The purpose of this discussion is to provide an overview of the Glass-SteagallAct—that is, of those provisions of U.S. national banking law which create a legal barrier between commercial and investment banking activities conducted in the United States. The focus of this presentation will be on how the legal distinctions between commercial and investment banking in the United States currently are interpreted and applied. This paper will, however, also discuss the origins and development of the Glass-SteagallAct and the prospects for its
Front Matter Page Western Hemisphere Department
II. The Demand for Government Deposit Insurance
III. Valuation of the Deposit Guarantee
IV. Deposit Insurance Reform
1. Timely closure rule for insolvent institutions
2. Risk-related deposit insurance premiums and capital-adequacy standards
3. Reduction in deposit insurance coverage
4. “Narrow” depository institutions
V. Reform of the Regulation of Depository Institutions
1. Reform of the Glass-SteagallAct
2. Corporate separateness measures
Glass-SteagallAct refers to Sections 16, 20, 21 and 32 of the Banking Act of 1933. The United States and Japan, under Article 65 of the Securities and Exchange Law of 1948, are unique among the major industrial countries in so separating banking and securities activities. See Broker (1989) , pp. 58-70.
22/ The possible reform of the Glass-SteagallAct has also raised concerns about the concentration of economic power in the financial sector and conflicts of interest from the joint provision of banking and securities services. For discussions of these issues
everything, even to self-regulate (the paper also quotes a recent piece by Kay in the Financial Times on the fate of the Glass-SteagallAct);
The public at large , because, to some extent, it benefitted from the bubble and fed it (thus, it is not only a victim, it is also an actor), while having a tendency to believe blindly the lines it is fed (e.g., by Madoff).
The paper (designed to provide some scientific evidence while remaining a pleasant read) concludes that a Faulkner of economics and finance would be most useful since, like the characters in the short
. However, the activity restrictions placed on banks under the Glass-SteagallAct, which prohibits in the United States affiliations between most commercial banks and firms that are principally engaged in the underwriting and distribution of securities, limited the ability of banks to respond to this change in profitability. 21/ In view of these developments, Greenspan (1990b) , inter alios , proposed the reform of the Glass-SteagallAct while relying on corporate separateness measures and strengthened capital adequacy standards to restrain any possible increase in
In the United States, the thrift industry crisis and evidence of financial weakness in the banking industry have raised concerns about the cost-effectiveness of the present framework of deposit insurance and regulation of depository institutions that serves to control systemic risks. The reform proposals discussed in this paper aim to create a more cost-effective approach by either modifying the operation of the deposit insurance funds to reduce the value of the deposit guarantee or altering those regulations of depository institutions that limit portfolio risk to reduce their overall cost. Consideration is given to both the potential effectiveness and practicability of the proposed reforms.