Glass-Steagall Act
The Glass-Steagall Act designates two federal laws of the United States of America , which should counteract the banking crisis in the context of the "Great Depression" . These American federal laws were named after Senator Carter Glass from Virginia and Congressman Henry B. Steagall from Alabama , both of the Democratic Party . The law provided banks with a strict separation of the lending business with private customers from investment banking. In this way, conflicts of interest should be prevented and it should be ensured that the institutions handle their customers' money carefully.
The first Glass-Steagall Act
The first law was passed by President Herbert Hoover on February 27, 1932 and was used to curb deflation during the Great Depression .
The second Glass-Steagall Act
The second, more significant act, the Banking Act of 1933, was introduced to the House of Representatives as HR 5661 by Henry B. Steagall, approved by the US House Committee on Banking and Currency, and signed into law by President Franklin D. Roosevelt on June 16, 1933 . The Banking Act, later known as the Glass-Steagall Act, prescribed the introduction of a separate banking system , i.e. an institutional separation between the deposit and lending business and the securities business. In this respect, banks had to decide whether to operate either as a commercial bank for traditional deposit and credit business and related services such as account management and payment transactions (commercial banking) or as an investment bank for the securities business (investment banking). Since the banks suffered massive losses during the banking crisis from 1929 to 1933 due to the strong integration and networking between investment and commercial banking, both on the securities side due to price falls and on the credit side due to loan defaults, the separation should ensure that at that time these events do not repeat themselves. The main aim of the Glass-Steagall-Act was, in particular, to prevent so-called proprietary trading by commercial banks. This involves trading in financial instruments (money, securities, foreign exchange, sorts, precious metals or derivatives) that takes place in the bank's own name and for the bank's own account and is not directly triggered by a customer transaction. Behind the separation into investment activity and traditional banking activity stood the conviction, which seemed to be confirmed by the historical events of the financial crisis at the time, that commercial banks should not be exposed to the risks of the investment business, since they are responsible for the deposits of the general public and a substantial part of them monetary policy and control is enforced. The Glass-Steagall Act also provided for the establishment of the Federal Deposit Insurance Corporation (FDIC), the American form of a national deposit insurance fund . The FDIC enabled banks to guarantee their customers deposit insurance for the first time . In addition to protecting depositors, the purpose of these measures was to create public confidence in the banking system and to promote healthy banking practices. The law also made it easier for the banks to be refinanced by the US Federal Reserve (FED).
The Bank Holding Company Act of 1956 confirmed and amended the restrictions described above. Bank holding companies were only allowed to operate in commercial banking and related areas, and existing holdings had to be disentangled. The securities business was not seen as closely related to the banking business. A bank holding company was therefore barred from acquiring stakes in investment banks. Insurance activities that were not directly related to credit transactions were also not permitted. In 1956, the banks were also prohibited from taking over competitors in other US states.
The second Glass-Steagall Act was modified several times and finally repealed completely in 1999 under President Bill Clinton with the Gramm-Leach-Bliley Act . In this way, the competitiveness of US commercial banks should be strengthened. However, many critics see the abolition of the Glass-Steagall Act as the cause of the negative development in the financial sector, which ultimately led to the disaster in autumn 2008, i. H. led to the demise of the investment bank Lehman Brothers . The withdrawal of Glass-Steagall in 1999 under Clinton led to a wave of mergers and, among other things, to the establishment of Citigroup .
In the fall of 2008, the Glass-Steagall Act experienced a revival at the height of the financial crisis at the time : The US investment banks were initially forced to transform themselves into commercial banks. That meant stricter supervision, but also, in turn, better access to refinancing by the Fed. Glass-Steagall was particularly popular with progressives, but then-President Barack Obama decided not to reinstate the law in his major Wall Street reform in 2010.
In the course of the election campaign for the presidential election in the United States in 2016 , the campaign team of the candidate declared Republican Party , Donald Trump that she would seek a restoration of a second Glass-Steagall Act. Gary Cohn , the former CEO of the investment bank Goldman Sachs , and temporarily chief economic advisor after the election of Trump as president, spoke in front of congressmen in favor of the reintroduction of the bank separation law.
See also
literature
- Benjamin Anderson: Economics and the Public Welfare . D. Van Nostrand, New York 1949.
- Jaems R. Barth, R. Dan Brumbaugh Jr., James A. Wilcox: Policy Watch: The Repeal of Glass – Steagall and the Advent of Broad Banking . In: Journal of Economic Perspectives . Vol. 14, No. 2 , 2000, pp. 191-204 .
- Frank J. Fabozzi, Franco Modigliani: Capital Markets. Institutions and Instruments . 4th edition. Prentice Hall, 2008, ISBN 978-0-13-715499-9 .
Web links
- Stefan Fuchs: Destructive Money - Lessons from the Hyper Crisis. Part 2: Conversation with business columnist Paul Jorion. In: Deutschlandfunk - Essay and Discourse. May 9, 2010, accessed on June 3, 2010, 6:16 pm CEST
Individual evidence
- ↑ a b c d e Hans Anton Hilgers: Current term: The Glass-Steagall Act and banking regulation (No. 05/10). ( Memento from May 18, 2013 in the Internet Archive ) Scientific Service of the German Bundestag, February 4, 2010.
- ↑ Randall S. Kroszner, Raghuram G. Rajan: The Role of Firewalls in Universal Banks: Evidence from Commercial Bank Securities Activities before the Glass-Steagall Act. University of Chicago - George G. Stigler Center for Study of Economy and State, Chicago 1994.
- ^ Ann-Kristin Achleitner: Investment Banking Handbook. Gabler Verlag, 2002, ISBN 3-409-34184-6 , p. 6.
- ^ Glass-Steagall Act (PL 73-66, 48 STAT. 162) - Summary and key points. (PDF; 18 kB) (No longer available online.) In: Conference of State Bank Supervisors. Conference of State Bank Supervisors, archived from the original on Aug. 20, 2013 ; Retrieved September 15, 2013 . Info: The archive link was inserted automatically and has not yet been checked. Please check the original and archive link according to the instructions and then remove this notice.
- ↑ a b c d e Frank Wiebe: Obama's role model - Glass-Steagall-Act of 1933. on: handelsblatt.com , January 21, 2010, accessed on June 3, 2010, 5:42 pm CEST
- ^ CNN.com: Bill Clinton: I should have better regulated derivatives. February 16, 2009
- ↑ Heike Buchter: Ingratitude is the banks' wages. In: The time. September 23, 2012, accessed October 26, 2012 .
- ↑ Donald Trump and the Banks: Words Without Action , Der Spiegel: May 6, 2017
- ^ David R. Sands: GOP convention winners: Depression-era edition. In: The Washington Times. 18th July 2016.
- ↑ wallstreet-online.de: Gary Cohn: Trump's top economic advisor brings the Separation Banks Act into play , April 7, 2017
- ↑ Reuters: Trump adviser from Wall Street backs US bank breakup law , April 6, 2017
