits and then selling them off, wholesale or retail, and extracting fees at every step along the way.[6] Stiglitz argued the most important consequence of GlassSteagall repeal was in changing the culture of commercial banking so that the bigger risk culture of investment banking came out on top.[7] He also argued the GLBA created ever larger banks that were too big to be allowed to fail, which provided incentives for excessive risk taking.[281] Warren explained GlassSteagall had kept banks from doing crazy things. She credited FDIC insurance, the GlassSteagall separation of investment banking, and SEC regulations as providing 50 years without a crisis and argued that crises returned in the 1980s with the pulling away of the threads of regulation.[] Weissman agrees with Stiglitz that the most important effect of GlassSteagall repeal was to change the culture of commercial banking to emulate Wall Street's high-risk speculative betting approach.[282] Lawrence White and Jerry Markham rejected these claims and argued that products linked to the financial crisis were not regulated by GlassSteagall or were available from commercial banks or their affiliates before the GLBA repealed GlassSteagall sections 20 and 32.[9]Alan Blinder wrote in 2009 that he had yet to hear a good answer to the question what bad practices would have been prevented if GlassSteagall was still on the books? Blinder argued that disgraceful mortgage underwriting standards did not rely on any new GLB powers, that free-standing investment banks not the banking-securities conglomerates permitted by the GLBA were the major producers of dodgy MBS, and that he could not see how this crisis would have been any milder if GLB had never passed.[283] Similarly, Melanie Fein has written that the financial crisis was not a result of the GLBA and that the GLBA did not authorize any securities activities that were the cause of the financial crisis.[284] Fein noted [s]ecuritization was not an activity authorized by the GLBA but instead had been held by the courts in 1990 to be part of the business of banking rather than an activity proscribed by the GlassSteagall Act.[159] As described above, in 1978 the OCC approved a national bank securitizing residential mortgages.[] Carl Felsenfeld and David L. Glass wrote that [t]he publicwhich for this purpose includes most of the members of Congress does not understand that the investment banks and other shadow banking firms that experienced runs precipitating the financial crisis (i.e., AIG, Bear Stearns, Lehman Brothers, and Merrill Lynch) never became financial holding companies under the GLBA and, therefore, never exercised any new powers available through GlassSteagall repeal.[285] They joined Jonathan R. Macey and Peter J. Wallison in noting many GLBA critics do not understand that GlassSteagalls restrictions on banks (i.e., Sections 16 and 21) remained in effect and that the GLBA only repealed the affiliation provisions in Sections 20 and 32.[286] The American Bankers Association, former President Bill Clinton, and others have argued that the GLBA permission for affiliations between securities and commercial banking firms helped to mitigate or softened the financial crisis by permitting bank holding companies to acquire troubled securities firms or such troubled firms to convert into bank holding companies.[10] Martin Mayer argued there were three reasonable arguments for tying GlassSteagall repeal to the financial crisis: (1) it invited banks to enter risks they did not understand; (2) it created network integration that increased contagion; and (3) it joined the incompatible businesses of commercial and investment banking. Mayer, however, then described banking developments in the 1970s and 1980s that had already established these conditions before the GLBA repealed Sections 20 and 32.[287] Mayers 1974 book The Bankers detailed the revolution in banking that followed Citibank establishing a liquid secondary market in negotiable certificates of deposit in 1961. This new liability management permitted banks to fund their activities through the capital markets, like nonbank lenders in the shadow banking market, rather than through the traditional regulated bank deposit market envisioned by the 1933 Banking Act.[288] In 1973 Sherman J. Maisel wrote of his time on the Federal Reserve Board and described how [t]he banking system today is far different from what it was even in 1960 as formerly little used instruments

GlassSteagall Act were used in the money markets and turned out to be extremely volatile.[289] In describing the transformation of the U.S. financial services industry from 1975-2000 (i.e., from after the revolution in banking described by Mayer in 1974 to the effective date of the GLBA), Arthur Wilmarth described how during the 1990s, despite remaining bank holding companies, J.P. Morgan & Co. and Bankers Trust built financial profiles similar to securities firms with a heavy emphasis on trading and investments.[290] In 1993, Helen Garten described the transformation of the same companies into wholesale banks similar to European universal banks.[291] Jan Kregel agrees that multifunction banks are a source for financial crises, but he argues the basic principles of GlassSteagall were eviscerated even before the GLBA.[292] Kregel describes GlassSteagall as creating a monopoly that was doomed to fail because after World War II nonbanks were permitted to use capital market activities to duplicate more cheaply the deposit and commercial loan products for which GlassSteagall had sought to provide a bank monopoly.[293] While accepting that under GlassSteagall financial firms could still have made, sold, and securitized risky mortgages, all the while fueling a massive housing bubble and building a highly leveraged, Ponzi-like pyramid of derivatives on top, the New Rules Project concludes that commentators who deny the GLBA played a role in the financial crisis fail to recognize the significance of 1999 as the pivotal policy-making moment leading up to the crash. The Project argues 1999 was Congresss opportunity to reject 25 years of deregulation and confront the changing financial system by reaffirming the importance of effective structural safeguards, such as the GlassSteagall Act's firewall and market share caps to limit the size of banks; bringing shadow banks into the regulatory framework; and developing new rules to control the dangers inherent in derivatives and other engineered financial products.[294] Raj Date and Michael Konczal similarly argued that the GLBA did not create the financial crisis but that the implicit logical premises of the GLBA, which included a belief that non-depository shadow banks should continue to compete in the banking business, enabled the financial crisis and may well have hastened it.[295]


Proposed reenactment
During the 2009 House of Representatives consideration of H.R. 4173, the bill that became the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Representative Maurice Hinchey (D-NY) proposed an amendment to the bill that would have reenacted GlassSteagall Sections 20 and 32 and also prohibited bank insurance activities. The amendment was not voted on by the House.[] On December 16, 2009, Senators John McCain (R-AZ) and Maria Cantwell (D-WA) introduced in the Senate the Banking Integrity Act of 2009 (S.2886), which would have reinstated GlassSteagall Sections 20 and 32, but was not voted on by the Senate.[][296] Before the Senate acted on its version of what became the Dodd-Frank Act, the Congressional Research Service issued a report describing securities activities banks and their affiliates had conducted before the GLBA. The Report stated GlassSteagall had imperfectly separated, to a certain degree commercial and investment banking and described the extensive securities activities the Federal Reserve Board had authorized for Section 20 affiliates since the 1980s.[297] The Obama Administration has been criticized for opposing GlassSteagall reenactment.[][298] In 2009, Treasury Secretary Timothy Geithner testified to the Joint Economic Committee that he opposed reenacting GlassSteagall and that he did not believe the end of GlassSteagall played a significant role in causing the financial crisis.[299] The BrownKaufman amendment (or the "SAFE Banking Act")[] was a failed 2010 amendment proposed in the United States Senate to be part of the DoddFrank bill by Democratic Senators Sherrod Brown (OH) and Ted Kaufman (DE). It sought to address the moral hazard of too big to fail by breaking up the largest banks with limits on the size of financial institutions.[][] The amendment would have capped deposits and other liabilities[] and

GlassSteagall Act restricted bank assets to 10% of US GDP.[300] On April 12, 2011, Representative Marcy Kaptur (D-OH) introduced in the House the Return to Prudent Banking Act of 2011 (H.R. 1489), which would (1) amend the Federal Deposit Insurance Act to add prohibitions on FDIC insured bank affiliations instead of reenacting the affiliation restrictions in GlassSteagall Sections 20 and 32, (2) direct federal banking regulators and courts to interpret these affiliation provisions and GlassSteagall Sections 16 and 21 in accordance with the Supreme Court decision in Camp,[62] and (3) repeal various GLBA changes to the Bank Holding Company Act.[301] On July 7, 2011, Representative Maurice D. Hinchey (D-NY) introduced in the House the GlassSteagall Restoration Act of 2011 (H.R. 2451), which would reinstate GlassSteagall Sections 20 and 32.[302]


