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The Glass–Steagall 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 Glass–Steagall 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. This article deals with that limited meaning of the Glass–Steagall Act. A separate article describes the entire Banking Act of 1933. Starting in the early 1960s federal banking regulators interpreted provisions of the Glass–Steagall 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 By the time the affiliation restrictions in the Glass–Steagall Act were repealed through the Gramm–Leach–Bliley Act of 1999 (GLBA), many commentators argued Glass–Steagall was already “dead.” Most notably, Citibank’s 1998 affiliation with Salomon Smith Barney, one of the largest US securities firms, was permitted under the Federal Reserve Board’s then existing interpretation of the Glass–Steagall Act. President Bill Clinton publicly declared "the Glass–Steagall law is no longer appropriate." Many commentators have stated that the GLBA’s repeal of the affiliation restrictions of the Glass–Steagall Act was an important cause of the late-2000s financial crisis. 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. Others have argued that the activities linked to the financial crisis were not prohibited (or, in most cases, even regulated) by the Glass–Steagall Act. 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.
Name confusion: 1932 and 1933 Glass–Steagall Acts
Two separate United States laws are known as the Glass–Steagall 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 Glass–Steagall Act of 1932 authorized Federal Reserve Banks to (1) lend to five or more Federal Reserve System member Sen. Carter Glass (D—Va.) and Rep. Henry B. Steagall (D—Ala.-3), the banks on a group basis or to any individual co-sponsors of the Glass–Steagall 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. The Federal Reserve Board explained that the special lending to Federal Reserve member banks permitted by the 1932 Glass–Steagall Act would only be permitted in “unusual and temporary circumstances.” The entire Banking Act of 1933 (the 1933 Banking Act), which is described in a separate article, is also often referred to as the Glass–Steagall Act. Over time, however, the term Glass–Steagall 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. Congressional efforts to “repeal the Glass–Steagall Act” referred to those four provisions (and then usually to only the two provisions that restricted affiliations between commercial banks and securities firms). Those efforts culminated in the 1999 Gramm–Leach–Bliley Act (GLBA), which repealed the two provisions restricting affiliations between banks and securities firms.
Legislative history of the Glass–Steagall Act
The article on the 1933 Banking Act describes the legislative history of that Act, including the Glass–Steagall 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. 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. The final Glass–Steagall 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. 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 Glass–Steagall provisions separating commercial and investment banking, and Representative Steagall included those provisions in his House bill that differed from Senator Glass’s Senate bill primarily in its deposit insurance provisions. 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 Glass–Steagall provisions, becoming law. While supporters of the Glass–Steagall separation of commercial and investment banking cite the Pecora Investigation as supporting that separation, Glass–Steagall critics have argued that the evidence from the Pecora Investigation did not support the separation of commercial and investment banking.
The Glass–Steagall provisions separating commercial and investment banking
The Glass–Steagall separation of commercial and investment banking was in four sections of the 1933 Banking Act (sections 16, 20, 21, and 32).
Section 16 prohibited national banks from purchasing or selling securities except for a customer’s account (i.e., as a customer’s agent) unless the securities were purchased for the bank’s 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. 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.” Section 5(c) of the 1933 Banking Act (sometimes referred to as the fifth Glass–Steagall provision) applied Section 16’s rules to Federal Reserve System member state chartered banks.
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.
Section 21 prohibited any company or person from taking deposits if it was in the business of “issuing, underwriting, selling, or distributing” securities.
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.
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 customer’s account. 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.
Prohibitions apply to dealing in and underwriting or distributing securities
The Glass–Steagall 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. 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 bank’s affiliate to underwrite their bonds. Sections 16 and 5(c) meant no member bank of the Federal Reserve System could underwrite or distribute corporate or other non-governmental bonds. 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. Senator Glass, Representative Steagall, and others claimed banks had made too many loans for securities speculation and too many direct bank investments in securities. As described in the article on the Banking Act of 1933, non-“Glass–Steagall” provisions of the 1933 Banking Act restricted those activities. Among the Glass–Steagall provisions, Sections 16 and 5(c) prevented a Federal Reserve member bank from investing in equity securities or from “dealing” in debt securities as a market maker or otherwise. 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.”
GlassSteagall Act Even before Glass–Steagall, however, national banks had been prohibited from investing in equity securities and could only purchase as investments debt securities approved by the Comptroller. Section 16’s major change was (through the Comptroller’s 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. The Comptroller ruled national banks could “trade” investment securities they had purchased, based on a bank’s 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. 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.” Thus, Glass–Steagall 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. 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.
Except for Section 21, Glass–Steagall 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. 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. This meant they were also outside the restrictions of Sections 16, 20, and 32 of the Glass–Steagall Act. As described below, this became important in the 1980s when commentators worried large commercial banks would leave the Federal Reserve System to avoid Glass–Steagall’s affiliation restrictions. Although Section 21 of the Glass–Steagall 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 Act’s “clarification”). This meant Section 21, unlike the rest of Glass–Steagall, applied to savings and loans and other “thrifts,” state nonmember banks, and any other firm or individual in the business of taking deposits. 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. As described below, this became important when securities firms used “unitary thrifts” and “nonbank banks” to avoid both Glass–Steagall affiliation restrictions and holding company laws that generally limited bank holding companies to banking businesses and savings and loan holding companies to thrift businesses. Different treatment of bank and affiliate activities Section 21 was not the only Glass–Steagall 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. Sections 20 and 32 of the Glass–Steagall Act, however, distinguished between what a bank could do directly and what an affiliated company could do.
 Those prohibitions. manner. This amounted to permitting banks to offer mutual funds to retail customers. was the next public official to challenge seriously Glass–Steagall’s prohibitions. Comptroller Saxon’s Glass–Steagall interpretations President John F. Section 20 only prohibited a bank from affiliating with a firm “engaged principally” in underwriting. or distribute any security except as specifically permitted by Section 16. Under Section 32. and 32 only restricted Federal Reserve member banks was another feature that made the Glass–Steagall Act less than “comprehensive” and. provided “opportunities for banking institutions and their lawyers to explore (or. That study disputed Glass–Steagall critics who suggested securities markets had been harmed by prohibiting commercial bank involvement. or dealing in securities.GlassSteagall Act No bank covered by Section 16’s prohibitions could buy. underwrite. Glass’s language amending Section 16 was removed. or dealing in securities) could accept any deposit. in the words of a 1987 commentator. Saxon wanted to expand the powers of national banks. This difference (which would later be termed a “loophole”) provided the justification for the “long demise of Glass–Steagall” through regulatory actions that largely negated the practical significance of Sections 20 and 32 before they were repealed by the GLBA. Saxon was concerned with the competitive position of commercial banks.” 5 Glass–Steagall developments from 1935 to 1991 Commercial banks withdrew from the depressed securities markets of the early 1930s even before the Glass–Steagall prohibitions on securities underwriting and dealing became effective. Kennedy’s appointee as Comptroller of the Currency. distributing. no securities firm (understood as a firm “in the business” of underwriting. Courts ruled that both of these actions violated Glass–Steagall. distributing. however were controversial. . The first Senate passed version of the Banking Act of 1935 included Glass’s revision to Section 16 of the Glass–Steagall Act to permit bank underwriting of corporate securities subject to limitations and regulations. In 1950 commercial banks held 52% of the assets of US financial institutions. perhaps more accurately.” In the conference committee that reconciled differences between the House and Senate passed versions of the Banking Act of 1935. distributing. or dealing in securities. Under Section 21. A 1942 study also found that commercial bank affiliate underwriting was not better (or worse) than nonbank affiliate underwriting. 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. a bank could not share employees or directors with a company “primarily engaged” in underwriting. By 1960 that share had declined to 38%. or form. Glass–Steagall’s affiliation provisions did not contain such absolute prohibitions. to exploit). 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.” Senator Glass’s “repeal” effort In 1935 Senator Glass attempted to repeal the Glass–Steagall prohibition on commercial banks underwriting corporate securities. sell. but concluded this meant it was a “myth” commercial bank securities affiliates had taken advantage of bank customers to sell “worthless securities. The fact Sections 16. In 1963. James J. 20. Saxon also issued rulings that national banks could underwrite municipal revenue bonds. Glass stated Glass–Steagall had unduly damaged securities markets by prohibiting commercial bank underwriting of corporate securities. 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. Saxon. As the regulator of national banks.
 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. 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.” Eventually. 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. commercial banks were increasingly left with lower credit quality. 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. some commercial banks helped their “best customers” establish programs to borrow directly from the “capital markets” by issuing commercial paper. In losing “their preeminent status as expert intermediaries for the collection. which were not restricted by Glass–Steagall other than Section 21. 6 1966 to 1980 developments Increasing competitive pressures for commercial banks Regulation Q limits on interest rates for time deposits at commercial banks. or more speculative. Banks began to finance residential mortgages through securitization in the late 1970s. including Glass–Steagall. 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. authorized by the 1933 Banking Act. first became “effective” in 1966 when market interest rates exceeded those limits. As with money market accounts. . 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. 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. corporate borrowers that could not borrow directly from the “capital markets. When this “disintermediation” limited the ability of banks to meet the borrowing requests of all their corporate customers. While he agreed traditional bank regulation was unable to protect commercial banks from nonbank competition.” Helen Garten concluded that the “traditional regulation” of commercial banks established by the 1933 Banking Act. Courts later applied this aspect of the Camp ruling to uphold interpretations of Glass–Steagall by federal banking regulators.GlassSteagall Act In rejecting bank sales of accounts that functioned like mutual funds. and analysis of information relating to extensions of credit”. 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. processing. were permitted to offer “negotiable order of withdrawal accounts” (NOW accounts). Also in the 1970s savings and loans. 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. banks were increasingly “bypassed” as traditional “depositors” invested in securities that replaced bank loans. Camp that it would have given “deference” to the OCC’s judgment if the OCC had explained how such sales could avoid the conflicts of interest and other “subtle hazards” Glass–Steagall sought to prevent and that could arise when a bank offered a securities product to its retail customers. these accounts functioned much like checking accounts in permitting a depositor to order payments from a “savings account. the Supreme Court explained in Investment Company Institute v. Over time.
