“When Glass-Steagall was enacted, its phraseology may have been an effective way to describe activities limited by commercial banking. Today, with credit cards, NOW accounts, electronic transfer, money market funds, and combined asset management type accounts, functions that were performed solely by banks can be provided by other financial institutions without involving the prohibited activities described by ‘deposits subject to check,’ ‘presentation of passbook,’ ‘certificate of deposit,’ ‘evidence of debt,’ or ‘request of depositor.’”
Current commentators have questioned whether the repeal of the Glass-Steagall Act, prohibiting broad affiliations among banking, securities and financial industries, contributed to the capital market crisis of 2008. Some contend that, by permitting banks to engage in risky securities and financial transactions, its repeal opened the way for collapse of the financial markets. 28 That debate presumes a more direct causal connection and obscures the actual history of the repeal process, which took place over several decades prior to the economic crisis of 2008.
Soon after the passage of Glass-Steagall, opponents of its restrictions took every opportunity to change the law. Led by large bankers seeking to expand business, and opposed by more traditional securities dealers and associations fearful of losing market share to competitors, the battles to revise Glass-Steagall were legion and long-standing, during which the SEC influenced major elements of the debate.
Although the barriers between banking and commercial enterprises remained largely intact for decades after Glass-Steagall, the legislative chipping away began in the 1960s, with the passage of the Savings and Loan Holding Company Act of 1967. That law altered Glass-Steagall by permitting any company to “own a single savings and loan institution” and gave the Federal Reserve the power “to monitor non-depository-related businesses of savings and loan holding companies.” 29 By 1970, when Congress passed changes to the Bank Holding Company Act of 1956, which “established a structure to regulate the permissible non-banking activities of companies that owned banks,” the chipping away had begun in earnest. 30
(28) August 4, 2012 Barry Ritzholtz, “Repeal of Glass-Steagall: Not a Cause but a Multiplier, The Washington Post; April 19, 2012 Kim Chipman and Christine Harper, “Parsons Blames Glass-Steagall Repeal for Crisis,” Bloomberg.
(29) Joseph Karl Grant, “What the Financial Services Industry Puts Together Let No Person Put Asunder: How the Gramm-Leach-Bliley Act Contributed to the 2008-2009 American Capital Markets Crisis,” 73 Albany Law Review 2: (2010):379.
(30) Ibid, 371-420.