Volcker rule ban on proprietary trading as GlassSteagall lite

The Dodd-Frank Act included the Volcker Rule, which among other things limited proprietary trading by banks and their affiliates.[303] This proprietary trading ban will generally prevent commercial banks and their affiliates from acquiring non-governmental securities with the intention of selling those securities for a profit in the near term.[304] Some have described the Volcker Rule, particularly its proprietary trading ban,[305] as GlassSteagall lite.[306] As described above, GlassSteagall restricted commercial bank dealing in, not trading of, non-government securities the bank was permitted to purchase as investment securities.[39] After the GLBA became law, GlassSteagall Section 16 continued to restrict bank securities purchases. The GLBA, however, expanded the list of bank-eligible securities to permit banks to buy, underwrite, and deal in municipal revenue bonds, not only full faith and credit government bonds.[236] The Volcker Rule permits market making and other dealer activities in non-government securities as services for customers.[307] GlassSteagall Section 16 prohibits banks from being a market maker or otherwise dealing in non-government (i.e., bank-ineligible) securities.[36] GlassSteagall Section 16 permits a bank to purchase and sell (i.e., permits trading) for a banks own account non-government securities that the OCC approves as investment securities.[39] The Volcker Rule will prohibit such proprietary trading of non-government securities.[308] Before and after the late-2000s financial crisis, banking regulators worried that banks were incorrectly reporting non-traded assets as held in their trading account because of lower regulatory capital requirements for assets held in a trading account.[309] Under the Volcker Rule, U.S. banking regulators have proposed that banks and their affiliates be prohibited from holding any asset (other than government securities and other listed exceptions) as a trading position.[310] Senators Jeff Merkley (D-OR) and Carl Levin (D-MI) have written that proprietary trading losses played a central role in bringing the financial system to its knees. They wrote that the Volcker Rules proprietary trading ban contained in statutory language they proposed is a modern GlassSteagall because GlassSteagall was both over-inclusive (in prohibiting some truly client-oriented activities that could be managed by developments in securities and banking law) and under-inclusive in failing to cover derivatives trading.[311] In 2002, Arthur Wilmarth wrote that from 1990-1997 the nine U.S. banks with the greatest securities activities held more than 20% of their assets as trading assets.[290] By 1997, 40% of J.P. Morgans revenue was from trading.[312] A 1995 study by the federal banking regulators of commercial bank trading activity from June 30, 1984, to June 30, 1994, concluded that trading activities are an increasingly important source of revenue for banks and that [n]otwithstanding the numerous press reports that focus on negative events, the major commercial banks have experienced long-term success in serving customers and generating revenues with these activities. In reporting the study results, the American Banker described proprietary trading as basically securities trading not connected to customer-related bank activities and summarized the study as finding that proprietary trading has been getting a bad rap.[313]

GlassSteagall Act Paul Volcker supported the Volcker Rule prohibition on proprietary trading as part of bringing commercial banks back to concentrating on continuing customer interest.[314] As described above, Volcker had long testified to Congress in support of repealing GlassSteagall Sections 20 and 32.[123][][179][315] In 2010 he explained that he understood GlassSteagall as preventing banks from being principally engaged in underwriting and dealing in corporate securities. Volcker stated that with securitization and other developments he believes it is a proper bank function to underwrite corporate securities as serving a legitimate customer need. He, therefore, did not believe repeal of GlassSteagall was terrible but that Congress should have thought about what they replace it with. Volckers criticism was that Congress didnt replace it with other restrictions.[316] Separate from its proprietary trading ban, the Volcker Rule restricts bank and affiliate sponsorship and ownership of hedge funds and private equity funds.[306] The GLBA amended the Bank Holding Company Act to permit merchant banking investments by bank affiliates subject to various restrictions.[317] It also authorized the Treasury Department and Federal Reserve Board to permit such merchant banking activities by direct bank subsidiaries (financial subsidiaries) after five years, but they have not provided such permission.[318] This was not a GlassSteagall change but a change to the Bank Holding Company Act, which previously limited the size of investments bank affiliates could make in a company engaged in activities not closely related to banking.[319] Such merchant banking investments may be made through private equity funds.[320] The Volcker Rule will affect the ability of bank affiliates to make such investments.[321]


Ring fencing proposal in United Kingdom as GlassSteagall substitute

The Independent Commission on Bankings (ICB) proposal to ring fence retail and small business commercial banking from investment banking in the United Kingdom[322] has been described as comparable to the GlassSteagall separation of commercial and investment banking.[323] The proposal seeks to isolate the retail banking functions of a banking firm within a separate corporation that would not be affected by the failure of the overall firm so long as the ring fenced retail bank itself remained solvent.[324] Bank of England Governor Mervyn King expressed concern the European Commission could block implementation of the ICB proposal as a violation of Commission standards.[325] Although Michel Barnier, European Union internal market Commissioner, proposed limits on capital requirements for banks that could have hindered the UK ringfencing proposal and indicated support for the French and German position against breaking up banking groups, in November 2011 he announced an expert commission would study the mandatory separation of risky investment banking activities from traditional retail lenders.[326] On October 2, 2012, the committee appointed to study the issue recommended a form of ring fencing similar to the proposal in the United Kingdom.[327]

GlassSteagall and firewalls

Congressional and bank regulator efforts to repeal, reform or apply GlassSteagall were based on isolating a commercial banking firms expanded securities activities in a separately capitalized bank affiliate.[152][212] Much of the debate concerned whether such affiliates could be owned by a bank (as with operating subsidiaries in the 1990s) or would be bank holding company subsidiaries outside the chain of bank ownership.[233][328] In either case, firewalls were intended to isolate the bank from the affiliate.[329] Banking regulators and commentators debated whether firewalls could truly separate a bank from its affiliate in a crisis and often cited the early 1980s statement by then Citicorp CEO Walter Wriston that it is inconceivable that any major bank would walk away from any subsidiary of its holding company.[330] Alan Greenspan and Paul Volcker testified to Congress that firewalls so strong that they truly separated different businesses would eliminate the benefits of combining the two activities.[331] Both testified that in a crisis the owners of the overall firm would inevitably find ways to use the assets of any solvent part of the firm to assist the troubled part.[331] Thus, firewalls sufficient to prevent a bank from assisting its affiliate would eliminate the purpose of the combination, but workable firewalls would be insufficient to prevent such assistance. Both Volcker and Greenspan proposed that the

GlassSteagall Act solution was adequate supervision, including sufficient capital and other requirements.[331] In 1998 and 1999 Greenspan testified to Congress in opposition to the Clinton Administration proposal to permit national bank subsidiaries to engage in expanded securities and other activities. He argued such direct bank subsidiary activities would be financed by the sovereign credit of the United States through the federal safety net for banks, despite the Treasury Departments assurance that firewalls between the bank and its operating subsidiary would prevent the expansion of the federal safety net.[332] As described above, Gary Stern, Arthur Wilmarth, and others questioned whether either operating subsidiaries or separate holding company affiliates could be isolated from an affiliated bank in a financial crisis and feared that the too big to fail doctrine gave competitive benefits to banking firms entering the securities or insurance business through either structure.[242] Greenspan did not deny that the government might act to manage an orderly liquidation of a large financial intermediary in a crisis, but he suggested that only insured creditors would be fully repaid, that shareholders would be unprotected, and that uninsured creditors would receive less than full payment through a discount or haircut.[333] Commentators pointed to the 1990 failure of Drexel Burnham Lambert as suggesting too-big-to-fail considerations need not force a government rescue of creditors to a failing investment bank or other nonbank,[334] although Greenspan had pointed to that experience as questioning the ability of firewalls to isolate one part of a financial firm from the rest.[331] After the late-2000s financial crisis commentators noted that the Federal Reserve Board used its power to grant exemptions from Federal Reserve Act Section 23A (part of the 1933 Banking Act and the principle statutory firewall between banks and their affiliates) to permit banks to rescue various affiliates or bank sponsored participants in the shadow banking system as part of a general effort to restore liquidity in financial markets.[335] Section 23A generally prevented banks from funding securities purchases by their affiliates before the financial crisis (i.e., prevented the affiliates from using insured deposits to purchase risky investments) by limiting the ability of depository institutions to transfer to affiliates the subsidy arising from the institutions access to the federal safety net, but the Federal Reserve Boards exemptions allowed banks to shift the risk of such investments from the shadow banking market to FDIC insured banks during the crisis.[336] The Federal Reserve Boards General Counsel has defended these actions by arguing that all the Section 23A exemptions required that bank funding be fully collateralized on a daily basis, so that the bank was very much protected, and that in the end the exemptions did not prove very useful.[337] The ICB proposes to erect a barrier between the ring-fenced bank and its wider corporate group that will permit banking regulators to isolate the ring-fenced bank from the rest of the group in a matter of days and continue the provision of its services without providing solvency support.[338]


Limited purpose banking and narrow banking

Laurence Kotlikoff was disappointed the ICB did not adopt the limited purpose banking he proposed to the ICB.[339][] This would require a bank to operate like a mutual fund in repaying deposits based on the current market value of the banks assets. Kotlikoff argues there will always be financial crises if banks lend deposits but are required to repay the full amount of those deposits on demand.[340] Kotlikoff would only permit a bank (i.e., mutual fund) to promise payment of deposits at par (i.e., $1 for every $1 deposited) if the bank (i.e., mutual fund) held 100% of all deposits in cash as a trustee.[][341] As Kotlikoff notes, in 1987 Robert Litan proposed narrow banking.[342] Litan suggested commercial banking firms be freed from GlassSteagall limits (and other activity restrictions) so long as they isolated FDIC insured deposits in a narrow bank that was only permitted to invest those deposits in safe securities approved by the FDIC.[343] In 1995 Arthur Wilmarth proposed applying Litans narrow bank proposal to U.S. banks (global banks) that had become heavily involved in capital markets activities through Section 20 affiliates, derivatives, and other activities.[344] Under Wilmarths proposal (which he repeated in 2001 after the GLBA became law[345]) only banks that limited their activities to taking deposits and making commercial loans would be permitted to make commercial