this competition would increase in the 1980s. The FDIC’s action confirmed that Glass–Steagall did not restrict affiliations between a state chartered non-Federal Reserve System member bank and securities firms. After many of Comptroller Saxon’s decisions granting national banks greater powers had been challenged or overturned by courts. State laws differed in how they regulated affiliations between banks and securities firms. Jan Kregel concluded that after World War II non-regulated financial companies. were frustrated with the continuing restrictions imposed by Glass–Steagall and other banking laws. the FDIC issued a “policy statement” that state chartered non-Federal Reserve member banks could establish subsidiaries to underwrite and deal in securities. “one bank holding companies” could own interests in any type of company other than securities firms covered by Glass–Steagall Section 20. supported traditional banking regulation and advocated further controls of finance to “promote smaller and simpler organizations weighted more toward direct financing. Minsky described ever worsening periods of inflation followed by unemployment as the cycle of rescues followed by credit crunches was repeated. however. under the chairmanship of William Isaac. commercial banking firms had been able to expand their non-securities activities through the “one bank holding company. Minsky. As described below.” Writing from a similar “neo-Keynesian perspective. supported by regulatory actions. Also in 1982 the OCC. In 1978 Bankers Trust began making such placements.” Comptroller Saxon had feared for the competitive viability of commercial banks in the early 1960s. Limited congressional and regulatory developments In 1967 the Senate passed the first of several Senate passed bills that would have revised Glass–Steagall Section 16 to permit banks to underwrite municipal revenue bonds. In 1977 the Federal Reserve Board staff concluded Glass–Steagall permitted banks to privately place commercial paper. however.” Kregel argued this led banking regulators to eliminate Glass–Steagall 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. under Comptroller C. asked Congress to overrule both the FDIC’s and the OCC’s actions through new legislation. led by Chairman Paul Volcker. the OCC authorized a national bank to privately place securities issued to sell residential mortgages in a securitization Commercial banks. 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.” 7 Reagan Administration developments State non-member bank and nonbank bank “loopholes” In 1982. Although the International . Todd Conover. In the 1970s. foreign banks had taken advantage of this in establishing branches in states that permitted such affiliations. even when the bank was FDIC insured.” which permitted bank customers to authorize regular withdrawals from a deposit account to purchase identified securities. As described below. Commercial banking firm’s 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. The “capital markets” developments in the 1970s increased the vulnerability of commercial banks to nonbank competitors. in 1978. developed means to provide bank products (“liquidity and lending accommodation”) more cheaply than commercial banks through the “capital markets. 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.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. In 1974 the OCC authorized national banks to provide “automatic investment services. The Federal Reserve Board.” Because the Bank Holding Company Act only limited nonbanking activities of companies that owned two or more commercial banks.
They supported a bill sponsored by Senate Banking Committee Chairman Jake Garn (R-UT) that would have amended Glass–Steagall Section 20 to cover all FDIC insured banks and to permit bank affiliates to underwrite and deal in mutual funds.. Seligman & Co. a leading US securities firm. Two other securities firms.. After the FDIC’s action.” This permitted Sears. loans to businesses) and provided “demand deposits” (i. 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 Glass–Steagall affiliation restrictions. took up this topic in 1987. as large commercial banks lobbied states to permit commercial bank investment banking activities. the Senate passed the Garn bill in an 89-5 vote. and Prudential-Bache. The OCC’s 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. they agreed bank affiliates should have broader securities powers. and eliminated the “nonbank bank” loophole for new FDIC insured banks (whether they took demand deposits or made commercial loans) except industrial loan companies. Although primarily dealing with the savings and loan crisis. & W. but the Democratic controlled House did not act on the bill. Senator Proxmire reversed his earlier opposition to Glass–Steagall reform. A “nonbank bank” could be established to provide checking accounts (but not commercial loans) or commercial loans (but not checking accounts). as a mutual fund company. foreign banks with existing US branches were “grandfathered” and permitted to retain their existing investments. Existing “nonbank banks”. The CEBA was intended to provide time for Congress (rather than banking regulators) to review and resolve the Glass–Steagall issues of bank securities activities. CEBA also established a moratorium to March 1. on banking regulator actions to approve bank or affiliate securities activities. In 1987. established state chartered non-Federal Reserve System member banks to avoid Glass–Steagall restrictions on affiliations between member banks and securities firms. 1988. 1984. were “grandfathered” so that they could continue to operate without becoming subject to BHCA restrictions. Legislative response Although Paul Volcker and the Federal Reserve Board sought legislation overruling the FDIC and OCC actions. earned only a small amount of its revenue through underwriting and distributing shares in mutual funds. the Senate (with a new Democratic Party majority) joined with the House in passing the Competitive Equality Banking Act of 1987 (CEBA). applied the affiliation restrictions of Glass–Steagall Sections 20 and 32 to all FDIC insured banks during the moratorium.GlassSteagall Act Banking Act of 1978 brought newly established foreign bank US branches under Glass–Steagall. and other commercial companies to own “nonbank banks. Through this “loophole” Credit Suisse was able to own a controlling interest in First Boston. the new Chairman of the Senate Banking Committee. With the argument changed from preserving the profitability of large commercial banks to preserving the “competitiveness” of US banks (and of the US economy). commercial paper. The OCC’s permission for Dreyfus to own a nationally chartered “nonbank bank” was based on the OCC’s conclusion that Dreyfus. and mortgage-backed securities.e.e. however. Senator William Proxmire (D-WI). however. The company owning the nonbank bank would not be a bank holding company limited to activities “closely related to banking. checking accounts). International competitiveness debate Wolfgang Reinicke argues that Glass–Steagall “repeal” gained unexpected Congressional support in 1987 because large banks successfully argued that Glass–Steagall prevented US banks from competing internationally. J. municipal revenue bonds.” Glass–Steagall’s affiliation restrictions applied if the nonbank bank was a national bank or otherwise a member of the Federal Reserve System. GE. Proxmire sponsored a bill that would have repealed Glass–Steagall Sections 20 and 32 8 . On September 13.
 Glass–Steagall 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. securities brokerage through Dean Witter Reynolds. 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.” 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. and real estate brokerage through Coldwell Banker. 2.” In a 1987 “issue brief” the Congressional Research Service (CRS) summarized “some of” the major arguments for preserving Glass–Steagall as: 1. by virtue of their control of other people’s money. He declared Glass–Steagall a “protectionist dinosaur. than underwriting by securities firms not affiliated with banks and that commercial banks were strengthened. the Discover Card issued by a “nonbank bank” as a credit card. More generally. In turn. it was easier to argue that Glass–Steagall served no legitimate purpose when the distinction between commercial and investment banking activities had been blurred by “market developments” since the 1960s. The Savings and Loan Holding Company Act (SLHCA) permitted any company to own a single savings and loan. and it’s called Merrill Lynch. whether loans or investments. By 1984. Already in 1973 First Chicago Bank had identified Sears as its real competitor.Citicorp CEO Walter Wriston reached the same conclusion later in the 1970s. using the “unitary thrift” and “nonbank bank” “loopholes. 1987 status of Glass–Steagall debate Throughout the 1980s and 1990s scholars published studies arguing that commercial bank affiliate underwriting during the 1920s was no worse. however. Depository institutions possess enormous financial power. 3. home and auto insurance through Allstate.” Reinicke argues the most influential factor in Congress favoring Glass–Steagall “repeal” was the decline of US banks in international rankings.GlassSteagall Act and replaced those prohibitions with a system for regulating (and limiting the amount of) bank affiliate securities activities. in the 1980s the “unitary thrift” “loophole” became prominent as a means for securities and commercial firms to provide banking (or “near banking”) products. “broadly speaking. Only companies that owned two or more savings and loan were limited to thrift related businesses. FDIC Chairman William Seidman warned that could create “chaos. which led to abuses that originally produced the Act. By 1982. In the late 1980s the United Kingdom and Canada ended their historic separations of commercial and investment banking. its extent must be limited to ensure soundness and competition in the market for funds. which combined “Super NOW” accounts and mortgage loans through a large California-based savings and loan. by 1980 only two US based banks were in the top ten. not harmed. While banks cited such statistics to illustrate the “decline of commercial banking. Along with the “nonbank bank” “loophole” from BHCA limitations. and by 1989 none was in the top twenty five.” By 1985 commercial banks provided 26% of short term loans to large businesses compared to 59% in 1974. the Government insures deposits and could be required to pay large sums if depository institutions were to 9 . or was better.” Sears had built the “Sears Financial Network”. Similarly. If it was “debatable” whether Glass–Steagall was justified in the 1930s. Such losses could threaten the integrity of deposits. As noted above. In 1960 six of the ten largest banks were US based. by securities affiliates. Walter Wriston concluded “the bank of the future already exists.” it made no sense that US commercial banks could underwrite securities in Europe but not in the United States. Conflicts of interest characterize the granting of credit (lending) and the use of credit (investing) by the same entity. Securities activities can be risky. even in the United States seventeen foreign banks were free from this Glass–Steagall restriction because they had established state chartered branches before the International Banking Act of 1978 brought newly established foreign bank US branches under Glass–Steagall. because major foreign countries did not separate investment and commercial banking. leading to enormous losses. Paul Volcker agreed that. US commercial banks could underwrite and deal in securities through branches outside the United States.
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. owned . and against preserving Glass–Steagall as: 1. strengthening the earnings and stability of banks. The securities activities that depository institutions are seeking are both low-risk by their very nature. and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms. the Second Directive represented the European Union’s conclusion that securities activities diversified bank risk. The Senate passed the Proxmire Financial Modernization Act of 1988 in a 94-2 vote.P. Glass–Steagall’s Section 20 prohibited a bank from affiliating with a firm “primarily engaged” in underwriting and dealing in securities. 4. 4. They are losing market shares to securities firms that are not so strictly regulated.” Noting Glass–Steagall had “already been eroded and the erosion is likely to continue in the future. Conflicts of interest can be prevented by enforcing legislation against them. and commercial paper. Depository institutions are supposed to be managed to limit risk. An example is the crash of real estate investment trusts sponsored by bank holding companies a decade ago.” subject to various restrictions including “firewalls” to separate a commercial bank from its Section 20 affiliate. Morgan & Co. establishing subsidiaries (“Section 20 affiliates”) to underwrite and deal in residential mortgage-backed securities. In much of the rest of the world. 2. 3. not commercial banks directly. the General Accounting Office (GAO) submitted to a House subcommittee a report reviewing the benefits and risks of “Glass–Steagall repeal. 10 Section 20 affiliates In April 1987. and would reduce the total risk of organizations offering them – by diversification. Their managers thus may not be conditioned to operate prudently in more speculative securities businesses. 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. securities.” Separately. and to foreign financial institutions operating without much restriction from the Act. Bank holding companies. chairman of the House Commerce and Energy Committee. Reflecting the significance of the “international competitiveness” argument. largely because of opposition from Representative John Dingell (D-MI). and J.GlassSteagall Act collapse as the result of securities losses. a separate CRS Report stated banks were “losing historical market shares of their major activities to domestic and foreign competitors that are less restricted. Citicorp.” The report recommended a “phased approach” using a “holding company organizational structure” if Congress chose “repeal. the Federal Reserve Board had approved the bank holding companies Bankers Trust.” the GAO explained “coming to grips with the Glass–Steagall 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. Lessons learned from their experience can be applied to our national financial structure and regulation. municipal revenue bonds. Whereas United States law sought to isolate banks from securities activities. Depository institutions now operate in “deregulated” financial markets in which distinctions between loans.” The GAO warned that Congress’s failure to act was “potentially dangerous” in permitting a “continuation of the uneven integration of commercial and investment banking activities.” As Congress was considering the Proxmire Financial Modernization Act in 1988. and deposits are not well drawn. the Commission of the European Communities proposed a “Second Banking Directive” that became effective at the beginning of 1993 and provided for the combination of commercial and investment banking throughout the European Economic Community. The House did not pass a similar bill. depository institutions operate simultaneously and successfully in both banking and securities markets.
