Spooked by Glass-Steagall’s Ghost?

Until the 1990’s, the Glass-Steagall Act in the US separated commercial and investment banking – a rule that was central to US financial regulation (and thus to the operation of the global financial system) for more than a half-century. And now those who sought Glass-Steagall's repeal are expressing second thoughts.

CAMBRIDGE – America’s long-controversial Glass-Steagall Act of 1933, which separated deposit-taking commercial banks from securities-trading investment banks in the United States, is back in the news. This separation long symbolized America’s unusual history of bank regulation – probably the most unusual in the developed world. 

American banking regulation had long kept US banks small and local (unable to branch across state lines), unlike their European and Japanese equivalents, while limiting their operational capacity (by barring banks from mixing commercial and investment banking). These limits on American banking persisted until the 1990’s, when Congress repealed most of this regulatory structure. Now the idea of a new Glass-Steagall is back, and not only in the US.

Sandy Weill, Citigroup’s onetime CEO, said last month that allowing commercial and investment banks to merge was a mistake. This is the same Weill who had lobbied to gut Glass-Steagall in order to build today’s Citigroup, which put insurance companies, securities dealers, and traditional deposit-taking banks all under one roof. In fact, he engineered an agreement to merge Citi with a large insurer – illegal at the time under Glass-Steagall – and then pushed for the law’s repeal, so that the merger could proceed.

We hope you're enjoying Project Syndicate.

To continue reading, subscribe now.

Subscribe

Get unlimited access to PS premium content, including in-depth commentaries, book reviews, exclusive interviews, On Point, the Big Picture, the PS Archive, and our annual year-ahead magazine.

http://prosyn.org/hnqkA3n;

Cookies and Privacy

We use cookies to improve your experience on our website. To find out more, read our updated cookie policy and privacy policy.