GlassSteagall Act loans with FDIC insured deposits.[346] Wilmarth expected only community banks specialized in making consumer and small business loans would continue to operate as such traditional banks.[347] The large global banks would fund their lending through the capital markets just like investment banks and other shadow banking lenders.[348]


Wholesale financial institutions

In 1997 the Clinton Administration proposed that wholesale financial institutions (known as woofies) be authorized to be members of the Federal Reserve System but not banks under the Bank Holding Company Act because they would own non-FDIC insured banks that would only take deposits of $100,000 or more.[349] Whereas narrow banks would be FDIC insured, but only invest in FDIC approved safe securities, woofies would be free to lend, purchase securities, and make other investments, because they would not hold any FDIC insured deposits. The proposal was intended to permit securities firms to continue to maintain ownership of commercial firms while gaining access to the Federal Reserves payment system and discount window, so long as the firm did not take FDIC insured deposits.[350] Woofies were not authorized by the GLBA because of a dispute between Senator Phil Gramm and the Clinton Administration over the application of the Community Reinvestment Act (CRA) to woofies. In their October 1999 compromise on CRA provisions in the GLBA,[234] the Clinton Administration agreed with Gramm that CRA would not apply to woofies so long as only a company that did not then own any FDIC insured depository institution would be permitted to qualify as a wholesale financial institution.[] The Clinton Administration wanted this restriction to prevent existing bank holding companies from disposing of their FDIC insured banks to qualify as woofies, which could reduce the deposit base subject to CRA requirements.[] When Chase and J.P. Morgan lobbied to change the final legislation to permit them to become woofies, they complained only Goldman Sachs and a few others could qualify as a woofie.[][] When negotiators decided they could not resolve the dispute, permission for woofies was eliminated from the final GLBA.[][] Woofies were similar to the global bank structure suggested by Arthur Wilmarth because they would not use FDIC insured deposits to make commercial loans. They would, however, be subject to Federal Reserve supervision unlike lenders in the unsupervised shadow banking system. Because woofies would have had access to the Federal Reserve discount window and payments service, critics (including the Independent Bankers Association of America and Paul Volcker) opposed woofies (and a similar 1996 proposal by Representative James A. Leach) for providing unfair competition to banks.[351] Although October 1999 press reports suggested bank holding companies were interested in becoming woofies,[][] the New York Times reported in July 1999 that banking and securities firms had lost interest in becoming woofies.[352]

Shadow banking
The ICB Report rejected narrow banking in part because it would lead to more credit (and all credit during times of stress) being provided by a less regulated sector.[353] In 1993 Jane D'Arista and Tom Schlesinger noted that the parallel banking system had grown because it did not incur the regulatory costs of commercial banks.[354] They proposed to equalize the cost by establishing uniform regulation of banks and the lenders and investors in the parallel banking system.[355] As with Kotlikoffs limited purpose banking proposal, only investment pools funded 100% from equity interests would remain unregulated as banks.[356] Although DArista and Schlesinger acknowledged the regulation of banks and of the parallel banking system would end up only being comparable, their goal was to eliminate so far as possible the competitive advantages of the parallel or shadow banking market.[357] Many commentators have argued that the failure to regulate the shadow banking market was a primary cause of the financial crisis.[295][358] There is general agreement that the crisis emerged in the shadow banking markets not in the traditional banking market.[359] As described above, Helen Garten had identified the consumerization of banking regulation as producing a largely unregulated, sophisticated wholesale market,[202] which created the risk of the

GlassSteagall Act underproduction of regulation of that market.[360] Laurence Kotlikoffs limited purpose banking proposal rejects bank regulation (based on rules and supervision to ensure safety and soundness) and replaces it with a prohibition on any company operating like a traditional bank. All limited liability financial companies (not only todays banks) that receive money from the public for investment or lending and that issue promises to pay amounts in the future (whether as insurance companies, hedge funds, securities firms, or otherwise) could only issue obligations to repay amounts equal to the value of their assets.[][361] All depositors in or lenders to such companies would become investors (as in a mutual fund) with the right to receive the full return on the investments made by the companies (minus fees) and obligated to bear the full loss on those investments.[][362] Thomas Hoenig rejects both limited purpose banking and the proposal to regulate shadow banking as part of the banking system. Hoenig argues it is not necessary to regulate shadow banking system lenders as banks if those lenders are prohibited from issuing liabilities that function like bank demand deposits. He suggests that requiring money market funds to redeem shares at the funds fluctuating daily net asset values would prevent those funds from functioning like bank checking accounts and that eliminating special Bankruptcy Code treatment for repurchase agreements would delay repayment of those transactions in a bankruptcy and thereby end their treatment as cash equivalents when the repo was funding illiquid, long term securities. By limiting the ability of shadow banks to compete with traditional banks in creating money-like instruments, Hoenig hopes to better assure that the safety net is not ultimately called upon to bail them [i.e., shadow banks such as Bear Stearns and AIG during the financial crisis] out in a crisis. He proposes to deal with actual commercial banks by imposing GlassSteagall-type boundaries so that banks that have access to the safety net should be restricted to certain core activities that the safety net was intended to protectmaking loans and taking depositsand related activities consistent with the presence of the safety net.[363]


GlassSteagall role in reform proposals in Europe and North America

Although the UK's ICB and the commentators presenting the proposals described above to modify banks or banking regulation address issues beyond the scope of the GlassSteagall separation of commercial and investment banking, each specifically examines GlassSteagall. The ICB stated GlassSteagall had been undermined in part by the development of derivatives.[364] The ICB also argued that the development before 1999 of the worlds leading investment banks out of the US despite GlassSteagall in place at the time should caution against assuming the activity restrictions it recommended in its ringfencing proposal would hinder UK investment banks from competing internationally.[365] Boston University economist Laurence J. Kotlikoff suggests commercial banks only became involved with CDOs, SIVs, and other risky products after GlassSteagall was repealed, but he rejects GlassSteagall reinstatement (after suggesting Paul Volcker favors it) as a non-starter because it would give the nonbank/shadow bank/investment bank industry a competitive advantage without requiring it to pay for the implicit lender-of-last-resort protection it receives from the government.[366] Robert Litan and Arthur Wilmarth presented their narrow bank proposals as a basis for eliminating GlassSteagall (and other) restrictions on bank affiliates.[367] Writing in 1993, Jane DArtista and Tom Schlesinger noted that the ongoing integration of financial industry activities makes it increasingly difficult to separate banking and securities operations meaningfully but rejected GlassSteagall repeal because the separation of banking and securities functions is a proven, least-cost method of preventing the problems of one financial sector from spilling over into the other (which they stated was most recently demonstrated in the October 1987 market crash.)[368] During the Senate debate of the bill that became the Dodd-Frank Act, Thomas Hoenig wrote Senators Maria Cantwell and John McCain (the co-sponsors of legislation to reinstate GlassSteagall Sections 20 and 32) supporting a substantive debate on the unintended consequences of leaving investment banking commingled with commercial banking and reiterating that he had long supported reinstating GlassSteagall-type laws to separate higher risk,

GlassSteagall Act often more leveraged, activities of investment banks from commercial banking. Hoenig agreed with Paul Volcker, however, that financial market developments had caused underwriting corporate bonds (the prohibition of which Volcker described as the purpose of GlassSteagall[316]), and also underwriting of corporate equity, revenue bonds, and high quality asset-backed securities, to be natural extensions of commercial banking. Instead of reinstating GlassSteagall prohibitions on such underwriting, Hoenig proposed restoring the principles underlying the separation of commercial and investment banking firms.[369] In Mainland Europe, some scholars have suggested GlassSteagall should be a model for any in-depth reform of bank regulation:[370] notably in France where SFAF and World Pensions Council (WPC) banking experts have argued that "a new GlassSteagall Act" should be viewed within the broader context of separation of powers in European Union law.[] This perspective has gained ground after the unraveling of the Libor scandal in July 2012, with mainstream opinion leaders such as the Financial Times editorialists calling for the adoption of an EU-wide "Glass Steagall II".[371] On July 25, 2012, former Citigroup Chairman and CEO Sandy Weill, considered one of the driving forces behind the considerable financial deregulation and mega-mergers of the 1990s, surprised financial analysts in Europe and North American by calling for splitting up the commercial banks from the investment banks. In effect, he says: bring back the GlassSteagall Act of 1933 which led to half a century, free of financial crises.[372]


