Glass Steagall's law in the modern world. Glass-Steagall law
It is no longer surprising that in Europe and the United States the most famous laws are adopted during times of economic upheaval. The Glass-Steagall Act was no exception - in 1933, against the backdrop of the stock market crash that began 4 years earlier, during the period of nationwide failure of commercial banks and the Great Depression, two members of Congress signed on to what is now known as the GSA (Glass-Steagall Act ). It was this act that separated investment and commercial banking.
At that time, improper banking - all that was perceived as it - the overzealousness of commercial banks in participating investment market, was recognized as the main culprit of the financial collapse. According to this logic commercial banks took on too much risk for investors' money. However, despite the timing, many analysts still express their opinions regarding the creation of the GSA and its abolition in 1999.
Cause
The reason for the creation of such a law was the accusation that commercial banks were excessively speculative. And not only because they invested their assets in their speculation. They also acquired completely new assets for resale. It is not surprising that the greed of banks became too visible, because they took on too many risks in the hope of receiving even greater rewards. As a result, banking became sloppy and their goals became too vague.Law as a barrier
By that time, the powers of Senator Carter had expired - he was the founder of the American Federal Reserve System. Henry Bascom, a member of the House of Representatives and chairman of the Currency Committee, agreed to support the legislation. However, consent to support the law was received only after a decision on deposit insurance was added after the amendment. Like a collective reaction to one of the worst financial crises At that time, the GSA normatively created a buffer between banks' commercial and investment activities. Moreover new law had to curb and control these parties. Banks were given a year to think about and decide what they would specialize in. As a result, it was decided that only 10% of total income commercial banks may come from valuable papers– except that, as an exception, commercial banks were allowed to sell bonds issued by the government.(Federal Deposit Insurance Corporation) dated June 16, 1933. Under this law, deposit and investment functions banks were separated, which created a barrier speculative operations. Insurance guaranteed bank deposits in the amount of up to $5,000. The composition expanded Federal Reserve due to the inclusion of new groups of banks.
Restrictions, established by law, were canceled in 1999 Gramm-Leach-Bliley law.
Sources
English-Russian economic dictionary in Economics and Finance. / Edited by Prof., Doctor of Economics. Sciences A.V. Anikina. - Saint Petersburg, Economic school, 1993.
Wikimedia Foundation.
2010.
See what the “Glass-Steagall Law” is in other dictionaries: GLASS-STEAGALL ACT OF 1932
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Glass-Steagall Law ( banking law 1933)
English Banking Act of 1933, Glass - Steagall Act, a banking law that established the forced organizational separation of investment and commercial banks.
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It is worth remembering that there were two Glass-Steagall laws. The first was carried out in February 1932, expanding the range of bank assets subject to rediscounting by the Federal Reserve and allowing the Fed to issue money that could not be exchanged for gold. But usually, when people remember the Glass-Steagall Act, they mean the law of 1933, which concerned banking activities.
The US federal law was signed by the President on June 16, 1933.
The Glass-Steagall Act prohibited commercial banks from engaging in investment activities, limiting the right of banks to deal with securities and introducing compulsory insurance bank deposits.
Characters
Winthrop Aldrich - Chief Ideologist
Franklin Roosevelt - US President
Senator Glass
The law contained three main provisions:
- org. separation of commercial and investment banking operations
- Federal insurance of bank deposits
- prohibition on commercial banks to charge interest on demand deposits
Detailed provisions of the Glass-Steagall Act:
- banks are prohibited from performing transactions with securities
- banks are not allowed to create branches that deal with this
- companies on the securities market cannot engage banking transactions(for example, accept deposits)
- investment officials companies cannot occupy the corresponding positions in commercial banks
- creation of the Federal Deposit Insurance Corporation (FDIC)
- compulsory deposit insurance up to $5000
- inclusion of new groups of banks in the Federal Reserve System
- commercial banks - accept deposits.
- investment banks - do not accept deposits, but are engaged in investment activities.
- the opportunity to receive a loan from the Federal Reserve through the so-called. discount window
- deposits are guaranteed with taxpayers' money
The Glass-Steagall Act hit the largest banks: Chase Securities Corporation, National Citi Company, JP Morgan and company. JP Morgan was then divided into JP Morgan itself and Morgan, Stanley and company.
Sources:
Wikipedia
Paul Krugman, "The Return of the Great Depression"
Story money circulation and US banking. M. Rothbard
Obviously, the restoration of the USG is not a purely internal matter of the United States. It would have a positive impact on the global financial and economic situation. Firstly, because the likelihood of new crises emerging in the United States would be reduced, which, in the conditions of current globalization, immediately spread from the American epicenter throughout the world. Secondly, because the adoption in the United States of a law on the separation of commercial and investment banks could encourage other countries to adopt similar laws.
It should be said that the mixture (combination) of deposit-credit and investment activities This is not unique to US banks. Once upon a time, this topic was not relevant for Europe due to a much lower degree of development stock markets and, accordingly, less involvement of European banks in high-risk investment business. Europe has never had an equivalent to the Glass-Steagall Act. Today, the combination of deposit-credit and investment operations has also become characteristic of European banking system. The process of bank universalization has advanced greatly in Europe today. Few politicians and economists in Europe understand how powerful this “mine” is, which can explode European Union. In Europe, the latest initiative in favor of unbundling of banking activities came from the Tuscan Regional Council, which adopted a resolution entitled “Banking and legal reform in the spirit of the Glass-Steagall Act.” And institutions such as the European Commission, the European Parliament and the European Central Bank are absorbed in the fight against the debt crisis, with virtually no discussion of the risks of creating banking conglomerates.
As for Russia, today the problem of separating deposit and credit operations from investment and other activities is practically not discussed by anyone. We haven’t stepped on this “rake” yet and don’t understand how big a bump we can get. In general, I get the impression that our authorities even encourage mixing “in one bottle”, called “bank” deposit operations and purely speculative financial transactions. This is being done under the banner of creating “universal” banks, financial “supermarkets”, improving the quality of customer service (receiving all financial services"from one window") Over the past months, the issue that we need a financial mega-regulator in Russia has been regularly discussed. As is known, this was determined central bank. It is interesting that the main argument in favor of creating a mega-regulator and appointing the Central Bank as such was the following. Main financial institution in Russia today has become commercial Bank. At the same time, commercial banks are gradually turning into diversified banking holding companies, combining such types of operations as deposit, credit, investment, leasing, insurance and even pensions. It is clear that it is difficult for different organizations to monitor the activities of such a multi-headed financial hydra. Therefore, they say, a single mega-regulator is needed. Surprisingly, almost none of the opponents of the idea of a financial mega-regulator questioned the connection different types operations within one organization, which is traditionally called a “bank”.
At the level of the G-7, G-8, G-20 summits and other global forums, where issues of increasing financial stability and reforming the world financial system, the problem of separating deposit-credit and investment activities of banks is addressed very carefully and in doses. At the same time, experts understand that without solving this cardinal problem, all talk about financial stability in the world turns into empty chatter.