underwriting corporate stock. Proxmire declared “Congress has failed to do the job” and “[n]ow it’s time for the Fed to step in. 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.” Glass–Steagall only prohibited investment banks from taking deposits. Citing that concern.” Following Senator Proxmire’s letter.P. that the Board had authority to permit this without an amendment to the Glass–Steagall Act. Glass–Steagall also did not prevent investment banks from affiliating with nonbank banks or savings and loans.” No Federal Reserve Board order was necessary for Morgan Stanley to enter that “single financial market. Morgan & Co.” Reinicke described this as “de facto repeal of Glass–Steagall. 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.” before the Federal Reserve Board approved any Section 20 affiliates. and Bankers Trust) had threatened to give up their banking charters if they were not given greater securities powers. Volcker and fellow Federal Reserve Board Governor Wayne Angell dissented from the Section 20 affiliate orders. 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.” which “Glass–Steagall sought to rule out. 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. Expressing sentiments that Representative James A. Senator Proxmire criticized the Federal Reserve Board’s Section 20 affiliate orders as defying Congressional control of Glass–Steagall.P.GlassSteagall Act these Section 20 affiliates. In 1987. such as the money market fund. Morgan & Co. Following the Federal Reserve Board’s approvals of Section 20 affiliates a commentator concluded that the Glass–Steagall “wall” between commercial banking and “the securities and investment business” was “porous” for commercial banks and “nonexistent to investment bankers and other nonbank entities.” so long as the activity was “executed in a separate subsidiary and limited in amount. With the commercial (J. Leach (R-IA) repeated in 1996. Federal Reserve Board Chairman Paul Volcker supported Congress amending Glass–Steagall to permit such affiliates to underwrite and deal in a limited amount of bank-ineligible securities. and the prohibition on taking deposits had “been circumvented by the development of deposit equivalents”.” 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. not from making commercial loans. Citing this competitive “inequality.) and investment (Morgan Stanley) banking arms of the old “House of Morgan” both underwriting corporate bonds and stocks. Volcker disagreed. J. In 1990 the Board approved J. The Board’s orders meant Glass–Steagall did not prevent commercial banks from affiliating with securities firms underwriting and dealing in “bank-ineligible securities. four large bank holding companies that eventually received Section 20 affiliate approvals (Chase.” 11 . however.P. Morgan. 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. Citicorp.” After the Proxmire Financial Modernization Act of 1988 failed to become law. but not corporate securities.
not commercial banks themselves directly. that the Federal Reserve Board supported Glass–Steagall repeal. then president of the Federal Reserve Bank of New York.. Aside from the Board’s authorizations for Section 20 affiliates and for bank private placements of commercial paper.g. The Federal Reserve Board supported “repeal” of Glass–Steagall “insofar as it prevents bank holding companies from being affiliated with firms engaged in securities underwriting and dealing activities. 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... testimony to Congress repeated that banks are “special” in performing “a unique and critical role in the financial system and the economy. president of the Federal Reserve Bank of Minneapolis and a close Volcker colleague.” As described above.e. the Federal Reserve Board “spoke with one voice” in joining the FDIC and OCC in calling for Glass–Steagall repeal. By 1987 Glass–Steagall “repeal” had come to mean repeal of Sections 20 and 32. and insurance services (as authorized by the GLBA 12 years later). (2) sponsor mutual funds sold to customers in individual retirement accounts. operating the payment system and influencing the money supply). through separately capitalized subsidiaries. in the 1930s Glass–Steagall advocates had alleged that bank affiliate underwriting of corporate bonds created “conflicts of interest. commercial paper. 1987.” . would exercise the new securities powers.” he still testified in support of bank affiliates underwriting securities other than corporate bonds. non-financial firms) and added that legislation to allow banks greater insurance powers “could be put off until a later date. Although Paul Volcker “had changed his position” on Glass–Steagall reform “considerably” during the 1980s. Gerald Corrigan. he was still “considered a conservative among the board members.” The Board did not propose repeal of Glass Steagall Section 16 or 21.g. advice and brokerage).” While Paul Volcker’s January 1984. Volcker rejected the Bush Administration proposal to permit affiliations between banks and commercial firms (i.” With Greenspan as Chairman. securities. 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. In its 1986 Annual Report the Volcker led Federal Reserve Board recommended that Congress permit bank holding companies to underwrite municipal revenue bonds. The essay rejected the argument that it is “futile and unnecessary” to distinguish among the various types of companies in the “financial services industry. 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. and mutual funds and that Congress “undertake hearings or other studies in the area of corporate underwriting.e. deposit insurance and Federal Reserve Bank loan facilities) and have special responsibilities (e. Gerald Corrigan. Greenspan testified to Congress in December 1987.. mortgage-backed securities. and (4) sell bank assets through “securitizations. by 1987 federal banking regulators had authorized banks or their affiliates to (1) sponsor closed end investment companies. (3) provide customers full service brokerage (i.” In 1982 E. recommended a legislative “overhaul” to permit “financial holding companies” that would “in time” provide banking.GlassSteagall Act 12 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.” In early 1987 E. Bank holding companies. In 1991 Paul Volcker testified to Congress in support of the Bush Administration proposal to repeal Glass–Steagall Sections 20 and 32.
Markey (D-MA) had written a 1990 article arguing “Congress must amend Glass–Steagall. To correct this “disharmony” Markey proposed replacing Glass–Steagall’s “prohibitions” with “regulation. The OCC ruled that a national bank’s power to sell its assets meant a national bank could sell a pool of assets in a securitization. This permitted commercial banks to acquire assets for “sale” through securitizations under what later became termed the “originate to distribute” model of banking. The Second Circuit stated banks had been securitizing their assets for “ten years” before the OCC’s 1987 approval of Security Pacific’s securitization. the OCC had approved such activity in 1978. in 1987.” As chairman of a subcommittee of the House Commerce and Energy Committee. Representative Edward J. 1980s and 1990s bank product developments Throughout the 1980s and 1990s. The banking industry strongly opposed the bill in that form. In 1990.e. and even distribute the securities that represented the sale. As noted above. regulatory. Melanie Fein notes courts had confirmed by 1990 the power of banks to securitize their assets under Glass–Steagall.GlassSteagall Act 13 1991 Congressional action and “firewalls” Paul Volcker gave his 1991 testimony as Congress considered repealing Glass–Steagall sections 20 and 32 as part of a broader Bush Administration proposal to reform financial regulation. such as Bank of America. In reaction to “market developments” and regulatory and judicial decisions that had “homogenized” commercial and investment banking. it issued securities representing interests in a pool of “leveraged loans. however. as part of the “business of banking. Jan Kregel argues that the OCC’s interpretation of the “incidental powers” of national banks “ultimately eviscerated Glass–Steagall. non-“bank-eligible” securities). issuing pass-through certificates representing interests in residential mortgages and distributing such mortgage-backed securities to investors in a private placement. and judicial developments that were “tantamount to an ill-coordinated. Also in 1978. commercial banks and their affiliates engaged in activities that commentators later linked to the late-2000s financial crisis.. incremental repeal” of Glass–Steagall. and the House rejected it. The federal courts upheld the OCC’s approval of Security Pacific’s securitization activities. Markey stated Glass–Steagall had “lost much of its effectiveness” through market. In arguing that the GLBA’s “repeal” of Glass–Steagall played no role in the late-2000s financial crisis. Securitization. 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. 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”). as Congress considered whether to “repeal” Glass–Steagall. Gonzalez (D-TX) to insert into the bill “firewalls” that banks claimed would prevent real competition between banks and securities firms.” Continental Illinois Bank is often credited with issuing the first collateralized debt obligation (CDO) when. Representative Dingell again stopped House action. the OCC approved a national bank. even though Glass–Steagall would generally prohibit a national bank underwriting or distributing non-governmental securities (i. He reached agreement with Banking Committee Chairman Henry B. with the Supreme Court refusing in 1990 to review a 1989 Second Circuit decision sustaining the OCC’s action. CDOs.” After the House Banking Committee approved a bill repealing Glass–Steagall Sections 20 and 32. 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.” . Markey had joined with Committee Chairman Dingell in opposing the 1988 Proxmire Financial Modernization Act.” This meant national banks could underwrite and distribute securities representing such sales.
 ABCP conduits and SIVs In the early 1980s commercial banks established asset backed commercial paper conduits (ABCP conduits) to finance corporate customer receivables. By the late 1980s Citibank had established ABCP conduits to buy securities.GlassSteagall Act By the late 1980s Citibank had become a major provider of “subprime” mortgages and credit cards. it was not an affiliate of the bank. including credit default swaps In the early 1980s commercial banks began entering into interest rate and currency exchange “swaps” with customers. Arthur Wilmarth argued that the ability to securitize such credits encouraged banks to extend more “subprime” credit.” 14 Glass–Steagall developments from 1995 to Gramm–Leach–Bliley Act Leach and Rubin support for Glass–Steagall “repeal”. 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. Representative James A. Such conduits became known as structured investment vehicles (SIVs). OTC derivatives.” not “securities” under the Glass–Steagall Act. 1995. The SIV’s “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. After being confirmed as Treasury Secretary Robert Rubin announced on February 28. 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 1993–99. In 1996 the OCC issued “guidelines” for national bank use of “credit default swaps” and other “credit derivatives. Repeating themes from the 1980s. Wilmarth also shared the bank regulator concern that commercial banks sold their “best assets” in securitizations and retained their riskiest assets. Leach stated Glass–Steagall was “out of synch with reality” and Rubin argued “it is now time for the laws to reflect changes in the world’s financial system. Regulators eventually ruled banks could even buy and sell equity securities to “hedge” this activity. Banking regulators ruled that swaps (including credit default swaps) were part of the “business of banking. The bank “advising” the ABCP conduit provided loan commitments and “credit enhancements” that supported repayment of the commercial paper. that the Clinton Administration supported such Glass–Steagall repeal. 1995. 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. Jan Kregel argues the OCC’s 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. the new Chairman of the House Banking Committee. introduced a bill to repeal Glass–Steagall Sections 20 and 32.” Banks entered into “credit default swaps” to protect against defaults on loans. need to address “market realities” On January 4. Banks later entered into such swaps to protect against defaults on securities.” . The ABCP conduit purchased receivables from the bank customer and issued asset-backed commercial paper to finance that purchase. Commercial banks entered into swaps that replicated part or all of the economics of actual securities. Commercial banks became the largest dealers in swaps and other over-the-counter derivatives. This “over-the-counter derivatives” market grew dramatically throughout the 1980s and 1990s. Because the ABCP conduit was owned by a third party unrelated to the bank. Leach (R-IA). 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. before the GLBA became effective in 2000.