[1] [2] [3] [4] . Wilmarth 1990, p. 1161. Wilmarth 2002, pp. 220 and 222. Macey 2000, pp. 691-692 and 716-718. Lockner and Hansche 2000, p. 37. Simpson Thacher 1998, pp. 1-6. Lockner and Hansche 2000, p. 37. Macey 2000, p. 718. (It is true that the Glass-Steagall law is no longer appropriate to the economy in which we lived. It worked pretty well for the industrial economy, which was highly organized, much more centralized and much more nationalized than the one in which we operate today. But the world is very different.) [6] . [7] . [9] . . [10] . [11] Friedman and Schwartz 1963 , p. 321 (http:/ / books. google. com/ books?id=Q7J_EUM3RfoC& pg=PA321& lpg=PA321& dq=friedman+ february+ 27,+ 1932,+ glass+ steagall+ Act+ 1932#v=onepage& q& f=false) and pp. 399-406 (http:/ / books. google. com/ books?id=Q7J_EUM3RfoC& pg=PA403& lpg=PA403& dq=friedman+ glass+ steagall+ 1932#v=onepage& q& f=false). Patrick 1993, pp. 71-77. [12] . Each form of special lending to Federal Reserve member banks required approval from at least five members of the Federal Reserve Board. Group lending could be made to fewer than five (but not fewer than two) member banks if the borrowing banks had deposit liabilities equal to at least 10% of the deposits liabilities of member banks in their Federal Reserve district. The special lending to individual member banks could be made only in exceptional and exigent circumstances. Both forms of lending were based on the borrowing member banks not having sufficient "eligible assets" to borrow on normal terms. [13] Wilmarth 2008, p. 560. [14] Reinicke 1995, pp. 104-105. Greenspan 1987, pp. 3 and 15-22. . [15] Macey 2000, p. 716. Wilmarth 2002, p. 219, fn. 5. [16] Kennedy 1973, pp. 50-53 and 203-204. Perkins 1971, pp. 497-505. [17] Kennedy 1973, pp. 72-73. [18] Patrick 1993, pp. 172-174. Kelly III 1985, p. 54, fn. 171. Perkins 1971, p. 524. [19] Patrick 1993, pp. 168-172. Burns 1974, pp. 41-42 and 79. Kennedy 1973, pp. 212-219. [20] Kennedy 1973, pp. 103-128 and 204-205. Burns 1974, p 78. [21] Perino 2010 [22] Bentson 1990, pp. 47-89. Cleveland and Huertas 1985, pp. 172-187. [23] . Fein 2011, 4.03[A]. [24] Wilmarth 2008, p. 564, fn. 24. [25] . Fein 2011, 4.03[C]. [26] . Fein 2011, 4.03[B]. [27] . Fein 2011, 4.03[D]. [28] Malloy 2011, 9.02[B], pp. 9-37. . Patrick 1993, p. 251.

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[29] . . [30] Wilmarth 2008, p. 565. Pecora 1939, pp. 82-104. [31] Benston 1990, pp. 44-45. [32] Wilmarth 2008, p. 560, fn. 8. [33] Wilmarth 2008, p. 565. [34] pp. 1 (Section 3(a)), 4 (Section 7), 8 (Section 11(a)). Rodkey 1934, p. 893. Willis 1935, pp. 705-711. [35] . Fein 2011, 4.03[A], pp. 4-8 to 4-9 [36] Fein 2011, 7.06[A], p. 7-90. . [37] Peach 1941, pp. 38-43. Malloy 2011, 9.02[A], p. 9-21. . [38] Fein 2011, 4.04[C], pp. 4-29 to 4-30 and 7.06[A], pp. 7-90 to 7-91. Capatides 1992, VI. F. Securities Trading Activities Pursuant to Investment Powers, pp. 200-204. [39] Fein 2011, 4.04[C], p. 4-30 and 7.06[A], pp. 7-90 to 7-91. Capatides 1992, p. 201. [40] Fein 2011, 7.01 INTRODUCTION, p. 7-5. [41] , chapter 3, pp. 44 and 47-53. [42] Wilmarth 1990, p. 1137. [43] Reinicke 1995, pp. 65-66. . Shull and White 1998, p. 7. [44] Reinicke 1995, pp. 66-68 and 75. [45] Eaton 1995, pp. 1202-1207. Benston 1990, p. 9. [46] . . . [47] . [48] Perkins 1971, pp. 503-504 and 517-522. Peach 1941, pp. 66-70. [49] , p. 475 (Congress drew a clear distinction between member banks and their affiliates in the GlassSteagall Act.) Benston 1990, pp. 7-9. [51] Garten 1989, pp. 515-516. Hendrickson 2001, p. 860. Peach 1941, p. 160. [54] . Wilmarth 2008, p. 590. [55] Burns 1974, pp. 170-171. Patrick 1993, pp. 265-266. Wilmarth 2008, pp. 590-591. [56] Burns 1974, pp. 170-171. Perkins 1971, p. 269. [57] White 1992, p. 7. (http:/ / books. google. com/ books?id=sII_dLAeZBgC& pg=PA7& lpg=PA7& dq=white+ comptroller+ saxon+ new+ forceful#v=onepage& q& f=false) [58] Pitt and Williams 1983, p. 142. Investment Company Institute v. Camp, 401 U.S. 617 (http:/ / supreme. justia. com/ us/ 401/ 617/ case. html), pp. 621-622 (for OCC actions) (1971). Retrieved February 18, 2012. [59] Langevoort 1987, pp. 688-690. . [60] . White 1992, p. 13. (http:/ / books. google. com/ books?id=sII_dLAeZBgC& pg=PA13& lpg=PA13& dq=white+ comptroller+ saxon+ revenue+ bond#v=onepage& q& f=false) [61] White 1992, pp. 13 and 15. Reinicke 1995, p. 31. [62] . [63] Macey 2000, p. 717. Reinicke 1995, p. 31 [64] . [65] Minsky 1982, pp. xii-xiv. [66] . [67] Garten 1989, pp. 522-524. Wilmarth 1990, pp. 1147-1148. [68] Wilmarth 1990, pp. 1142-1143. [69] . [70] . . [71] Wilmarth 1990, pp. 1142-1144. [72] Mayer 1984, pp. 34-45. [73] . [74] . Litan 1987, p. 34. . [75] Garten 1989, pp. 508-509 and 521-525. Garten 1991, pp. 8-14. [76] Vietor 1987, pp. 33-39. [77] Mayer 1974, pp. 523 and 531-535. [78] Minsky 1982, p. 201 [79] , p. 66 (Section 3.10 "The regulatory dynamic of innovation and protection"). [80] . [81] Reinicke 1995, pp. 91-92, 95, and 115-116. [82] . Reinicke 1995, p. 59. [83] . . [84] Pitt and Williams 1983, pp. 154-155. [85] Reinicke 1995, pp. 57-58. [86] Shull and White 1998, p. 5.


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[87] Reinicke 1995, pp. 30-31. Shull and White 1998, pp. 5-6. [88] Reinicke 1995, p. 61. [89] Reinicke 1995, pp. 65-70. [90] . Shull and White 1998, p. 7. [91] Reinicke 1995, pp. 91 and 95. Pitt and Williams 1983, p. 167. [92] Capatides 1992, p. 7, fn. 12. [93] Langevoort 1987, pp. 709-712. [94] Reinicke 1995, pp. 76-77. . [95] Reinicke 1995, p. 96. , pp. CRS-4 to CRS-5. Kurucza et al. 1988, pp. 1112 and 1119. [96] Kurucza et al. 1988, p. 1107. Reinicke 1995, pp. 96-99. [97] Reinicke 1995, pp. 84-85 and 91-101 [98] Reinicke 1995, pp. 98-100. [99] Reinicke 1995, pp. 99-100 and 105-109. . [100] White 1992, p. 53 (http:/ / books. google. com/ books?id=sII_dLAeZBgC& pg=PA53& lpg=PA53& dq=white+ comptroller+ transformation+ proxmire+ protectionist+ dinosaur#v=onepage& q& f=false). [101] . Reinicke 1995, pp. 92 (for the U.K.s Big Bang) and 95 (for broader global deregulation). [102] . [103] Reinicke 1995, pp. 92, 95, and 101. . [104] Benston 1990, pp. 32-34. . . [105] Vietor 1987, pp. 38-39. [106] Garten 1989, p. 512-513. . [107] Eaton 1995, pp. 1202-1210. [108] [109] [110] [111] [112] [113] [114] [115] [116] [117] [118] [119] [120] [121] [122] [123] [124] [125] [126] [127] [128] [129] [130] [131] [132] [133] [134] [135] [136] [137] [138] [139] [140] [141] Mayer 1974, p. 535. Mayer 1984, p. 49. Mayer 1984, pp. 49-52. Shull and White 1998, p. 6. Vietor 1987, p. 49. Reinicke 1995, p. 93. . . Reinicke 1995, p. 98 (quoting CRS Report No. 87-725E). . . Jeannot 1999, pp. 1733, fn. 98 (on effective date), and 1736-1738 (on securities powers). . Jeannot 1999, pp. 1737-1738. Reinicke 1995, pp.105-111. Reinicke 1995, pp. 103-104. FRB Manual, Section 3600.21.2. Reinicke 1995, pp. 103-104. FRB Manual, Section 3600.21.3. Fein 2011, 1.04[A], p. 1-14. . Reinicke 1995, pp. 71 (for opposition to underwriting corporate bonds), 74 and 76. . , pp. 505-506. Reinicke 1995, p. 103. . Reinicke 1995, pp. 103-4. , pp. 505-506. Reinicke 1995, p. 103. Reinicke 1995, pp. 110-111. Fein 2011, 1.06[F], p. 1-39. . Reinicke 1995, p. 110. Reinicke 1995, pp. 114 and 124-125. Eaton 1995, pp. 1189 and 1201-1202. Eaton 1995, pp. 1202-1203. Reinicke 1995, p. 93. Eaton 1995, p. 1219. Reinicke 1995, p. 104. Greenspan 1987, p. 3. Reinicke 1995, p. 104. Greenspan 1987, p. 3. . Fein 2011, 1.04, pp. 1-9 to 1-12. . Fein 2011, 4.05[C] [4]. .


