| Abstract: |
The purpose of the 1933 Banking Act--aka Glass-Steagall--was to prevent the
exposure of commercial banks to the risks of investment banking and to ensure
stability of the financial system. A proposed solution to the current
financial crisis is to return to the basic tenets of this New Deal
legislation. Senior Scholar Jan Kregel provides an in-depth account of the
Act, including the premises leading up to its adoption, its influence on the
design of the financial system, and the subsequent collapse of the Act's
restrictions on securities trading (deregulation). He concludes that a return
to the Act's simple structure and strict segregation between (regulated)
commercial and (unregulated) investment banking is unwarranted in light of
ongoing questions about the commercial banks' ability to compete with other
financial institutions. Moreover, fundamental reform--the conflicting
relationship between state and national charters and regulation--was bypassed
by the Act. |