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BANKING IN USA-
The Banking sector in America was initially based on
, which advocated for
separation of Banking andinvestment.
‘Banks should not be allowed in Investment’, is thecrux of this model. USA adopted this model in 1865 and passed one
National Banking Act (NBA) of 1865
. With passage of time, thissystem felt the strain of pro-investment lobby. In response to thegrowing competition from trust companies and the pressure of thelobby, state-chartered commercial Banks demanded additionalpowers from the state legislatures. By the early 1900s, legislaturesgranted most state banks many of the same powers to engage ininvestment activities already possessed by trust companies.National banks, however, were left out, and they sought justificationfor securities activities under the NBA. One of the first nationalbanks to engage in underwriting activities was the First NationalBank of New York. In 1908, in response to criticism from thecomptroller concerning its securities dealings, the bank formed asecurities affiliate, the First Security Company. The affiliate wasincorporated under state law and was arguably free to conductinvestment activities. In 1911 a second affiliate, National CityCompany, was organized, and by 1916 that affiliate was actively. Thus, it is clear that the restrictions imposed by NBA on Banks hadby now eroded almost completely. Banks started full-fledgedactivities in securities and investments and had for all practicalpurposes, adopted
which advocated for ‘Banks toventure in investments also’.As it always happens, unless you are ill, you are not diagnosed. Herecame ‘great depression’ in 1930, and prescriptions were written tocure the ‘ailing economy’.Roosevelt came and saved the economy by injecting small ample of ‘socialistic drugs’ into the ‘liberal democracy blended with Laissez-fairre’, in form of ‘New deal’. It was felt that Banking sector, whichkeeps deposits of millions of citizens and are ‘the pulmonary arteriesof the economy’, should be protected against ‘unhygienic financialexposures of speculative stock markets’. In this background, theentire Banking sector was again overhauled.
Senator Carter Glass
brought a law called
Glass-Stegall Act (GSA), 1933
. This Act wasbased on twin features,
, it sought to insulate Bank’s