[142] Fein 2011, 4.05[C] [5]. . [143] Fein 2011, 4.05[C] [8]. . [144] Reinicke 1995, p. 69. .

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[145] . Reinicke 1995, p. 97. [146] Reinicke 1995, pp. 93 and 97-98. [147] . Reinicke 1995, pp. 117 and 119. [148] . [149] Reinicke 1995, pp. 120-124 [150] Markey 1990. [151] Markey 1990, pp. 457-458 and 474-475. [152] . . [153] Reinicke 1995, pp. 122-124. Hendrickson 2001, pp. 862-864 (finding the same reason in 1988 and 1991). [154] . Kotlikoff 2010, p. 151 (suggesting commercial bank CDO and SIV activities began after the 1999 GLBA). [155] Capatides 1992, pp. 98-105. Fein 2011, 4.05[C] [15], pp. 4-61 to 4-63. [156] . [157] Fein 2011, 4.05[C] [15], p. 4-62. Capatides 1992, pp. 99-101. [158] Fein 2011, 4.05[C] [15], p. 4-62. [159] Fein 2011, 1.02, p. 1-7. [160] Securities Industry Association v. Robert L. Clarke, 885 F.2d 1034 (http:/ / law. justia. com/ cases/ federal/ appellate-courts/ F2/ 885/ 1034/ 144081/ ), 1041 (for ten years) (2d. Cir. 1989). [161] Capatides 1992, p. 102. . [162] Wilmarth 1995, pp. 57-59. Wilmarth 2002, pp. 401-402. [163] Wilmarth 1995, pp. 55-59. Wilmarth 2002, pp. 403-407. [164] Wilmarth 2002, pp. 392-393. [165] Wilmarth 1995, p. 56. [166] Wilmarth 2002, pp. 406-407. [167] Kavanaugh, Boemio & Edwards, Jr. 1992, pp. 109-112. [168] Kavanaugh, Boemio & Edwards, Jr. 1992, p. 107. [169] . [170] . [171] . [172] . . [173] . . [174] . [175] . [176] . [177] Hendrickson 2001, p. 879. Wilmarth 2008, pp. 561-562. (Throughout the debate, GlassSteagall was derided as an old-fashioned law out of step with modern finance). [178] . (Mr. Volcker, who still carries considerable weight on Capitol Hill). . . [179] . (I have argued this morning the logic and practical desirability of finally eliminating GlassSteagall restrictions). [180] . [181] . [182] Fein 2011, 1.02, p. 1-6. Hendrickson 2001, pp. 867-869. . [183] Fein 2011, 1.02, p. 1-6. Fisher 2001, p. 1302, fn. 6. Levitt 1998 (A Competitive Two-Way Street). [184] Wilmarth 2002, p. 223. . Focarelli, Marques-Ibanez, Pozzolo 2011, pp. 6-7. [185] Mayer 1997, pp. 387-389 and 446-447. [186] Greenspan 2010, p. 33. Wilmarth 1995, pp. 14-26. [187] . Litan and Rauch 1998, pp. 88-92. [188] Wilmarth 2002, pp. 223-224, 284, and 425-428. Mayer 1997, pp. 23-24. [189] Garten 1993, pp. 164-166. [190] Garten 1993, pp. 163-164. Wilmarth 2002, pp. 439-440. [191] Garten 1993, p. 195. Wilmarth 2002, pp. 440-444. [192] Stern and Feldman 2004, p. 77. Reinicke 1995, p. 112, fn. 105. [193] . [194] Stern and Feldman 2004, p. 77. [195] Litan and Rauch 1998, pp. 88-92. [196] Wilmarth 2008, p. 562. Focarelli, Marques-Ibanez, Pozzolo 2011, pp. 6-7. [197] . Barth et al. 2000, p.1. [198] . Wilmarth 2008, p. 562. . [199] Mayer 1997, p. 429. [200] . . [201] Mayer 1974, pp. 521-524.


GlassSteagall Act
[202] Garten 1999, p. 293. [203] Reinicke 1995, pp. 80 and 109. [204] . . [205] Mattingly and Fallon 1998, pp. 66-69. . [206] . [207] Hendrickson 2001, pp. 865-866. . [208] . . [209] . Simpson Thacher 1998, p. 4. [212] . Rodelli 1998, pp. 321-326. [213] Shull and White 1998, p. 8. Rodelli 1998, p. 335. [214] Omarova 2011. . [215] Fein 2011, 1.06[F], pp. 1-40 to 1-41. . [216] Mattingly and Fallon 1998, p. 34. . [217] . . [218] . (permitting banks or bank holding companies to extend their activities into commerce and industry -- contrary to Anglo-Saxon traditions of finance -- would be directly contrary to the need for strong structural protection against conflicts of interest in the provision of credit and undue concentration of resources.) [219] . [220] . . [221] Hendrickson 2001, pp. 868-869. . [222] . [223] Hendrickson 2001, p. 869. Fein 2011, 1.06[G], p. 1-42. . [224] . . [225] Hendrickson 2001, p. 869. . . [226] . , pp. 3, 6, 19, and (for Democratic member statement) 53-58. [227] . [228] , p. 1. [229] . [230] . . S. 753, 106th Congress, First Session (http:/ / www. gpo. gov/ fdsys/ pkg/ BILLS-106s753is/ pdf/ BILLS-106s753is. pdf), p. 7, Section 101. [231] . Amendment No. 302 (http:/ / www. gpo. gov:80/ fdsys/ pkg/ CREC-1999-05-04/ pdf/ CREC-1999-05-04-pt1-PgS4682. pdf), Congressional Record, S4682 (May 4, 1999), Section 101, p. S4683. Senate debate and vote on Amendment No. 302 (http:/ / www. gpo. gov:80/ fdsys/ pkg/ CREC-1999-05-05/ pdf/ CREC-1999-05-05-pt1-PgS4736-2. pdf), Congressional Record, S. 4736-4743 (May 5, 1999). [232] . . . [233] , pp. 1-2. [234] , pp. 1-2. . [235] . . [236] . . [237] . . [238] . Wilmarth 2002, p. 223. [239] . . [240] Barth et al. 2000, p. 196. [241] Fisher 2001, pp. 1337-1367. [242] Stern 2000. Stern and Feldman 2004, p. 77. Wilmarth 2001, p. 22. Wilmarth 2002, pp. 224-225. [243] . [244] . [245] Heyward 2005, p. 1. [246] . [247] . [248] . [249] . [250] . . [251] . [252] . [253] . [254] . [255] . [256] . [257] .


GlassSteagall Act
[258] [259] [260] [261] [262] [263] [264] [265] [266] [267] [268] [269] [270] [271] [272] [273] [274] [275] [276] [277] [278] [279] . . . Wilmarth 2008, pp. 559 and 562-563. . Wilmarth 2008, pp. 563-564 and 614. . .. . Eaton 1995, pp. 1188-1189 and 1214-1219. Macey 2000, p. 694. . . Fein 2011, 1.09, p. 1-78. . .. . Heyward 2005, pp. 4-6. Levitt 1998 (Market Discipline--not Safety and Soundness Regulation--for Securities Firms). .. Greenspan 2010, p. 29, fn. 47. Fein 2011, 1.09, pp. 1-77 to 1-78. Fein 2011, 1.09, p. 1-78. Fein 1.09, p. 1-78. Fein 2011, 1.09[A], p. 1-80. Heyward 2005, p. 5. . Wilmarth 2002, p. 223. Focarelli, Marques-Ibanez, and Pozzolo 2011, pp. 7-8, 13-15, and 22-23. Focarelli, Marques-Ibanez, and Pozzolo 2011, p. 23.