 Supporting the Leach and Rubin arguments.” Similar to the GAO in 1988 and Representative Markey in 1990 Volcker asked that Congress “provide clear and decisive leadership that reflects not parochial pleadings but the national interest. 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. (3) greater convenience and lower cost for consumers.S. Throughout the 1990s (and particularly in 1996). former Federal Reserve Board Chairman Paul Volcker remained an influential commentator on legislative proposals to permit such activities. 15 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. With his reputation for being “conservative” on expanded bank activities. . Critics questioned the “diversification benefits” of combining commercial and investment banking activities.. highly competitive commercial and investment banking firms were more efficient in competitive global markets. however. Rubin. Senator Proxmire and Representative Markey (despite their long-time support for Glass–Steagall) had earlier expressed the same conclusion. “Federal Reserve research had been unable to find economies of scale in banking beyond a modest size. Volcker continued to testify to Congress in opposition to permitting banks to affiliate with commercial companies and in favor of repealing Glass–Steagall Sections 20 and 32 as part of “rationalizing” bank involvement in securities markets. International rankings of banks by size also seemed less important when.” Reflecting the regulatory developments Volcker noted. including Glass–Steagall “repeal. As Japanese banks declined and U.S. however.” He stated. after the GLBA repealed Glass–Steagall Sections 20 and 32 in 1999. commentators identified four main arguments for repeal: (1) increased economies of scale and scope.-based banks were more profitable.” In 1997 Volcker testified this meant the “Glass–Steagall separation of commercial and investment banking is now almost gone” and that this “accommodation and adaptation has been necessary and desirable. Some questioned whether the higher variability of returns in investment banking would stabilize commercial banking firms through “negative correlation” (i.” Still. (2) reduced risk through diversification of activities. The securities industry became an advocate for “financial modernization” that would open a “two way street” for securities firms to enter commercial banking. “international competitiveness” did not seem to be a pressing issue.” Similarly. By 1995. Securities firms came to view Glass–Steagall more as a barrier to expanding their own commercial banking activities than as protection from commercial bank competition. some of these concerns (which had been identified by the Congressional Research Service in 1987) seemed less important. commercial banking firms became content with the regulatory situation Volcker described. as Alan Greenspan later noted. the commercial and investment banking industries largely reversed their traditional Glass–Steagall positions. financial firms to compete with foreign firms. and (4) improved ability of U. 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. cyclical downturns in commercial and investment banking occurring at different times) or instead increase the probability of the overall banking firm failing. and others.” As described above. 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. 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”. They feared “financial modernization” legislation might bring an unwelcome change. Volcker. Critics also argued that specialized.GlassSteagall Act Leach and Rubin expressed a widely shared view that Glass–Steagall was “obsolete” or “outdated.e. 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.
” wrote in 1995 testimony prepared for Congress that “repeal of the Glass–Steagall Act. and other governmental support for banking should be resolved before commercial banking firms could be given “universal banking” powers. Although Boyd’s 1999 essay was directed at “universal banking” that permitted commercial banks to own equity interests in non-financial firms (i. as Congress was considering legislation that became the GLBA.” After the GLBA repealed Sections 20 and 32. as chairman of the House Banking Committee. When the Federal Reserve Board increased the limit to 25% in . Martin Mayer wrote in 1997 that since the late 1980s it had been “clear” that continuing the Glass–Steagall prohibitions was only “permitting a handful of large investment houses and hedge funds to charge monopoly rents for their services without protecting corporate America. During Congressional hearings to consider the various Leach bills to repeal Sections 20 and 32. too big to fail (TBTF) considerations. allowing nonbank firms to affiliate with banks. but did not change the regulation of bank insurance activities. the essay was interpreted more broadly to mean that “expanding bank powers.e. Similar to Senator Proxmire in 1988. for example. sought to tie any Glass–Steagall reform to requirements for free or reduced cost banking services for the elderly and poor. With banking commentators such as Mayer and Minsky no longer opposing Glass–Steagall repeal. Helen Garten argued that bank regulation became dominated by “consumer” issues.” Although he rejected this scholarship. Boyd. consumer and community development advocates became the most prominent critics of repeal and of financial “modernization” in general.’” Despite these arguments. Leach’s 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. Representative Leach responded to the House’s inaction on his Glass–Steagall “repeal” bill by writing the Federal Reserve Board in June 1996 encouraging it to increase the limit on Section 20 affiliate bank-ineligible revenue.” Representative Leach tried to avoid conflict with the insurance industry by producing a limited “modernization” bill that repealed Glass–Steagall Sections 20 and 32. John H. advocates of “financial modernization” predicted consumers and businesses would enjoy cost savings and greater convenience in receiving financial services from integrated “financial services firms. prior to undertaking reforms limiting TBTF-like coverage for uninsured bank creditors is putting the ‘cart before the horse. and greater community reinvestment requirements.” 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 Glass–Steagall and other legislation from the 1930s. who disputed the benefits of “universal banking.”Hyman Minsky. in itself. Germain (D-RI). By the late 1990s a “remarkably broad academic consensus” existed that Glass–Steagall had been “thoroughly discredited. or the banks. Throughout the 1990s. expansion of Section 20 affiliate activities. merger of Travelers and Citicorp By 1995 the ability of banks to sell insurance was more controversial than Glass–Steagall “repeal. he published an essay arguing that the “moral hazard” created by deposit insurance. would neither benefit nor harm the economy of the United States to any significant extent. scholars continued to produce empirical studies concluding that commercial bank affiliate underwriting before Glass–Steagall had not demonstrated the “conflicts of interest” and other defects claimed by Glass–Steagall proponents.GlassSteagall Act Starting in the late 1980s. sophisticated wholesale market and a highly regulated. In 1999.. 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. commentators also noted the importance of scholarly attacks on the historic justifications for Glass–Steagall as supporting repeal efforts. which produced “a largely unregulated.” In the 1980s Representative Fernand St. particularly free or low cost consumer services. Democratic Representatives and Senators made similar appeals in the 1990s. investors. consistently questioned the value of size and product diversification in banking. “commercial firms”). a staff member of the Federal Reserve Bank of Minneapolis. 16 Failed 1995 Leach bill. by. retail consumer market.
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. The SIA’s 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. Representative Leach. At first the main controversy was whether to permit limited affiliations between commercial firms and commercial banks. The “compromise bill” the House Republican leadership sought to bring to a vote in March 1998. told Frontline the Federal Reserve Board’s Section 20 orders meant the Federal Reserve “got rid of the Glass–Steagall Act. In 2003. Sections 23A and B remained the primary restrictions on commercial banks extending credit to securities affiliates. although SSB was one of the largest US securities firms. and otherwise provide credit support to. Meanwhile. Commentators describe the April 6.” Former Federal Reserve Board Vice-Chairman Alan Blinder agreed the 1996 action increasing “bank-ineligible” revenue limits was “tacit repeal” of Glass–Steagall. in 1997 Congressional Quarterly reported Senate Banking Committee Chairman Al D’Amato (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.” Citigroup could only continue to own the Travelers insurance underwriting business for two (or. Reflecting the process Paul Volcker had described. was opposed by the commercial banking industry as favoring the securities and insurance industries. as financial reform legislation was considered throughout 1997 and early 1998. The House Republican leadership withdrew the bill in response to the banking industry opposition. or to securities underwritten by such affiliates. 1998. and former Federal Reserve Board Chairman Paul Volcker opposed such commercial affiliations. 17 1997-98 legislative developments: commercial affiliations and Community Reinvestment Act In 1997 Representative Leach again sponsored a bill to repeal Glass–Steagall Sections 20 and 32. 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. House Banking Committee Ranking Member Henry Gonzalez (D-TX). 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. Charles Geisst. was permitted without any law change under the Federal Reserve Board’s existing Section 20 affiliate rules. Congressional Quarterly reported how different interests groups blocked legislation and sought regulatory advantages. anyway. a Glass–Steagall supporter. Citigroup’s ownership of SSB. less than 25% of its revenue was “bank-ineligible. but argued “that the market had practically repealed Glass–Steagall. merger announcement between . and life insurance. after the GLBA repealed Glass–Steagall Sections 20 and 32. 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.GlassSteagall Act December 1996. but vowed to bring it back when Congress returned from recess. casualty. with Board approval.” Shortly after approving the merger of Citicorp and Travelers. 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). securities underwritten by their Section 20 affiliates. The Board noted that. however. 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. they would not be able to compete equally with commercial banks.
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. the Federal Reserve and Treasury Department agreed that direct subsidiaries of national banks (“financial subsidiaries”) could conduct securities activities. Through a partisan 54-44 vote on May 6. 1999. The Clinton Administration agreed with Representative Leach in supporting “the continued separation of banking and commerce.. 900) it accepted the bill’s CRA and operating subsidiary provisions. On October 13. The GLBA also amended Section 16 to permit “well capitalized” commercial banks to underwrite municipal revenue bonds (i. 1998. 1999. Russell Feingold (D-WI). The Clinton Administration issued a statement supporting H. not bank. 1999 (with Senator Fritz Hollings (D-SC) providing the only Democratic Senator vote in support). The bill was blocked from Senate consideration by the Committee’s two dissenting members (Phil Gramm (R-TX) and Richard Shelby (R-AL)). 753) the text of the 1998 Committee bill with its CRA provisions and the repeal of Sections 20 and 32. On October 22. who argued it expanded the Community Reinvestment Act (CRA). Barbara Mikulski (D-MD). The nine dissenting Democratic Senators. as first approved by the Senate in 1967. the Senate Banking Committee approved a bipartisan bill with unanimous Democratic member support that.e. by the House in a vote of 362-57 and by the Senate in a vote of 90-8. which had opposed the bill in March. Four Democratic senators (Byron Dorgan (D-ND). 900 that was passed on November 4. 900. modified to provide greater permission for “operating subsidiaries” as requested by the Treasury Department. After these compromises. 900 that would have substituted the text of S. like the House-passed bill. 753 (also providing for the repeal of Glass–Steagall Sections 20 and 32). and real estate development activities through holding company. 1998. and Paul Wellstone (D-MN)) stated they opposed the bill for its repeal of Sections 20 and 32. 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.” The Senate Banking Committee approved in a straight party line 11-9 vote a bill (S. non-general obligation bonds). The day before.” The Clinton Administration issued a veto threat for the House passed bill. 10 because (unlike the Senate passed S.GlassSteagall Act Travelers and Citicorp as the catalyst for the House passing that bill by a single vote (214-213) on May 13.R.” 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. The GLBA repealed Sections 20 and 32 of the Glass–Steagall Act. but that bank holding companies would need to engage in merchant banking. On September 11. subsidiaries. President Clinton signed the bill into law on November 12. Otherwise. would have repealed Glass–Steagall Sections 20 and 32.R. Citicorp. in part because the bill would eliminate “the longstanding right of unitary thrift holding companies to engage in any lawful business. 1999. Senate Republicans defeated (in a 54-43 vote) a Democratic sponsored amendment to S. proposed as an alternative (S. 900) sponsored by Senator Gramm that would have repealed Glass–Steagall Sections 20 and 32 and that did not contain the CRA provisions in the Committee’s 1998 bill. the Senate passed S. Sections 16 and 21 . 10) that repealed Sections 20 and 32. as the Gramm–Leach–Bliley Financial Modernization Act of 1999 (GLBA). On July 1. not Sections 16 and 21. 1999. insurance. a joint Senate and House Conference Committee reported out a final version of S. the House of Representatives passed (in a bipartisan 343-86 vote) a bill (H. 18 1999 Gramm–Leach–Bliley 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. 1999. along with Senate Minority Leader Thomas Daschle(D-SD).
