Banking Act of 1933 Glass-Steagall Act - Article Example

Banking Act of 1933 Glass-Steagall Act As a result of the United s economy collapse of 1933, President Roosevelt enacted the Glass-Steagall act. During this period, unemployment rate increased as a result of banks failing or merging. State Governors closed several state banks. In March, Roosevelt declared a banking holiday. Both the public and the congress placed the blame of depression on the nation’s commercial banks. The act argued that some policies, which support the entry of commercial banks into investment businesses, outweigh the dangers that arise from investing. Therefore, preventing banks from engaging in securities would prevent future reoccurrence of banking crises. Senator Carter Glass, who was a former treasury secretary, is the main man behind the act. Henry Steagall was the other sponsor. The act applies to both national banks and state chartered banks (Dept 12). Though the Glass-Steagall act, the government upheld its role to provide quality, public policy. It can be argued that the act went a long way in easing the depression. This occurred because of the measures the Act put in place to prevent further losses. For instance, limiting commercial banks investments prevented underwriting by banks. This allowed for faster liquidation of assets by banks. This led to separation of commercial banks from investment banks. In 1999, the Gramm-Leach-Bliley act repealed the provision that restricted banks and securities firms affiliations section 16 prevented the purchasing or selling of securities by national banks except when the bank acts as a customer’s agent (Dept 23). Under the act, the government tried to resolve the conflict of interest that arises with regard to granting credit. Section 32 prevented common directors and employees access to credit Four sections of the act,sections16,20,21and 32,laid out the provisions for acquiring securities, both directly and indirectly in case the bank needed fast access to short term credit. For instance, section 11(a) prevented Federal Reserve member banks from placing loans to dealers or brokers. The Act limited the previous enormous power of the banks. This Act prevents bank’s ability to expand greatly, which was possible to achieve by creating a barrier between banking and insurance against aggressive expansions. As a result of the bank’s risky moves, there was the provision for insurance to minimize losses. Over time, limits on insurance from 2,500 USD in 1934, continues to take place. Currently the FIDC provides insurance for safety deposits of member banks of up to 250,000 USD per depositor in each bank initially, under the act. FDIC had the mandate to regulate and supervise banks, which are non-members in a given State. Through the US treasury, and Federal Reserve an initial 289 million funded the Act. The Act through FDIC also prohibited payment of interests on checking accounts. There are also provisions in the Act, which allow national banks to have branches statewide depending on the state’s law (Dept 20). The Glass-Steagall Act provided the government with the opportunity of displaying its understanding of the public’s interest. The institution of the Act by the government proved beneficial in helping the public deal with the recovery period after the effects of the Great economic depression of 1929. The creation of the Federal Deposit Insurance Corporation (FDIC) affected the public on a personal level compared to the other reforms brought about by this Act. This is because the FDIC created a buffer for citizens making a deposit of over 5,000 USD by insuring the money deposited. This served to eliminate any unforeseen, future risks, for example, an economic depression. As a result, individuals had the opportunity of getting their money back in the event of an economic catastrophe. The FDIC also helped to reaffirm the government’s commitment in safeguarding the financial welfare of its citizens (Dept 25). The different branches of the government played an integral role with regard to ensuring the well being of the public. The passing of this Act in 1933 by the legislature showed that the members of parliament played their role as the representatives of the electorate with finesse. Glass and Seagall stood by their bills until the legislature came to a consensus and endorsed them. The House passed it on 23, May and the Senate’s approval followed on 25, May with some adjustments. As a result, the Act helped to streamline the financial positions of individuals in different economic classes through the establishment of a middle class. Therefore, the wealthy stopped getting richer at the expense of the under privileged group. Sociology scholars would approve of the streamlining of the different classes because it would help reduce conflict between the different classes. Karl Mars’s conflict theory posits that conflict generates because of power inequality created by the disparities in the financial positions of individuals in different classes (Benston 117). Moreover, the executive arm played its role by passing the bill into a law. President Roosevelt’s assenting of the bill sealed the fate of the public by ensuring citizens would benefit from the reforms brought about by the new law. The Judiciary also played an influential role in helping translate the reforms to the public. Judges based their sentences on the provisions provided by this Act. The Board of Governors v. Agnew (1946) is an example of a case judged based on the legislative provisions provided by this Act. The impact of Act benefited citizens on both the state and federal level (Benston 160). In conclusion, the Glass- Steagall Act proved beneficial to both members of government and public. This is because the Act streamlined the banking sector creating some safety measures for individuals in the event of an economic crisis. Frauds and other negative consequences resulted after the repeal of this act in 1980 on grounds that the USA economy was weakening against foreign companies (Greene 35). Some economists blame the negative impacts created by the 2008 Global economic crises on the absence of the Glass-Steagall Act. This goes to show that the Act initially played a crucial role in safeguarding the country’s economic sector before its repeal. In addition, the utilization and accountable monitoring of bank assets occurred after the institution of this Act. Works Cited Benston, George J. The separation of commercial and investment banking: the Glass-Steagall Act revisited and reconsidered. London: Oxford University Press, 1990. Print. Dept, Chamber of Commerce USA. Finance. The Banking Act of 1933: an analysis : the Glass-Steagall Act, approved June 16, 1933. Washington: Chamber of Commerce of the United States, 1933. Print. Greene, Edward F. U.S. Regulation of the International Securities and Derivatives Markets, Volume 1. Canada: Aspen Publishers Online, 2005. Print. Jack Clark Francis, Richard L. Taylor. Schaum's Outline of Investments. New York: McGraw-Hill Professional, 2000. Print. Read More