[280] Focarelli, Marques-Ibanez, and Pozzolo 2011, pp. 13-14. [281] . [282] . [283] . [284] Fein 2011, 1.02, p. 1-6. [285] Felsenfeld and Glass 2011, p. 362. [286] Felsenfeld and Glass 2011, p. 312. . [287] . [288] Mayer 1974, pp. 192-197. [290] Wilmarth 2002, p. 374. [291] Garten 1993, pp. 169-170 and 182-185. [292] . [293] . [294] , p. 3 (The Financial Crisis). [295] Date and Konczal 2011, p. 61. [296] . [297] . [298] . [299] . . [300] "H.R. 5714 (112th): Safe, Accountable, Fair, and Efficient Banking Act of 2012" (http:/ / www. govtrack. us/ congress/ bills/ 112/ hr5714/ text) [301] . . . [302] . [303] Chapman and Cutler LLP 2010. Whitehead 2011, p. 47. [304] Whitehead 2011, p. 48. Chapman and Cutler LLP 2010, p. 1. [305] . [306] . . [307] Whitehead 2011, p. 50. [308] Whitehead 2011, pp. 48-49. [309] . . [310] . [311] . [312] Wilmarth 2002, p. 374, fn. 665. [313] . Fein 2011, 7.06[A], p. 7-91. . [314] . . [315] . [316] .

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[317] . Fein 2011, 8.01 and 8.02[D], p. 8-3 to 8-5. [318] . Fein 2011, 8.03[D], p. 8-12. [319] Lockner and Hansche 2000, p. 37. [320] . [321] Fein 2011, 7.08[G], pp. 7-119 to 7-126 and 8.04, p. 8-15. [322] ICB 2011 [323] . [326] . [327] . [328] Wagner 2000, pp. 335-337 and 382-424. Fein 2011, 1.04[B] pp. 1-21 to 1-22. [329] Shull and White 1998, pp. 1, 8-10, and 14-17. [330] Shull and White 1998, p. 8. . Wilmarth 2001, p. 22, fn. 37. [331] Shull and White 1998, pp. 8-9 (for Greenspan in 1990). . Rodelli 1998, p. 316, fn. 35 (for Volcker in 1995). , pp. 3-4 (Firewalls). Fein 2011, 1.04[B] p.1-22. [332] . . . [333] Stern 2000, p. 9. . [334] Wilmarth 1995, p. 82. [335] Omarova 2011, pp. 1725-1756. [336] Omarova 2011, pp. 1689-1690, 1728, and 1734. [338] . [339] . [340] Kotlikoff 2010, pp. 84-89. [341] [342] [343] [344] [345] [346] [347] [348] [349] [350] [353] [354] [355] [356] [357] [358] [359] [360] [361] [362] [363] [364] [365] [366] [367] [368] [370] [371] [372] Kotlikoff 2010, pp. 123-124 and 131-132. Kotlikoff 2010, p. 132. Litan 1987, pp. 70-71 and 164-178.. Wilmarth 1995, pp. 77-87. Wilmarth 2001, pp. 73-81. Wilmarth 1995, pp. 81-83. Wilmarth 2001, pp. 80-81 Wilmarth 1995, pp. 82-3. Wilmarth 2001, pp. 79-80. Wilmarth 1995, pp. 86-87. Wilmarth 2001, pp. 80-81. ... Levitt 1998 (A Competitive Two-Way Street). . , Chapter 3.21, p. 44. DArista and Schlesinger 1993, pp. 11-14. DArista and Schlesinger 1993, p. 32-38. DArista and Schlesinger 1993, p. 34. DArista and Schlesinger 1993, pp. 36-37. . .. Garten 1999, pp. 304-307. Kotlikoff 2010, pp. 122-124. Kotlikoff 2010, pp. 126 and 131-154. . , p. 36, fn. 1. . Kotlikoff 2010, p. 151. Litan 1987, pp. 164-178. Wilmarth 1995, pp. 80-82. DArista and Schlesinger 1993, pp. 6-7. . quoting FT Editorial Page. Quoting interview on CNBCs Squawk-Box.


GlassSteagall Act


Barth, James R.; Brumbaugh Jr., R. Dan; Wilcox, James A. (2000), "The Repeal of GlassSteagall and the Advent of Broad Banking" ( Financial Regulation/ GLBA - JEP.pdf), Journal of Economic Perspectives 14 (2): 191204, retrieved February 16, 2012. Benston, George J. (1990), The Separation of Commercial and Investment Banking: The GlassSteagall Act Revisited and Reconsidered, New York: Oxford University Press, ISBN0-19-520830-7. Burns, Helen M. (1974), The American Banking Community and New Deal Banking Reforms, 1933-1935, Westport, CT: Greenwood Press, ISBN0-8371-6362-5. Capatides, Michael G. (1992), A Guide to the Capital Markets Activities of Banks and Bank Holding Companies, New York: Bowne & Co., OCLC 28542600 ( Carpenter, David H.; Murphy, M. Maureen (2010a), "Permissible Securities Activities of Commercial Banks Under the GlassSteagall Act (GSA) and the Gramm-Leach-Bliley Act (GLBA)" ( rpts/R41181_20100412.pdf), Congressional Research Service Report (R41181), retrieved February 10, 2012. Carpenter, David H.; Murphy, M. Maureen (2010b), "The "Volcker Rule": Proposals to Limit "Speculative" Proprietary Trading by Banks" (, Congressional Research Service Report (R41298), retrieved February 10, 2012. Chapman and Cutler LLP (July 23, 2010), The Volcker Rule in the New Financial Regulation Law (Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010) ( 820.pdf), retrieved February 19, 2012. Cleveland, Harold van B.; Huertas, Thomas F. (1985), Citibank, 1812-1970, Cambridge, MA: Harvard University Press, ISBN0-674-13175-4. Covington & Burling (November 12, 1999), Financial Modernization: The Gramm-Leach-Bliley Act, Summary (, American Bankers Association, retrieved February 24, 2012. DArtista, Jane W.; Schlesinger, Tom (1993), "The Parallel Banking System" ( briefingpapers/1993_bp_parallel.pdf), Economic Policy Institute Briefing Paper (37): 145, retrieved February 24, 2012 Eaton, David M. (1995), "The Commercial Banking-Related Activities of Investment Banks and Other Nonbanks" ( div=35&id=&page=), Emory Law Journal 44 (3): 11871226. Federal Deposit Insurance Corporation (1983), The First Fifty Years: A History of the FDIC 1933-1983 (http://, retrieved February 24, 2012. Federal Reserve Bank of Philadelphia (1999), "Recent Developments: Financial Services Reform Enacted" (http:/ / pdf), Banking Legislation & Policy 18 (4): 14, retrieved February 24, 2012. Federal Reserve Board (1987), "Orders Issued Under Section 4 of the Bank Holding Company Act, Citicorp, J.P. Morgan & Co., Incorporated, Bankers Trust New York Corporation" ( publication-issue/?id=4137), Federal Reserve Bulletin 73 (6): 473508, retrieved February 24, 2012. Federal Reserve Board (1998), Attachment I to Testimony of Chairman Alan Greenspan before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, June 17, 1998, Summaries of Prior Financial Modernization Legislation Considered and Passed by the Senate Banking Committee Since 1984 (http://www.federalreserve. gov/boarddocs/testimony/1998/19980617a1.htm), retrieved February 24, 2012. Federal Reserve Board and U.S. Department of the Treasury (November 2003), Report to the Congress on Financial Holding Companies under the GrammLeachBliley Act ( rptcongress/glbarptcongress.pdf), pp.143, retrieved February 24, 2012. Federal Reserve Board (2011 update (July)), Bank Holding Company Supervision Manual: "Permissible Activities by Board Order (Section 4(c)(8) of the BHC Act)," (