and the GLBA’s amendments to the Bank Holding Company Act. rather than as revolutionary. 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. bank holding companies could expand their securities and insurance activities by becoming “financial holding companies. however. and those companies held 78% of all bank holding company assets. Citigroup was able to retain ownership of the Travelers insurance underwriting business. casualty. After March 11. As John Boyd had earlier.” 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. securities. Under a 1982 amendment to the Bank Holding Company Act bank affiliates had been prohibited from underwriting most forms of insurance. Such foreign banking companies had acquired several medium sized securities firms (such as UBS acquiring .GlassSteagall Act remained in effect regulating the direct securities activities of banks and prohibiting securities firms from taking deposits. commentators did not find much significance in the GLBA’s repeal of Sections 20 and 32.” 19 Commentator response to Section 20 and 32 repeal President Bill Clinton’s signing statement for the GLBA summarized the established argument for repealing Glass–Steagall Section’s 20 and 32 in stating that this change. Financial industry developments after repeal of Sections 20 and 32 Citigroup gives up insurance underwriting The GLBA permitted Citigroup to retain the Travelers property. however. 2000. and their securities related assets had nearly doubled. 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. a business it could have conducted without the GLBA. Overall. The GLBA’s amendment to the Bank Holding Company Act to permit banks to affiliate with insurance underwriting companies was a new power. In 2005 Citigroup sold to Metropolitan Life the Travelers life insurance business. Before that five-year period elapsed. Banking. and insurance activities could increase the “too big to fail” problem. 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. Commentators noted that Citigroup was left with selling insurance underwritten by third parties.” With Salomon Smith Barney already operating as a Section 20 affiliate of Citibank under existing law. Citigroup spun off the Travelers property and casualty insurance business to Citigroup’s shareholders. The great majority of this increase was at non-U. Many commentators noted those sections “were dead” before the GLBA. insurance. Minneapolis Federal Reserve Bank president Gary Stern and Arthur Wilmarth warned that the GLBA’s permission for broader combinations of banking. Because the GLBA permitted banks to affiliate with insurance underwriters. 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. commentators viewed the GLBA “as ratifying and extending changes that had already been made. based banks.S. 40 of the 45 bank holding companies with Section 20 affiliates before 2000 had qualified as financial holding companies.
as both diversification and larger size failed to increase profitability. Lufkin & Jenrette). The combined market share of the five largest U. Early in 2004. the Financial Times reported that “financial supermarkets” were failing around the world. insurance. and former FDIC Chairman William Seidman as stating the GLBA had been less significant than expected in not bringing about the combinations of banking. securities firms. some mergers had occurred “but mostly within the banking industry. Citigroup. and investment banking. and 3 continued to operate Section 20 affiliates subject to pre-GLBA rules. the Joint Report found that concentration levels among securities underwriting and dealing firms had not changed significantly since 1999. 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. 2005.4 percentage point reduction from 1999–2003. Ranked by capital levels. a May 24. 2000.e. insurance. Although the market share of financial holding companies among the 25 largest securities firms had increased by 5. Louis Federal Reserve Bank’s staff issued a study finding that after five years the GLBA’s 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. American Banker article proclaimed 2005 the “year of divestiture” as “many observers” described Citigroup’s sale of the Travelers life and annuity insurance business as “a nail in the coffin of financial services convergence. Jr. 2 conducted securities underwriting and dealing through direct bank subsidiaries (i.” 20 Competition between commercial banking and investment banking firms Commentators pointed to the Enron. the American Banker quoted then retiring Comptroller of the Currency John D. Despite these increases in securities activities by bank holding companies that qualified as financial holding companies. after five years. Of the 45 bank holding companies that had operated Section 20 affiliates before the GLBA.” At a July 13.” He noted that advocates of repealing Sections 20 and 32 had said “[b]anks.” In 2005 the St. with the largest. Hawke described the GLBA provisions permitting such combinations as “pretty much a dead letter. 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.” At the five-year anniversary of the GLBA in November 2004. none of the four largest securities dealing and underwriting firms was affiliated with a financial holding company. and securities] segments of the financial services industry has substantially changed” since the GLBA.7 percentage points from that held in 1999 before the GLBA became effective.. In a speech delivered shortly before the Joint Report was released.S. “financial subsidiaries”). Hawke. 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. experiencing a 2. when bank holding companies could first use the new securities powers the GLBA provided to . 2004. based financial holding companies declined by 1 percentage point from 1999–2003. the Legislative Director of the Consumer Federation cited Roger Ferguson’s 2003 speech and stated the “extravagant promises” of universal banking had “proven to be mostly hype. and insurance companies would merge into financial services supermarkets” and.” 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. 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. all of the increase came from foreign banks increasing their U. Senate Banking Committee hearing on the effects of the GLBA five years after passage. More broadly. securities operations. not across sectors. As Wilmarth’s article indicated.GlassSteagall Act Paine Webber and Credit Suisse acquiring Donaldson.” Although the article noted other commentators expected this would change in 2005. WorldCom.S. and other corporate scandals of the early 2000s as exposing the dangers of uniting commercial and investment banking. 40 had qualified as financial holding companies.
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. At the July 13. 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. 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.” After the GLBA became law. In 1997 the GAO issued a report reviewing those claims.. Melanie Fein has described how the consolidation of the banking and securities industries occurred in the 1990s. 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. bank holding companies. those not part of a bank holding company) entered bankruptcy proceedings (Lehman Brothers).” Fein stated that “[a]lthough the Gramm-Leach-Blily Act was expected to trigger a cascade of new consolidation proposals. 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. In 2003 the GAO issued another report reviewing those claims. 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. After the GLBA became law. 2004. 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. were acquired by bank holding companies (Bear Stearns by JP Morgan Chase and Merrill Lynch by Bank of America). which would have violated the “anti-tying” provisions of the Bank Holding Company Act. a period before the GLBA permitted financial holding companies. the insurance company Met Life. 21 .GlassSteagall Act “financial holding companies.” 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. 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. No major investment bank. Senate Banking Committee hearing on the GLBA’s effects. or converting into.e. 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. 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).” Commentators cite only three major financial firms from outside the banking industry (the discount broker Charles Schwab. and in pursuing this objective they might have loosened their credit standards excessively.” The working paper only examined corporate bonds underwritten from 1991 through 1999. the Securities Industry Association representative explained securities firms had not taken advantage of the GLBA’s “financial holding company” powers because that would have required them to end affiliations with commercial firms by 2009. however. investment banks continued to claim such illegal “tying” was being practiced. 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. Then all five major “free standing” investment banks (i. 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 Reserve’s “intrusive banking-style oversight” of the “overall holding company. became a bank holding company until 2008 in the midst of the late-2000s financial crisis. particularly after the Federal Reserve Board’s actions in 1996 and 1997 increasing Section 20 “bank-ineligible” revenue limits and removing “firewalls.
” Warren explained Glass–Steagall had kept banks from doing “crazy things.” which “provided incentives for excessive risk taking. Martin Mayer argued there were “three reasonable arguments” for tying Glass–Steagall repeal to the financial crisis: (1) it invited banks to enter risks they did not understand. however. This new “liability management” permitted banks to fund their activities through the “capital markets. 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. Glass wrote that “[t]he public—which 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. Joseph Stiglitz.e. and extracting fees at every step along the way. Mayer’s 1974 book The Bankers detailed the “revolution in banking” that followed Citibank establishing a liquid secondary market in “negotiable certificates of deposit” in 1961. 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” . Wolff and others have tied Glass–Steagall repeal to the late-2000s financial crisis. packaging and securitizing credits and then selling them off. never exercised any new powers available through Glass–Steagall “repeal.e. Sections 16 and 21) remained in effect and that the GLBA only repealed the affiliation provisions in Sections 20 and 32. the Glass–Steagall separation of investment banking..” She credited FDIC insurance.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 Glass–Steagall was still on the books?” Blinder argued that “disgraceful” mortgage underwriting standards “did not rely on any new GLB powers.” As described above. and Merrill Lynch) never became “financial holding companies” under the GLBA and. Carl Felsenfeld and David L. Kuttner acknowledged “de facto enroads” before Glass–Steagall “repeal” but argued the GLBA’s “repeal” had permitted “super-banks” to “re-enact the same kinds of structural conflicts of interest that were endemic in the 1920s. 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. Wallison in noting many GLBA critics do not understand that Glass–Steagall’s restrictions on banks (i. in 1978 the OCC approved a national bank securitizing residential mortgages.” Similarly. The American Bankers Association. Mayer. Bear Stearns.” 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 Glass–Steagall Act. In 1973 Sherman J. AIG.” rather than through the traditional regulated bank deposit market envisioned by the 1933 Banking Act. Robert Weissman. and (3) it joined the incompatible businesses of commercial and investment banking.GlassSteagall Act 22 Glass–Steagall “repeal” and the financial crisis Robert Kuttner. then described banking developments in the 1970s and 1980s that had already established these conditions before the GLBA repealed Sections 20 and 32. Richard D.” which he characterized as “lending to speculators. 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. therefore.” They joined Jonathan R. Weissman agrees with Stiglitz that the “most important effect” of Glass–Steagall “repeal” was to “change the culture of commercial banking to emulate Wall Street's high-risk speculative betting approach.” Stiglitz argued “the most important consequence of Glass–Steagall repeal” was in changing the culture of commercial banking so that the “bigger risk” culture of investment banking “came out on top. Lehman Brothers.” that “free-standing investment banks” not the “banking-securities conglomerates” permitted by the GLBA were the major producers of “dodgy MBS. Elizabeth Warren. Macey and Peter J. wholesale or retail.” He also argued the GLBA “created ever larger banks that were too big to be allowed to fail.” like nonbank lenders in the “shadow banking market..” Lawrence White and Jerry Markham rejected these claims and argued that products linked to the financial crisis were not regulated by Glass–Steagall or were available from commercial banks or their affiliates before the GLBA repealed Glass–Steagall sections 20 and 32. (2) it created “network integration” that increased contagion.” and that he could not “see how this crisis would have been any milder if GLB had never passed. former President Bill Clinton.
