Glass-Steagall Act

A law put forward by Senator Carter Glass and Representative Henry Steagall in 1933, a milestone in US banking legislation. The law prevented any commercial bank in the United States from underwriting and dealing in securities. Securities business was left as the exclusive preserve of investment banks. The strict divide was created in the wake of financial scandals in the late 1920s and early 1930s. Some banks had used depositors’ money to support the price of securities that they were underwriting, sometimes with disastrous consequences for depositors. Many investors who bought the shares of dud dotcom companies during the technology boom of the late 1990s felt similarly short-changed. They discovered that some analysts employed by investment banks had worried more about the fees the bank would receive from a successful initial public offering of the shares than about delivering an objective recommendation of the company’s worth. Changes in the way financial markets operate and pressure from the new breed of financial-services conglomerates finally caused the GlassSteagall Act to fray at the edges, and it was repealed in 1999.