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GlassSteagall Act Markey, Edward J. (1990), "Why Congress Must Amend GlassSteagall: Recent Trends in Breaching the Wall Separating Commercial and Investment Banking" ( app?action=DocumentDisplay&crawlid=1&doctype=cite&docid=25+New+Eng.+L.+Rev.+457& srctype=smi&srcid=3B15&key=176c520616b33f2e708f9c6547d670a8), New England Law Review 25 (2): 457475, retrieved February 25, 2012. Mattingly, J. Virgil; Fallon, Keiran J. (1998), "Understanding the Issues Raised by Financial Modernization" ( srcid=3B15&doctype=cite&docid=2+N.C.+Banking+Inst.+25& key=ac2b5754a4008ed10fcf6fb77babb93c), North Carolina Banking Institute 2: 2569, retrieved February 25, 2012. Mayer, Martin (1974), The Bankers, New York: Weybright and Talley, ISBN0-679-40010-9. Mayer, Martin (1984), 'The Money Bazaars, New York: E.P Dutton, ISBN0-525-24221-X. Mayer, Martin (1997), The Bankers: The Next Generation, New York: Truman Talley Books, ISBN0-525-93865-6. New Rules Project (2012), The Glass Steagall Act and the Volcker Rule ( rules/glasssteagall-act-and-volcker-rule), Institute for Local Self-Reliance, retrieved February 9, 2012. Omarova, Saule T. (2011), "From Gramm-Leach-Bliley to Dodd-Frank: The Unfulfilled Promise of Section 23A of the Federal Reserve Act" (, North Carolina Law Review 89 (5): 16831769, retrieved February 25, 2012. Patrick, Sue C. (1993), Reform of the Federal Reserve System in the Early 1930s: The Politics of Money and Banking, New York: Garland Publishing, Inc., ISBN0-8153-0970-8. Peach, William Nelson (1941), The Security Affiliates of National Banks, New York: Arno Press Inc. (published 1975 (reprint of the 1941 edition published by Johns Hopkins Press, Baltimore, MD, which was issued as ser. 58, no. 3 of Johns Hopkins University studies in historical and political science, originally presented as the authors thesis, Johns Hopkins University, 1939)), ISBN0-405-06984-7. Perino, Michael A. (2010), The Hellhound of Wall Street: How Ferdinand Pecora's Investigation of the Great Crash Forever Changed American Finance, New York: Penguin Press, ISBN978-1-59420-272-8 Perkins, Edwin J. (1971), "The Divorce of Commercial and Investment Banking: A History", Banking Law Jornal 88 (6): 483528. Pitt, Harvey L.; Williams, Julie L. (1983), "The Convergence of Commercial and Investment Banking: New Directions in the Financial Services Industry" ( issue2/PittWilliams5J.Comp.Bus.&Cap.MarketL.137(1983).pdf), Journal of Comparative Business and Capital Market Law 5 (2): 137193, retrieved February 25, 2012. Reinicke, Wolfgang H. (1995), Banking, Politics and Global Finance: American Commercial Banks and Regulatory Change, 1980-1990, Aldershot, England: Edward Elgar Publishing Limited, ISBN1-85898-176-X. Rodelli, R. Nicholas (1998), "The New Operating Standards for Section 20 Subsidiaries: The Federal Reserve Boards Prudent March Towards Financial Services Modernization" ( Page?handle=hein.journals/ncbj2&div=17&g_sent=1&collection=journals), North Carolina Banking Institute 2: 311344, retrieved February 14, 2012. Rodkey, Robert G. (1934), "Banking Reform by Statute", Michigan Law Review 32 (7): 881908, JSTOR 1280817 ( Shull, Bernard; White, Lawrence J. (May 1998), "Of Firewalls and Subsidiaries: The Right Stuff for Expanded Bank Activities" (, Journal of Banking Law (forthcoming): 117, retrieved February 13, 2012. Simpson Thacher & Bartlett LLP (September 30, 1998), Federal Reserve Approves Merger of Travelers and Citicorp (, retrieved February 25, 2012.


GlassSteagall Act Stern, Gary (2000), "Thoughts on Designing Credible Policies after Financial Modernization: Addressing too big to fail and moral hazard" (, The Region-The Federal Reserve Bank of Minneapolis (September): 24 and 2429, retrieved February 25, 2012. Stern, Gary J.; Feldman, Ron J. (2004), Too Big To Fail: The Hazards of Bank Bailouts, Washington, D.C.: Brookings Institution Press, ISBN0-8157-8152-0. United States Securities and Exchange Commission, Office of Legislative Affairs (June 24, 1994), Timeline of Bank Securities Activities ( 1994_0624_Fulton3447.pdf), pp.135, retrieved February 11, 2012. United States Senate, Committee on Banking, Housing, and Urban Affairs (September 18, 1998), Report of the Committee on Banking, Housing, and Urban Affairs, United States Senate, to accompany H.R. 10, together with Additional Views (, Government Printing Ofice, retrieved February 25, 2012. United States Senate, Committee on Banking, Housing, and Urban Affairs (2004), Examination of the Gramm-Leach-Bliley Act Five Years after its Passage, Hearing before the Committee on Banking, Housing, and Urban Affairs, United States Senate, July 13, 2004 ( pdf/CHRG-108shrg26700.pdf), Government Printing Ofice, retrieved February 25, 2012. Vietor, Richard (1987), "Chapter 2: Regulation-Defined Financial Markets: Fragmentation and Integration in Financial Services", in Hayes, Jr., Samuel L., Wall Street and Regulation, Boston: Harvard Business School Press, pp.762, ISBN0-87584-183-X. Volcker, Paul A. (February 25, 1997), Statement before the Subcommittee on Financial Institutions and Consumer Credit, United States House of Representatives ( banking/22597vol.shtml), The Committee on Financial Services, United States House of Representatives, retrieved February 25, 2012. Volcker, Paul A. (May 14, 1997), Statement before the Committee on Banking and Financial Services, United States House of Representatives (, The Committee on Financial Services, United States House of Representatives, retrieved February 25, 2012. White, Eugene N. (1992), The Comptroller and the Transformation of American Banking, 1960-1990, Washington D.C.: Comptroller of the Currency, OCLC 27088818 ( Whitehead, Charles K. (2011), "The Volcker Rule and Evolving Financial Markets" ( download/HBLR_1_1/Whitehead-Volcker_Rule.pdf), Harvard Business Law Review 1 (1): 3973, retrieved February 19, 2012. Willis, H. Parker (1935), "The Banking Act of 1933 in Operation", Columbia Law Review 35 (5): 697724, JSTOR 1115748 ( Wilmarth, Jr., Arthur E. (1990), "The Expansion of State Bank Powers, the Federal Response, and the Case for Preserving the Dual Banking System" ( context=flr), Fordham Law Review 58 (6): 11331256, retrieved February 25, 2012. Wilmarth, Jr., Arthur E. (1995), "Too Good to Be True - The Unfulfilled Promises behind Big Bank Mergers" ( page=), Stanford Journal of Law, Business, and Finance 2 (1): 188, retrieved February 25, 2012. Wilmarth, Jr., Arthur E. (2001), "How Should We Respond to the Growing Risks of Financial Conglomerates", Public Law and Legal Theory Working Paper (034): 189, SSRN 291859 ( Wilmarth, Jr., Arthur E. (2002), "The Transformation of the U.S. Financial Services Industry, 1975-2000: Competition, Consolidation and Increased Risks", University of Illinois Law Review 2002 (2): 215476, SSRN 315345 ( Wilmarth, Jr., Arthur E. (2008), "Did Universal Banks Play a Significant Roe in the U.S. Economys Boom-and-Bust Cycle of 1921-33? A Preliminary Assessment", Current Development in Monetary and Financial Law 4, Washington, D.C.: International Monetary Fund, pp.559645, ISBN978-1-58906-507-9, SSRN 838267