bringing shadow banks into the regulatory framework.” The Project argues 1999 was Congress’s opportunity to reject 25 years of “deregulation” and “confront the changing financial system by reaffirming the importance of effective structural safeguards.” 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.” “enabled the financial crisis” and “may well have hastened it. In 2009. Helen Garten described the transformation of the same companies into “wholesale banks” similar to European “universal banks. J. sold.2886).S. and Bankers Trust “built financial profiles similar to securities firms with a heavy emphasis on trading and investments. which included a belief that “non-depository ‘shadow banks’ should continue to compete in the banking business.” Jan Kregel agrees that “multifunction” banks are a source for financial crises.” In describing the “transformation of the U. The amendment was not voted on by the House. the bill that became the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. the Congressional Research Service issued a report describing securities activities banks and their affiliates had conducted before the GLBA. 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. Kregel describes Glass–Steagall 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 Glass–Steagall had sought to provide a bank monopoly.GlassSteagall Act were used in the “money markets” and “turned out to be extremely volatile. but he argues the “basic principles” of Glass–Steagall “were eviscerated even before” the GLBA. which would have reinstated Glass–Steagall Sections 20 and 32. The amendment would have capped deposits and other liabilities and .R. 4173. On December 16. despite remaining bank holding companies.” 23 Proposed reenactment During the 2009 House of Representatives consideration of H. Treasury Secretary Timothy Geithner testified to the Joint Economic Committee that he opposed reenacting Glass–Steagall and that he did not believe “the end of Glass–Steagall played a significant role” in causing the financial crisis. The Obama Administration has been criticized for opposing Glass–Steagall reenactment.” 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. Arthur Wilmarth described how during the 1990s. 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. and securitized risky mortgages. Senators John McCain (R-AZ) and Maria Cantwell (D-WA) introduced in the Senate the “Banking Integrity Act of 2009” (S. from after the “revolution in banking” described by Mayer in 1974 to the effective date of the GLBA). such as the Glass–Steagall Act's firewall and market share caps to limit the size of banks.P. The Brown–Kaufman amendment (or the "SAFE Banking Act") was a failed 2010 amendment proposed in the United States Senate to be part of the Dodd–Frank bill by Democratic Senators Sherrod Brown (OH) and Ted Kaufman (DE). but was not voted on by the Senate. all the while fueling a massive housing bubble and building a highly leveraged. Ponzi-like pyramid of derivatives on top.” In 1993. and developing new rules to control the dangers inherent in derivatives and other engineered financial products.e. The Report stated Glass–Steagall had “imperfectly separated.. While accepting that under Glass–Steagall financial firms could still have “made. Before the Senate acted on its version of what became the Dodd-Frank Act. financial services industry” from 1975-2000 (i. Representative Maurice Hinchey (D-NY) proposed an amendment to the bill that would have reenacted Glass–Steagall Sections 20 and 32 and also prohibited bank insurance activities. Morgan & Co. 2009.
 Glass–Steagall Section 16 permits a bank to purchase and sell (i. not “trading” of.GlassSteagall Act restricted bank assets to 10% of US GDP. however. Glass–Steagall Section 16 continued to restrict bank securities purchases. The GLBA. the major commercial banks have experienced long-term success in serving customers and generating revenues with these activities. underwrite. expanded the list of “bank-eligible” securities to permit banks to buy. which would reinstate Glass–Steagall Sections 20 and 32. which would (1) amend the Federal Deposit Insurance Act to add prohibitions on FDIC insured bank affiliations instead of reenacting the affiliation restrictions in Glass–Steagall Sections 20 and 32. Morgan’s revenue was from trading.” The Volcker Rule will prohibit such “proprietary trading” of non-government securities.” Under the Volcker Rule. 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.” After the GLBA became law. U. Glass–Steagall Section 16 prohibits banks from being a “market maker” or otherwise “dealing” in non-government (i. non-government securities the bank was permitted to purchase as “investment securities. Glass–Steagall restricted commercial bank “dealing” in. Hinchey (D-NY) introduced in the House the “Glass–Steagall Restoration Act of 2011” (H.e.. A 1995 study by the federal banking regulators of commercial bank trading activity from June 30.” 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. Representative Maurice D. as “Glass–Steagall lite.” Some have described the Volcker Rule.e. 2011. (2) direct federal banking regulators and courts to interpret these affiliation provisions and Glass–Steagall Sections 16 and 21 in accordance with the Supreme Court decision in Camp. to June 30.R. The Volcker Rule permits “market making” and other “dealer” activities in non-government securities as services for customers. not only “full faith and credit” government bonds. 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. 1984. and (3) repeal various GLBA changes to the Bank Holding Company Act. which among other things limited proprietary trading by banks and their affiliates. banks with the greatest securities activities held more than 20% of their assets as trading assets.” They wrote that the Volcker Rule’s proprietary trading ban contained in statutory language they proposed is a “modern Glass–Steagall” because Glass–Steagall 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. By 1997.. Before and after the late-2000s financial crisis. permits “trading”) for a bank’s own account non-government securities that the OCC approves as “investment securities. particularly its proprietary trading ban.S. 2451). 2011. Arthur Wilmarth wrote that from 1990-1997 the nine U. On April 12. 1994. 24 Volcker rule ban on proprietary trading as Glass–Steagall lite The Dodd-Frank Act included the Volcker Rule. 40% of J. 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. 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.” As described above. 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.R.S. “bank-ineligible”) securities.P.” . 1489).” In reporting the study results. In 2002. On July 7. and deal in municipal revenue bonds. Representative Marcy Kaptur (D-OH) introduced in the House the “Return to Prudent Banking Act of 2011” (H.
 Although Michel Barnier. This was not a Glass–Steagall change but a change to the Bank Holding Company Act. “firewalls” were intended to isolate the bank from the affiliate. 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.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. Bank of England Governor Mervyn King expressed concern the European Commission could block implementation of the ICB proposal as a violation of Commission standards. 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.” As described above. 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. in November 2011 he announced an “expert commission” would “study the mandatory separation of risky investment banking activities from traditional retail lenders.” Separate from its proprietary trading ban. Volcker had long testified to Congress in support of repealing Glass–Steagall Sections 20 and 32. “reform” or apply Glass–Steagall were based on isolating a commercial banking firm’s expanded securities activities in a separately capitalized bank affiliate. The Volcker Rule will affect the ability of bank affiliates to make such investments.” He. “firewalls” sufficient to prevent a bank from assisting its affiliate would eliminate the purpose of the combination.” On October 2.” Volcker’s criticism was that Congress “didn’t replace it with other restrictions. 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. 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.” 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. which previously limited the size of investments bank affiliates could make in a company engaged in activities not “closely related to banking. 25 ”Ring fencing” proposal in United Kingdom as Glass–Steagall substitute The Independent Commission on Banking’s (ICB) proposal to “ring fence” retail and small business commercial banking from investment banking in the United Kingdom has been described as comparable to the Glass–Steagall separation of commercial and investment banking. 2012. 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.” Such merchant banking investments may be made through private equity funds. In either case. therefore. Both Volcker and Greenspan proposed that the . but “workable” firewalls would be insufficient to prevent such assistance. Thus. the committee appointed to study the issue recommended a form of “ring fencing” similar to the proposal in the United Kingdom. The GLBA amended the Bank Holding Company Act to permit “merchant banking” investments by bank affiliates subject to various restrictions. In 2010 he explained that he understood Glass–Steagall as preventing banks from being principally engaged in underwriting and dealing in corporate securities. but they have not provided such permission. 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. the Volcker Rule restricts bank and affiliate sponsorship and ownership of hedge funds and private equity funds. did not believe “repeal of Glass–Steagall was terrible” but that Congress “should have thought about what they replace it with. European Union internal market Commissioner. Glass–Steagall and “firewalls” Congressional and bank regulator efforts to “repeal”.
.” and that in the end the exemptions did not prove very “useful.. In 1995 Arthur Wilmarth proposed applying Litan’s “narrow bank” proposal to U.” but the Federal Reserve Board’s exemptions allowed banks to shift the risk of such investments from the shadow banking market to FDIC insured banks during the crisis. As Kotlikoff notes. banks (“global banks”) that had become heavily involved in “capital markets” activities through “Section 20 affiliates. so that the bank was “very much protected. 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. 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. 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. in 1987 Robert Litan proposed “narrow banking.e. Arthur Wilmarth. that shareholders would be unprotected. despite the Treasury Department’s assurance that “firewalls” between the bank and its operating subsidiary would prevent the expansion of the “federal safety net.. Section 23A generally prevented banks from funding securities purchases by their affiliates before the financial crisis (i. but he suggested that only insured creditors would be fully repaid. The Federal Reserve Board’s 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.e.” derivatives. 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. mutual fund) to promise payment of deposits at “par” (i.” 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.” Kotlikoff would only permit a bank (i. Gary Stern.” As described above. 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. although Greenspan had pointed to that experience as questioning the ability of firewalls to isolate one part of a financial firm from the rest.” 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.” Litan suggested commercial banking firms be freed from Glass–Steagall 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. Greenspan did not deny that the government might act to “manage an orderly liquidation” of a large financial “intermediary” in a crisis.GlassSteagall Act solution was adequate supervision. mutual fund) held 100% of all deposits in cash as a trustee.” 26 Limited purpose banking and narrow banking Laurence Kotlikoff was disappointed the ICB did not adopt the “limited purpose banking” he proposed to the ICB. 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. and that uninsured creditors would receive less than full payment through a discount or “haircut. Under Wilmarth’s proposal (which he repeated in 2001 after the GLBA became law) only banks that limited their activities to taking deposits and making commercial loans would be permitted to make commercial .e. $1 for every $1 deposited) if the bank (i.e. This would require a bank to operate like a mutual fund in repaying “deposits” based on the current market value of the bank’s assets. including sufficient capital and other requirements.S..
