Glass-Steagall Act / the Sarbanes-Oxley Act / Dodd-Frank Act /
(i) Glass-Steagall Act (1933)
Great Depression
At the time after the stock market crash (1929), during the Great Depression, most of the people agreed that the main cause for the event was the “improper banking activity” which was mainly seen as the bank involvement in the stock market investment. Banks were taking high risks in hope for rewards, they were “accused of being too speculative in the pre-Depression era” (HEAKAL, 2010, pg.1). They were not only investing their assets, but they were also buying issues in order to resale them to the public. Nearly five thousand banks failed in the U.S. during the Great Depression. As a result of that most people wouldn’t trust the U.S. financial structure anymore. In order to rebuild the economy and trust a dramatic change had to be made (NYTIMES, 2010).
Glass-Steagall Act of 1933
As a response to one of the biggest financial crisis at the time two members of the Congress, a former Treasury secretary named Carter Glass and Henry Steagall, who was a chairman of the House Banking and Currency Committee, joined forces in order to establish the Glass-Steagall Act (also known as Banking Act of 1933). The act forced a separation of commercial and investment banks where commercial banks were not allowed to underwrite the sales of stocks and bonds, while investment banks could not take in deposits from customers (GUARDIAN, 2010). The GSA also established the Federal Deposit Insurance Corporation (FDIC), which insured “bank deposits up to a given amount” (DUBOVOY, N.A., pg. 1). The act establishes the FDIC as a temporary government corporation giving it authority to regulate and supervise state non-member banks (FDIC, 2010).
The critics and the Gramm-Leach-Bliley Act of 1999
There were a lot of critics about the Glass-Steagall Act, experts stated that too many restrictions were not good for the industry. Some argued that the act was never necessary or it had become too outdated (LEGAL DICTIONARY, n.a.). The
Great Depression
At the time after the stock market crash (1929), during the Great Depression, most of the people agreed that the main cause for the event was the “improper banking activity” which was mainly seen as the bank involvement in the stock market investment. Banks were taking high risks in hope for rewards, they were “accused of being too speculative in the pre-Depression era” (HEAKAL, 2010, pg.1). They were not only investing their assets, but they were also buying issues in order to resale them to the public. Nearly five thousand banks failed in the U.S. during the Great Depression. As a result of that most people wouldn’t trust the U.S. financial structure anymore. In order to rebuild the economy and trust a dramatic change had to be made (NYTIMES, 2010).
Glass-Steagall Act of 1933
As a response to one of the biggest financial crisis at the time two members of the Congress, a former Treasury secretary named Carter Glass and Henry Steagall, who was a chairman of the House Banking and Currency Committee, joined forces in order to establish the Glass-Steagall Act (also known as Banking Act of 1933). The act forced a separation of commercial and investment banks where commercial banks were not allowed to underwrite the sales of stocks and bonds, while investment banks could not take in deposits from customers (GUARDIAN, 2010). The GSA also established the Federal Deposit Insurance Corporation (FDIC), which insured “bank deposits up to a given amount” (DUBOVOY, N.A., pg. 1). The act establishes the FDIC as a temporary government corporation giving it authority to regulate and supervise state non-member banks (FDIC, 2010).
The critics and the Gramm-Leach-Bliley Act of 1999
There were a lot of critics about the Glass-Steagall Act, experts stated that too many restrictions were not good for the industry. Some argued that the act was never necessary or it had become too outdated (LEGAL DICTIONARY, n.a.). The
References: CNET (2002) Drawing lessons from WorldCom [WWW] CNET. Available from: http://news.cnet.com/Drawing-lessons-from-WorldCom/2009-1022_3-943517.html [Accessed 30/11/2010] BBC (2002) Enron scandal at-a-glance [WWW] CNET. Available from: http://news.bbc.co.uk/1/hi/business/1780075.stm [Accessed 02/12/2010] SOXLAW (2002) The Sarbanes-Oxley Act [WWW] Sox Law SHAH, A. (2010) Global Financial Crisis [WWW] Global Issues. Available from: http://www.globalissues.org/article/768/global-financial-crisis [Accessed 03/12/2010] SWEET, W. (2010) Dood-Frank Act Becomes Law [WWW] Harvard Law School Forum. Available from: http://blogs.law.harvard.edu/corpgov/2010/07/21/dodd-frank-act-becomes-law/ [Accessed 03/12/2010]