GlassSteagall Act (


Further reading
Anderson, Benjamin (1949), Economics and the Public Welfare, New York: D. Van Nostrand Company. Barth, James R.; Brumbaugh, R. Dan, Jr. & Wilcox, James A. (2000), "Policy Watch: The Repeal of GlassSteagall and the Advent of Broad Banking", Journal of Economic Perspectives 14 (2): 191204, JSTOR 2647102 ( Blass, Asher A.; Grossman, Richard S. (1998), "Who Needs GlassSteagall? Evidence From Israels Bank Share Crisis and the Great Depression" ( abstract), Contemporary Economic Policy 16 (2): 185196, doi: 10.1111/j.1465-7287.1998.tb00511.x (http://dx., retrieved February 27, 2012. Burns, Arthur F. (1988), The Ongoing Revolution in American Banking, Washington, D.C.: American Enterprise Institute, ISBN0-8447-3654-6. Calomiris, Charles W.; White, Eugene N. (1994), "The Origins of Federal Deposit Insurance, chapter 5 in The Regulated Economy: A Historical Approach to Political Economy, edited by Claudia Golden and Gary D. Libecap, Chicago: University of Chicago Press, ISBN 0-226-30110-9" ( pdf), Journal of Comparative Business and Capital Market Law 5 (2): 137193, retrieved February 27, 2012. Calomiris, Charles W. (2000), U.S. Bank Deregulation in Historical Perspective, New York: Cambridge University Press, ISBN0-521-58362-4 Canals, Jordi (1997), Universal Banking: International Comparisons and Theoretical Perspectives, Oxford; New York: Clarendon Press, ISBN0-19-877506-7. Coggins, Bruce (1998), Does Financial Deregulation Work? A Critique of Free Market Approaches, New Directions in Modern Economics, Northampton, MA: Edward Elgar Publishing Limited, ISBN1-85898-638-9. Firzli, M. Nicolas (January 2010), "Bank Regulation and Financial Orthodoxy: the Lessons from the GlassSteagall Act", Revue Analyse Financire: 4952 (French). Hambley, Winthrop P. (September 19999), "The Great Debate-What will become of financial modernization" (, Community Investments (Federal Reserve Bank of San Francisco) 11 (2): 13, retrieved February 16, 2012. Huertas, Thomas (1983), "Chapter 1: The Regulation of Financial Institutions: A Historical Perspective on Current Issues", in Benston, George J., Financial Services: The Changing Institutions and Government Policy, Englewood Cliffs, N.J.: Prentice-Hall, ISBN0-13-316513-2. Kroszner, Randall S. & Rajan, Raghuram G. (1994), "Is the GlassSteagall Act Justified? A Study of the U.S. Experience with Universal Banking Before 1933", American Economic Review 84 (4): 810832, JSTOR 2118032 ( Lewis, Toby (January 22, 2010), "New GlassSteagall Will Shake Private Equity", Financial News. Mester, Loretta J. (1996), "Repealing GlassSteagall: The Past Points the Way to the Future" (http://www., Federal Reserve Bank of Philadelphia Business Review (July/August), retrieved February 25, 2012. Minsky, Hyman (1982), Can It Happen Again?, Armonk, N.Y.: M.E. Sharpe, ISBN0-873-32213=4. Mishkin, Frederic S. (2006), "How Big a Problem is Too Big to Fail? A Review of Gary Stern and Ron Feldmans Too Big to Fail: The Hazards of Bank Bailouts" ( pdf), Journal of Economic Literature 44 (December): 9881004, retrieved February 25, 2012. Pecora, Ferdinand (1939), Wall Street Under Oath: The Story of Our Modern Money Changers, Reprints of Economics Classics, New York: A.M. Kelley (published 1966 (reprint of 1939 edition pubslished by Simon &Schuster, New York )), LCCN 68-20529 ( Saunders, Anthony; Walter, Ingo (1994), Universal Banking in the United States: What could we gain? What could we lose?, New York: Oxford University Press, ISBN0-19-508069-6.

GlassSteagall Act Saunders, Anthony; Walter, Ingo, eds. (1997), Universal Banking: Financial System Design Reconsidered, Chicago: Irwin Professional Publishing, ISBN0-7863-0466-9. Uchitelle, Louis (February 16, 2010), "Elders of Wall St. Favor More Regulation" ( 2010/02/17/business/17volcker.html), New York Times. White, Eugene Nelson (1986), "Before the GlassSteagall Act: An analysis of the investment banking activities of national banks", Explorations in Economic History 23 (1): 3355, doi: 10.1016/0014-4983(86)90018-5 (http:// Willis, Henry Parker; Chapman, John (1934), The Banking Situation: American Post-War Problems and Developments, New York: Columbia University Press, OCLC 742920 ( 742920). Wilmarth, Jr., Arthur E. (2007), "Walmart and the Separation of Banking and Commerce", Connecticut Law Review 39 (4): 15391622, SSRN 984103 (


External links
GlassSteagall Act further readings ( On the systematic dismemberment of the Act from PBS's Frontline ( frontline/shows/wallstreet/weill/demise.html) Full text of the GlassSteagall Act followed by New York Federal Reserve Bank Explanation (http://fraser. Glass Subcommittee hearings ( Pecora Investigation hearings ( FDIC History: 1933-1983 ( 1987 Federal Reserve Bank of Kansas City Jackson Hole Symposium on Restructuring the Financial System (

Article Sources and Contributors


Article Sources and Contributors

GlassSteagall Act Source: Contributors: 7&6=thirteen, AaronF2, Abe.Froman, Adam Carr, Adam sk, Adjwilley, Adlerschlo, AgnosticPreachersKid, Allens, Amelapay, Analoguni, AndrewLeeson, AnimeJanai, AntelopeInSearchOfTruth, Antifamilymang, Arbeit Sockenpuppe, Arbero, Arthur Rubin, AscendingIntellect, B.Andersohn, BD2412, Bbigjohnson, Beland, Bender235, Benjamin9832, Best O Fortuna, Big Bird, BigK HeX, BigPimpinBrah, Bkuschel, Blahblah5555, Blinkozo, Blueandgreen24, Bobo192, BoomerAB, Brentdax, Bruvajc, Bsadowski1, Bulba2036, Byelf2007, CapitalSasha, Capricorn42, CarolynETaylor, Catgut, Cbowen4, Cfweckenmann, Chris the speller, Chuunen Baka, Clyde frogg, ConMan, Connormah, Cooldude7911, Courcelles, Cumulus Clouds, Curb Chain, D1stewart1, DLZ, DMCer, Dan.sampey, Daveman 84, DeanKeaton, Denimadept, DesertRat16, Digestible, DocendoDiscimus, Dodiad, DouglasCalvert, Dr.enh, Dratman, Dreginald, Duoduoduo, Dvoiceoreason, EAFAAT, ELApro, Ed Wood's Wig, Edward, Elemented9, Encyclopedant, Esprqii, Eyreland, Famspear, Fang Aili, Fcy, Fdssdf, Feureau, Ffirehorse, Foofbun, Foogod, Fraxinus23, Gabbe, GentlemanGhost, George Orwell III, Ggarndt, Gobonobo, GoingBatty, GoldRingChip, Gonzobent, Good Olfactory, Goodconstitution, GorillaWarfare, Grimsooth, Ground Zero, Guerillero, Gz1derbread, Headbomb, Hmains, Hoagie08540, Hobit, Htonl, Htournyol, Int21h, Iota, It Is Me Here, J Clear, J.R. Hercules, J.delanoy, Jags427, JamesMLane, Jatkins, JayJasper, JeffGarofano, Jenix89, Jennavecia, Jerryseinfeld, Jesan Fafon, Jlivewell, Jmsand, John K, John Z, John of Reading, John254, JohnDoe0007, JohnSawyer, Johncsrnyc, Jrlevine, Jujutacular, Justanotherperson, Kaltenmeyer, Kgrad, Khazar2, Kitsunegami, Ktr101, Kumioko (renamed), Kurykh, Lackingdirection, Last1in, Lights, Linguo42, Lokpest, LordHarris, LuK3, LuigiManiac, Luke 19 Verse 27, MER-C, MKFI, Madrone, Malachias111, Mav, Mazin07, Mbelisle, McSly, Mdkb123, MeStevo, Meco, Mic, Mindmatrix, Moorehaus, Nareek, Nathanpbell, NawlinWiki, Neo Poz, Nerdyjoe314, Niceguyedc, Nil Einne, NoSpinJustFacts, Nosneh, NuclearWarfare, Nunh-huh, Nutcracker, Nwlaw63, Olivier, Oneeyedguide, Orion prince, Ospalh, PGWG, Paramecium13, PaulHanson, Pawyilee, Peter Karlsen, Philvarner, PiMaster3, Piano non troppo, Pianoman13, Pnm, Polmandc, Postdlf, Prevenient, R'n'B, RC12, RKill, Ray Radlein, Rewalt, Rich Farmbrough, Rickterp, Riziles, Rjbesquire, Rjwilmsi, Rl, Rnolds, Roadrunner, Rodrigo Cornejo, Rossy65, Rrawpower, Rudehost, SDC, Sastian, Scbomber, Seaphoto, Septegram, Sesel, Shakescene, SimonP, Skakkle, Smokizzy, Snowolf, Solarra, Solferino, Some jerk on the Internet, Steven J. Anderson, Stevenmitchell, Summit88, Svick, THC Loadee, Tabletop, Tabrez, Ted87, Tellsbadjokes, Temporaluser, The PIPE, Theopolisme, TonyTheTiger, Topbanana, Treybien, TrulyBlue, Trusilver, Twalls, Twas Now, Tyler McHenry, Ucscottb4u, Ulric1313, UnQubcois, Uncle Dick, UncleBubba, UpstateNYer, Uriel8, Vegetarian75, Verne Equinox, Vinnie the lips, Vints1, Welhaven, Whatup816, Whkoh, Wikibluesfreak, Wikidea, Wikimalte, Will Beback, Winampman, Wink37, Yunesj, Zad68, Zelphia, 496 anonymous edits

Image Sources, Licenses and Contributors

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