 “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. There is general agreement that the crisis emerged in the shadow banking markets not in the traditional banking market. As with Kotlikoff’s “limited purpose banking” proposal. be subject to Federal Reserve supervision unlike lenders in the unsupervised “shadow banking” system. sophisticated wholesale market.” which could reduce the deposit base subject to CRA requirements. The proposal was intended to permit securities firms to continue to maintain ownership of commercial firms while gaining access to the Federal Reserve’s “payment system” and “discount window”. Whereas “narrow banks” would be FDIC insured. critics (including the Independent Bankers Association of America and Paul Volcker) opposed woofies (and a similar 1996 proposal by Representative James A. 27 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. and make other investments. Because woofies would have had access to the Federal Reserve discount window and payments service. Morgan lobbied to change the final legislation to permit them to become woofies. The large “global banks” would fund their lending through the capital markets just like investment banks and other “shadow banking” lenders. so long as the firm did not take FDIC insured deposits. When Chase and J. When negotiators decided they could not resolve the dispute. purchase securities.” 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.” their goal was to eliminate so far as possible the competitive advantages of the “parallel” or “shadow” banking market. Helen Garten had identified the “consumerization” of banking regulation as producing “a largely unregulated. “Woofies” were similar to the “global bank” structure suggested by Arthur Wilmarth because they would not use FDIC insured deposits to make commercial loans.” “woofies” would be free to lend.000 or more. Leach) for providing unfair competition to banks. Although D’Arista and Schlesinger acknowledged the regulation of banks and of the parallel banking system would end up only being “comparable. Many commentators have argued that the failure to regulate the shadow banking market was a primary cause of the financial crisis.GlassSteagall Act loans with FDIC insured deposits. but only invest in FDIC approved “safe securities. They proposed to equalize the cost by establishing “uniform regulation” of banks and the lenders and investors in the parallel banking system. 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. because they would not hold any FDIC insured deposits. Although October 1999 press reports suggested bank holding companies were interested in becoming woofies. they complained only Goldman Sachs and “a few others” could qualify as a woofie. Wilmarth expected only “community banks” specialized in making consumer and small business loans would continue to operate as such traditional banks. They would. the New York Times reported in July 1999 that banking and securities firms had lost interest in becoming woofies.” In their October 1999 compromise on CRA provisions in the GLBA. 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. only investment pools funded 100% from equity interests would remain unregulated as banks. As described above. however.” which created the risk of the . permission for woofies was eliminated from the final GLBA.P.
Kotlikoff suggests commercial banks only became involved with CDOs. 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.GlassSteagall Act “underproduction of regulation” of that market.. each specifically examines Glass–Steagall. hedge funds. Boston University economist Laurence J. 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. . The ICB stated Glass–Steagall had been “undermined in part by the development of derivatives.” He proposes to deal with actual commercial banks by imposing “Glass–Steagall-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 protect—making loans and taking deposits—and related activities consistent with the presence of the safety net. SIVs.” 28 Glass–Steagall 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 Glass–Steagall separation of commercial and investment banking. or otherwise) could only issue obligations to repay amounts equal to the value of their assets.” All limited liability financial companies (not only today’s “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. securities firms. Thomas Hoenig wrote Senators Maria Cantwell and John McCain (the co-sponsors of legislation to reinstate Glass–Steagall 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 “Glass–Steagall-type laws” to separate “higher risk. shadow banks such as Bear Stearns and AIG during the financial crisis] out in a crisis. Writing in 1993. 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.” The ICB also argued that the development before 1999 of “the world’s leading investment banks out of the US despite Glass–Steagall 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. Thomas Hoenig rejects both “limited purpose banking” and the proposal to regulate shadow banking as part of the banking system. 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. Laurence Kotlikoff’s “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. 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.e. long term securities.” but he rejects Glass–Steagall 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.”) During the Senate debate of the bill that became the Dodd-Frank Act. Jane D’Artista 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 Glass–Steagall repeal because “the separation of banking and securities functions is a proven. Robert Litan and Arthur Wilmarth presented their “narrow bank” proposals as a basis for eliminating Glass–Steagall (and other) restrictions on bank affiliates. and other “risky products” after Glass–Steagall was “repealed.
72-73. pp.  . 171. (“It is true that the Glass-Steagall law is no longer appropriate to the economy in which we lived. 3 and 15-22. Perkins 1971. . Fein 2011. which was highly organized. pp. 2012. Macey 2000.” In Mainland Europe.” Instead of reinstating Glass–Steagall prohibitions on such underwriting. with mainstream opinion leaders such as the Financial Times editorialists calling for the adoption of an EU-wide "Glass Steagall II".” to be “natural extensions of commercial banking.  Malloy 2011. 251. p.03[B].  . considered one of the driving forces behind the considerable financial deregulation and “mega-mergers” of the 1990s. Wilmarth 1990. 564. The special lending to individual member banks could be made only in “exceptional and exigent circumstances. p.+ 1932. Fein 2011.  Kennedy 1973. . com/ books?id=Q7J_EUM3RfoC& pg=PA403& lpg=PA403& dq=friedman+ glass+ steagall+ 1932#v=onepage& q& f=false). google. 5. Hoenig proposed restoring “the principles underlying the separation of commercial and investment banking firms. 104-105. § 9.” Both forms of lending were based on the borrowing member banks not having sufficient "eligible assets" to borrow on normal terms. and “high quality asset-backed securities.  Patrick 1993. pp. Greenspan 1987. p. It worked pretty well for the industrial economy. 50-53 and 203-204. 103-128 and 204-205. fn. some scholars have suggested Glass–Steagall should be a model for any in-depth reform of bank regulation: notably in France where SFAF and World Pensions Council (WPC) banking experts have argued that "a new Glass–Steagall Act" should be viewed within the broader context of separation of powers in European Union law. Burns 1974. free of financial crises. Cleveland and Huertas 1985. fn. 24. 168-172. p. com/ books?id=Q7J_EUM3RfoC& pg=PA321& lpg=PA321& dq=friedman+ february+ 27. 54. §4. pp.GlassSteagall Act often more leveraged. he says: bring back the Glass–Steagall Act of 1933 which led to half a century. pp. On July 25. Fein 2011.  Perino 2010  Bentson 1990. Macey 2000. 718. 219.  . In effect. pp. pp. pp. Simpson Thacher 1998. Hoenig agreed with Paul Volcker.  . Lockner and Hansche 2000. 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. Burns 1974.+ glass+ steagall+ Act+ 1932#v=onepage& q& f=false) and pp. p. pp. pp. activities of investment banks” from commercial banking. Fein 2011. p. Each form of special lending to Federal Reserve member banks required approval from at least five members of the Federal Reserve Board. pp. that “financial market developments” had caused underwriting corporate bonds (the prohibition of which Volcker described as the purpose of Glass–Steagall). pp. p. But the world is very different. fn. 212-219.  . 37.  . pp.  Reinicke 1995. 560. p. 71-77. 220 and 222.  Macey 2000. . pp. 691-692 and 716-718. Perkins 1971. This perspective has gained ground after the unraveling of the Libor scandal in July 2012.  .” 29 Notes     . 497-505. 9-37. 172-187.  Wilmarth 2008. 716.  Kennedy 1973. §4. 399-406 (http:/ / books. 1161. much more centralized and much more nationalized than the one in which we operate today. 524. Wilmarth 2002. p.  . §4. Patrick 1993. 47-89. pp.  Friedman and Schwartz 1963 . Kennedy 1973.02[B].03[D]. revenue bonds. and also underwriting of corporate equity.  Patrick 1993. . google.  Wilmarth 2008. p. p. however.  Kennedy 1973. p.03[A]. former Citigroup Chairman and CEO Sandy Weill.”)  . 1-6. Patrick 1993. Kelly III 1985. Wilmarth 2002. pp. Lockner and Hansche 2000. 321 (http:/ / books. §4.03[C]. p 78. 37. 172-174. 41-42 and 79. surprised financial analysts in Europe and North American by “calling for splitting up the commercial banks from the investment banks. pp.
Pecora 1939. pp. Rodkey 1934. § 4. . § 7. 5. pp. 522-524.  .  . Patrick 1993. p. 66-70. .  Reinicke 1995. 4-8 to 4-9  Fein 2011. 31. Investment Company Institute v. p.04[C]. Capatides 1992. 1142-1143.  . Reinicke 1995.06[A]. Wilmarth 2008.10 "The regulatory dynamic of innovation and protection").  Reinicke 1995. 7-9. pp. p. . 508-509 and 521-525. § 4. pp.  Mayer 1984. 7-90. 565. 7. p. google.  .  . 34.  Burns 1974. Hendrickson 2001. 475 (“Congress drew a clear distinction between member banks and their affiliates in the Glass–Steagall Act.  Wilmarth 1990.  pp. p. (http:/ / books.  Fein 2011. p. pp. 621-622 (for OCC actions) (1971). pp. 7-90 to 7-91. Wilmarth 1990. Shull and White 1998. 201  . Fein 2011.  Peach 1941.  Reinicke 1995. 57-58. com/ books?id=sII_dLAeZBgC& pg=PA13& lpg=PA13& dq=white+ comptroller+ saxon+ revenue+ bond#v=onepage& q& f=false)  White 1992.  Vietor 1987. pp. Reinicke 1995. 200-204. p. p. p.  Minsky 1982. pp. F.GlassSteagall Act  . 65-66. 38-43. 4 (Section 7).  . pp. (http:/ / books. p. pp. justia. pp.  .02[A].03[A]. pp. 30 . pp. 1137. Litan 1987. 1142-1144. pp. Reinicke 1995.  Garten 1989.  Burns 1974. pp. p.  Mayer 1974. pp.  Macey 2000.  . Garten 1991. Wilmarth 2008. 8-14. § 7. 590-591.  . Malloy 2011. . p. pp. Benston 1990. 2012. Peach 1941. p.06[A]. 44 and 47-53. p. p. pp. pp. p.  Benston 1990. VI. com/ us/ 401/ 617/ case. p.  Fein 2011.  . 893. 66-68 and 75. pp. Willis 1935. 82-104. Retrieved February 18. pp. chapter 3. p. . 7-90 to 7-91. 160. pp. 9-21.S. 717. 170-171. 1147-1148.  Eaton 1995. 515-516. pp.  . 91-92. 688-690. p. 1 (Section 3(a)). 13 and 15. 170-171. § 9. pp. 8.  .  Wilmarth 2008. Camp. 560. 565. 66 (Section 3.  Wilmarth 1990.  Perkins 1971. pp. 7. Capatides 1992.  . 860. 9. pp. html). xii-xiv. .  Reinicke 1995. 8 (Section 11(a)). 503-504 and 517-522. com/ books?id=sII_dLAeZBgC& pg=PA7& lpg=PA7& dq=white+ comptroller+ saxon+ new+ forceful#v=onepage& q& f=false)  Pitt and Williams 1983. p. 201. . 523 and 531-535.  Shull and White 1998. Perkins 1971. pp. 269. 401 U. p. pp. 34-45. p. pp. p.  Garten 1989. White 1992. 617 (http:/ / supreme. 142. pp.01 INTRODUCTION. 154-155. p. .  Langevoort 1987. p. p. fn. 7-5. § 4.” pp. 95.  Pitt and Williams 1983.  Wilmarth 2008. and 115-116. 705-711. google. .  Minsky 1982. 4-29 to 4-30 and § 7.  White 1992.  Garten 1989.  . pp.  Wilmarth 2008. pp. 44-45.  .  . pp. Peach 1941. pp. 4-30 and § 7.06[A].  Fein 2011. 31  .  Wilmarth 1990. 1202-1207. p.04[C]. pp. 590. p. 13.”) Benston 1990. 265-266. . 59. 33-39. pp. “Securities Trading Activities Pursuant to Investment Powers.
