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The Glass-Steagall Act usually means the Banking Act of 1933, which restricted certain ties between commercial banks and securities firms. The 1999 Gramm-Leach-Bliley Act repealed key restrictions on those affiliations—not the entire 1933 law. The 1933 act also created federal deposit insurance and changed other parts of banking regulation.
What was the Glass-Steagall Act?
The name most commonly refers to the Banking Act of 1933, signed by President Franklin D. Roosevelt on June 16, 1933. A 1932 banking law was also sometimes called Glass-Steagall, so the familiar reference to the “Glass-Steagall Act” generally means the 1933 law. The Federal Reserve’s history of the act describes its provisions and context.
The 1933 law followed the 1929 stock-market crash and banking turmoil during the Great Depression. It was broader than the separation rules associated with its name: it established the Federal Deposit Insurance Corporation (FDIC) and made other changes to banking supervision and Federal Reserve powers.
What was its purpose?
The act’s stated purpose, as quoted by Federal Reserve History, was “to provide for the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations, and for other purposes.”
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Lawmakers were concerned that commercial banks and the payments system could be exposed to losses tied to volatile securities markets, and that bank credit could be diverted into speculation. Those concerns explain the law’s rationale; they do not establish that separation alone could prevent banking crises or that everyone agreed on the diagnosis.
How did the 1933 law separate banking activities?
In this context, commercial banking means taking deposits and making loans. Investment banking means activities such as underwriting and dealing in securities. The original regime restricted commercial banks from underwriting or dealing in securities, subject to exceptions, and limited close affiliations between commercial banks and securities firms, including overlapping directors or common ownership.
Federal Reserve History also describes a limit under which securities income could not exceed 10 percent of a commercial bank’s income, with an exception for government-issued bonds. These are features of the original regime as described in that historical account, not a complete guide to current banking law.
The law also established deposit insurance
The Banking Act of 1933 created the FDIC. Federal Reserve History says the deposit-insurance provision followed pressure from Representative Henry Steagall and was controversial at the time. A temporary fund took effect in January 1934 and later became permanent. The FDIC’s creation is one reason the 1933 act should not be reduced to its bank-securities restrictions.
What did the 1999 repeal change?
President Bill Clinton signed the Gramm-Leach-Bliley Act on November 12, 1999. It repealed important restrictions on affiliations between banks and securities firms, allowing them to affiliate through a financial holding company framework. The Federal Reserve’s history of Gramm-Leach-Bliley describes the law and its new framework; the enacted statute identifies specific provisions it repealed.
The familiar shorthand that “Glass-Steagall was repealed in 1999” needs qualification. The Congressional Research Service groups four provisions—Sections 16, 20, 21 and 32 of the Banking Act of 1933—as the separation rules commonly associated with Glass-Steagall. Gramm-Leach-Bliley repealed important restrictions in that area, including Section 20; it did not erase every provision of the Banking Act of 1933. See the Congressional Research Service’s legal and policy analysis.
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Federal Reserve History places Gramm-Leach-Bliley in a period of financial-services integration and consolidation. It reports that the number of commercial banks fell from more than 14,000 in 1984 to fewer than 9,000 in 1999. That comparison concerns commercial banks in those years; it is not a count of all financial institutions or evidence by itself of what caused the consolidation.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Why is the repeal debated?
The policy debate turns partly on competing priorities. Structural separation aims to limit conflicts of interest and contain exposure between deposit-taking banks and securities businesses. Permitting affiliation can support financial integration and diversification, while still leaving firms subject to other rules and supervision. The historical and statutory sources establish what the law changed and the rationale for separation; they do not, on their own, determine which approach produces better overall financial stability.
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Likewise, the claim that the 1999 repeal caused the 2008 financial crisis is not established by the evidence cited here. A causal judgment requires evidence beyond the history and statutory text summarized above.
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