Mixing commercial and investment banking isn't bad. What's the worst that could happen?
THE STOCK MARKET CRASHED! WHAT ARE WE GOING TO DO???
MY LIFE IS OVER I CAN'T LOSE MY JOB!
The mixing of commercial and investment banking was very risky and was assumed to be one of the causes of the Great Depression.
No more overlapping or common ownerships!
Banks began taking on huge risks hoping for bigger rewards and ended up getting sloppy. To add onto this, investors were getting anxious about the stock market crash in 1929 and pulled their investment assets. Throughout the decade, about 9,000 banks failed which caused the disappearance of $140 billion.
Reason for the Bill
The Great Depression started in 1929 and ended in 1939. The stock market crashed causing panic and wiping out millions of investors. This resulted in the decline of industrial output and employment because companies had to layoff many employees. At the lowest point, about 15 million Americans were unemployed and half the banks had failed.
Increase in Trust
Trust in banks!
The Glass-Steagall Act was an emergency legislation that was designed to effectively separate commercial banking from investment banking.
The bill was designed “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.”
We need to separate commercial banking from investment banking.
"Glass-Steagall restored confidence in the U.S. banking system. It increased trust by only allowing banks to use depositors' funds in safe investments. Its FDIC insurance program prevented further bank runs. Depositors knew the government protected them from a failing bank."