30-31. pp. 98 (on effective date).04[A].  . . 49-52.  Kurucza et al. pp.2. 38-39.K.  Reinicke 1995. 92 (for the U. Eaton 1995. 3.  Reinicke 1995.105-111. 93. 103-4.  Reinicke 1995. § 4. Shull and White 1998. pp. 6. 53 (http:/ / books. pp. 12.  . . Reinicke 1995. p. . 7. Kurucza et al. p. Reinicke 1995. 93. 1219. Greenspan 1987.  . 1202-1203. Jeannot 1999. 512-513. p. google. . pp. 74 and 76. p. pp. 1988.  Reinicke 1995. pp. 1-39. p. 92. com/ books?id=sII_dLAeZBgC& pg=PA53& lpg=PA53& dq=white+ comptroller+ transformation+ proxmire+ protectionist+ dinosaur#v=onepage& q& f=false).05[C] . 104. FRB Manual. pp. 1107. . 76-77.  Vietor 1987.21. 104. pp. Reinicke 1995. 505-506. 65-70. pp. pp. pp.  Reinicke 1995. pp. 110. pp. 49.05[C] . . § 1. p. Vietor 1987. Reinicke 1995. fn. 3. 1988.’s Big Bang) and 95 (for broader global “deregulation”). 1733. Section 3600. § 1. 49. Mayer 1984. § 4. Reinicke 1995. pp. p. 167. Reinicke 1995. 31  Fein 2011.  Benston 1990.06[F]. 1112 and 1119. . p. fn.  Fein 2011. 114 and 124-125. Reinicke 1995. . Fein 2011. Fein 2011. pp. 103.05[C] . p. p. FRB Manual. 103-104. pp.21. p. 69. Jeannot 1999. p. 87-725E). pp. Reinicke 1995. Pitt and Williams 1983. . Shull and White 1998. . Greenspan 1987. 1189 and 1201-1202. p. 7. p. 535. 1-14. pp. pp. . pp. 110-111. . . 96-99.  White 1992. . 1-9 to 1-12. . 71 (for opposition to underwriting corporate bonds). p. . p.3. 99-100 and 105-109. p. 95.                                   Mayer 1974. and 101.  Reinicke 1995. pp.  Garten 1989. Mayer 1984. 32-34. Fein 2011.  Eaton 1995. Fein 2011. Reinicke 1995.04.GlassSteagall Act  Reinicke 1995. 1202-1210. p. CRS-4 to CRS-5.  Capatides 1992. pp. p. pp. 91 and 95. 84-85 and 91-101  Reinicke 1995. Reinicke 1995. § 1.  Reinicke 1995. . and 1736-1738 (on securities powers). 1737-1738. 505-506. Eaton 1995. 98-100. p. p. p. p. pp. 5-6. pp. . Reinicke 1995. 61. p. Reinicke 1995. Reinicke 1995. . . pp. pp. p. Section 3600. 103-104. .  Reinicke 1995. pp. Shull and White 1998. 709-712. 96. pp. Reinicke 1995. § 4. . Reinicke 1995. . 98 (quoting CRS Report No. 103.  Reinicke 1995. Reinicke 1995. pp. . . Reinicke 1995.  Langevoort 1987. Eaton 1995. p. pp.
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html) • Full text of the Glass–Steagall Act followed by New York Federal Reserve Bank Explanation (http://fraser. "Walmart and the Separation of Banking and Commerce".com/abstract=984103). Walter. Henry Parker..org/pages/7165/Glass–Steagall-Act. • Uchitelle.com/ 2010/02/17/business/17volcker. Favor More Regulation" (http://www. Eugene Nelson (1986).fdic. • White. Arthur E.org/wgbh/pages/ frontline/shows/wallstreet/weill/demise.pbs.org/publication-issue/?id=10671) • Glass Subcommittee hearings (http://fraser.html) • On the systematic dismemberment of the Act from PBS's Frontline (http://www. New York Times.worldcat. • Wilmarth. Connecticut Law Review 39 (4): 1539–1622. New York: Columbia University Press. 2010). Explorations in Economic History 23 (1): 33–55. Louis (February 16. stlouisfed.jrank. 42 External links • Glass–Steagall Act – further readings (http://law.org/10. Chicago: Irwin Professional Publishing.gov/bank/analytical/firstfifty/) • 1987 Federal Reserve Bank of Kansas City Jackson Hole Symposium on Restructuring the Financial System (http://www. Ingo. OCLC 742920 (http://www.GlassSteagall Act • Saunders. ISBN 0-7863-0466-9.pdf) .stlouisfed.org/publication/?pid=87) • FDIC History: 1933-1983 (http://www.org/publication/?pid=675) • Pecora Investigation hearings (http://fraser. • Willis.html). "Elders of Wall St. Jr.doi. Universal Banking: Financial System Design Reconsidered. Anthony.frb.1016/0014-4983(86)90018-5).stlouisfed. Chapman. eds. "Before the Glass–Steagall Act: An analysis of the investment banking activities of national banks".1016/0014-4983(86)90018-5 (http:// dx.kc. (2007). (1997). SSRN 984103 (http://ssrn.nytimes.org/oclc/ 742920). The Banking Situation: American Post-War Problems and Developments. John (1934). doi: 10.org/publicat/sympos/1987/S87.
SDC. Oneeyedguide.org/licenses/by-sa/3. Niceguyedc.0/ . Hobit. Steven J. Kgrad.Article Sources and Contributors 43 Article Sources and Contributors Glass–Steagall Act Source: http://en. BigK HeX. Wikibluesfreak. Htonl. Whkoh. Topbanana. Int21h. AgnosticPreachersKid. John254. Dan. Fcy. Adlerschloß. Dreginald. Jags427. RKill. J. Denimadept. AndrewLeeson. Zad68. Bbigjohnson. JohnSawyer. Will Beback. Polmandc.wikipedia. AnimeJanai. Dvoiceoreason. Uriel8. Jenix89. Mbelisle. Nwlaw63. JamesMLane. Last1in. Lackingdirection. Hmains. MeStevo. THC Loadee. PGWG. Some jerk on the Internet. Johncsrnyc. Paramecium13. Nil Einne. Tabrez. Pianoman13. Analoguni. Feureau. R'n'B. Ospalh. UpstateNYer. AscendingIntellect.jpg: Original uploader was The Mystery Man at en. Wink37. Mav. Dratman. Nutcracker. Luke 19 Verse 27. DesertRat16. EAFAAT. Prevenient. LordHarris. Blinkozo. Byelf2007. Headbomb. Cbowen4.org/w/index. DLZ. Bobo192. Linguo42. Summit88. Jennavecia. Rnolds. Nunh-huh. AaronF2. Pawyilee. MER-C. UncleBubba. Lights. Ted87. Sesel. Goodconstitution. Gz1derbread. GorillaWarfare. Arbero. Septegram. Adam sk. Moorehaus. Amelapay. Rl. BoomerAB.jpg: US House of Representatives derivative work: Adam sk (talk) License Creative Commons Attribution-Share Alike 3. Philvarner. Bsadowski1. Wikidea. John K.wikipedia. Justanotherperson. Piano non troppo. Meco. Trusilver. Whatup816. Ktr101. Digestible. John of Reading. Blueandgreen24. Temporaluser. Nosneh. DocendoDiscimus. NoSpinJustFacts. Rossy65. Vegetarian75. Dr. Cooldude7911.Andersohn. Winampman. Fdssdf. Brentdax. Jmsand. Jrlevine. LuK3. GoldRingChip. Lokpest. Iota. Abe. Jujutacular. CarolynETaylor. Vinnie the lips. Adjwilley. Bulba2036. Rewalt. D1stewart1. Cumulus Clouds. UnQuébécois. The PIPE. Adam Carr. PiMaster3. Mindmatrix. Hercules. Tyler McHenry. Antifamilymang. Best O Fortuna. Htournyol. Seaphoto.jpg License: Public Domain Contributors: CGlass. Arbeit Sockenpuppe. Rjwilmsi. Jesan Fafon. B. Licenses and Contributors File:GlassSteagall. Esprqii. Bender235. Solarra. Benjamin9832. It Is Me Here. Edward. Madrone. Rickterp. Kaltenmeyer. Kitsunegami. Foofbun. JohnDoe0007. NuclearWarfare. Connormah. Roadrunner. 496 anonymous edits Image Sources. Uncle Dick. Twalls. Skakkle. Olivier. Arthur Rubin. Wikimalte. Ground Zero.php?title=File:GlassSteagall. Ggarndt. Famspear. BigPimpinBrah. Ray Radlein. Bkuschel. Encyclopedant. Khazar2. Solferino. Fang Aili. Neo Poz. Catgut. Vints1. Foogod. Beland. Blahblah5555.jpg Source: http://en. Orion prince. Rodrigo Cornejo.0 Unported //creativecommons. ConMan. Clyde frogg. BD2412. Bruvajc. AntelopeInSearchOfTruth. Chris the speller. NawlinWiki. Elemented9. Gobonobo. Rudehost. Ucscottb4u. ELApro. Svick.php?oldid=558181304 Contributors: 7&6=thirteen. Verne Equinox. Twas Now. Ffirehorse. MKFI.Froman. LuigiManiac. Mdkb123. Ulric1313. Tabletop. Allens.org/w/index. Theopolisme.sampey. Jlivewell. Welhaven. GentlemanGhost. Gabbe. PaulHanson. Nathanpbell. Mic. J Clear. Capricorn42. Kurykh. George Orwell III.enh. Cfweckenmann. Postdlf. GoingBatty. Tellsbadjokes. Sastian. Stevenmitchell. DMCer. Pnm.delanoy. Kumioko (renamed). JayJasper. CapitalSasha. Peter Karlsen. JeffGarofano. Yunesj. Rjbesquire. TrulyBlue. Fraxinus23. Mazin07. RC12. Guerillero. Courcelles. Ed Wood's Wig. J. Scbomber. Treybien.R. Rich Farmbrough. Jerryseinfeld. Daveman 84. Grimsooth. Smokizzy. John Z. TonyTheTiger. Eyreland. Zelphia. Dodiad. McSly. DeanKeaton. Chuunen Baka. Jatkins. Shakescene. SimonP. Snowolf. Good Olfactory. Duoduoduo. DouglasCalvert. Malachias111. Hoagie08540. Nerdyjoe314. Nareek. Riziles. Curb Chain. Big Bird. Gonzobent.wikipedia Henry_Steagall. Rrawpower. Anderson.