Slide 1AgendaSlide 3Glass-Steagall – Great DepressionGlass-Steagall – Great DepressionGlass-Steagall – Great DepressionGlass-Steagall – Stopping SpeculationGlass-Steagall – Stopping SpeculationGlass-Steagall – Stopping SpeculationGlass-Steagall – RegulationGlass-Steagall – RegulationGlass-Steagall – RegulationGlass-Steagall -- FDICGlass-Steagall -- FDICGlass-Steagall -- FDICGlass-Steagall -- KeynesianGramm-Leach-Bliley ActGramm-Leach-Bliley Act (GLB Act)Gramm-Leach-Bliley -- MotivationGramm-Leach-Bliley -- ArgumentsGramm-Leach-Bliley -- ArgumentsToday’s ImplicationsToday’s ImplicationsToday’s ImplicationsToday’s ImplicationsToday’s ImplicationsToday’s ImplicationsQuestionsP R E S E N TAT I O N B Y L A U R E N J E S P E R S E NGlass-Steagall Act vs. Gramm Leach Bliley Act01/14/2019BA 543 - Lauren Jespersen1Agenda01/14/2019BA 543 - Lauren Jespersen2History of Glass-SteagallHistory of Gramm-Leach-BlileyToday’s ImplicationsShort video of we have time3Sen.*Carter Glass*(D—Va.) and*Rep.*Henry B. Steagall*(D—Ala.-3), the co-sponsors of the Glass–Steagall Act.The Glass Steagall act of 1933 in response to the economic crisis starting in 1929 (now known as the Great Depression)Introduced banking reform, some designed to stop speculationIntroduced the separation of banking by business – commercial or investment bankingEstablished the Federal Depository Insurance Corporation (FDIC) to prevent “bank runs”Marked the start of the Keynesian economic era01/14/2019BA 543 - Lauren JespersenGlass-Steagall – Great Depression01/14/2019BA 543 - Lauren Jespersen4The causes of the Great Depression are widely speculated, but it is a common belief that the failure of the U.S. stock market was the start of a world-wide economic slide.Glass-Steagall – Great Depression01/14/2019BA 543 - Lauren Jespersen5Speculation is thought to have played a large role in the crash during October of 1929Insider trading was common practice and the general public was taken for a rideGlass-Steagall – Great Depression01/14/2019BA 543 - Lauren Jespersen6At the time, financial institutions were allowed to participate in the investment and commercial depository disciplines under the same roof, allowing for widespread speculation and manipulation of the market by individual financial giants.Glass-Steagall – Stopping Speculation01/14/2019BA 543 - Lauren Jespersen7Speculation in the financial markets with the use of commercial deposits as collateral had put a huge burden on the tax payers by putting their accounts at risk.Glass-Steagall – Stopping Speculation01/14/2019BA 543 - Lauren Jespersen8Using commercial deposits as backing for risky investments (real estate development) cause the banking system to collapse in early 1933.Glass-Steagall – Stopping Speculation01/14/2019BA 543 - Lauren Jespersen9Allowing large payers in the financial industry to speculate with commercial accounts gave the players more influence within the market so that one single player could manipulate the entire market in order to maximize profits.Glass-Steagall – Regulation01/14/2019BA 543 - Lauren Jespersen10In the aftermath of the collapse of the banking system, it was apparent that some regulation was needed in order to prevent a future crisis.Glass-Steagall – Regulation01/14/2019BA 543 - Lauren Jespersen11Giants like The House of Morgan were told that they could be not be both a commercial bank and an investment firm. This caused the creation of J.P. Morgan & Co. (commercial) and Morgan Stanley (investment).Glass-Steagall – Regulation01/14/2019BA 543 - Lauren Jespersen12This cause the majority of the nations financial holdings to be spread out over more institutions rather than have them concentrated in a select few.Glass-Steagall -- FDIC01/14/2019BA 543 - Lauren Jespersen13Prior to Glass-Steagall, commercial banks were not insured, and while it is common practice to only keep a portion of the banks deposits at the bank, “banks runs” were detrimental to the banking system.Glass-Steagall -- FDIC01/14/2019BA 543 - Lauren Jespersen14Established the FDIC as a temporary government corporationGave the FDIC authority to provide deposit insurance to banksGave the FDIC the authority to regulate and supervise state nonmember banksFunded the FDIC with initial loans of $289 million through the U.S. Treasury and the Federal ReserveGlass-Steagall -- FDIC01/14/2019BA 543 - Lauren Jespersen15Extended federal oversight to all commercial banks for the first timeSeparated commercial and investment bankingProhibited banks from paying interest on checking accountsAllowed national banks to branch statewide, if allowed by state law.Accounts were insured up to $2,500 in 1934 – in 2008, $250,000Glass-Steagall -- Keynesian01/14/2019BA 543 - Lauren Jespersen16The Great Depression began a movement for more government regulation and federal expendituresIn 1929, federal expenditures made up 3% of the GDPBy 1933, the national debt was 40% of the GDPIn 2009, the national debt is an estimated 80% of the GDPGramm-Leach-Bliley Act Also known as the Financial Services Modernization Act of 19991701/14/2019BA 543 - Lauren JespersenSen.*Phil Gramm*(R,*Texas),*Rep.*Jim Leach (R,*Iowa), and Rep. Thomas J. Bliley, Jr. (R,*Virginia), the co-sponsors of the Gramm–Leach–Bliley Act.Gramm-Leach-Bliley Act (GLB Act)01/14/2019BA 543 - Lauren Jespersen18Repealed portions the Glass-Steagall Act of 1933, allowing commercial banks, investment banks, securities firms, and insurance companies to consolidate.Gramm-Leach-Bliley -- Motivation01/14/2019BA 543 - Lauren Jespersen19Repeal of Glass-Steagall was in the works since the 80’sMerger of Citicorp and Travelers Insurance in 1998 was given temporary waiver to circumvent the Glass-Steagall ActFor Against01/14/2019BA 543 - Lauren JespersenConflicts of interest can be prevented by enforcing legislation against them, and by separating the lending and credit functions through forming distinctly separate subsidiaries of financial firms.Conflicts of interest characterize the granting of credit (that is to say, lending) and the use of credit (that is to say, investing) by the same entity, which led to abuses that originally produced the Act.20Gramm-Leach-Bliley -- ArgumentsFor Against01/14/2019BA 543 - Lauren JespersenThe securities activities that depository institutions are seeking are
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