Innovation & Wealth › The information age › Deregulation, privatization and 'shareholder value'
Repeal of Glass–Steagall (Gramm–Leach–Bliley Act)
November 12, 1999· Law or policy· Laws, labor & antitrust
Well documentedSolid records, texts or physical evidence.
The Gramm–Leach–Bliley Act of November 1999 let commercial banks, investment banks and insurers combine under one holding company again.
See it on the Innovation & Wealth map →What happened
Regulators had already widened loopholes in Glass–Steagall's walls through the 1980s and 1990s. In 1998 Citicorp merged with Travelers, owner of the Salomon Smith Barney brokerage, before the combination was clearly legal, betting the law would change. Congress passed the repeal by wide bipartisan margins, 90–8 in the Senate and 362–57 in the House, and President Bill Clinton signed it. It ended the ban on affiliations, but deposit-taking banks themselves still faced securities limits, and FDIC insurance stayed.
Impact on society and the economy
It allowed financial supermarkets like Citigroup. Critics link it to the risk-taking behind 2008; defenders note Lehman, Bear Stearns and AIG were not bank–brokerage combinations.
How we know
The act's text, congressional vote records, Federal Reserve rulings on bank affiliates, and the 2011 Financial Crisis Inquiry Commission report.
Still debated
How much the repeal contributed to the 2008 crisis is genuinely contested, even among officials who backed it.
Connections (4)
▸Glass–Steagall Act (bank separation and FDIC) was partly repealed by Repeal of Glass–Steagall (Gramm–Leach–Bliley Act)Well documented
The connection
The 1933 law separated deposit-taking banks from Wall Street securities firms after the crash. Over decades regulators widened its loopholes, and in 1999 Congress repealed the sections that barred banks from affiliating with securities firms. The deposit insurance it created, the FDIC, remained.
When and how
Washington: signed by Franklin Roosevelt June 16, 1933; partly repealed by the Gramm–Leach–Bliley Act, signed by Bill Clinton November 12, 1999.
How we know
The texts of both laws show exactly which sections were repealed (sections 20 and 32) and which survived.
Debates
Whether keeping the separation would have prevented or softened the 2008 crisis is debated; senators have repeatedly proposed restoring it.
▸Deregulation, privatization and 'shareholder value' led to Repeal of Glass–Steagall (Gramm–Leach–Bliley Act)Well documented
The connection
The deregulatory push of the 1980s and 1990s, the belief that markets police themselves and that US banks needed size to compete globally, culminated in repealing Glass–Steagall's walls. Fed chairman Alan Greenspan and Treasury secretaries Robert Rubin and Lawrence Summers supported the change.
When and how
Washington, 1987–1999: Federal Reserve rulings from 1987 let bank affiliates underwrite more securities; Citicorp–Travelers merger 1998; repeal November 1999.
How we know
Congressional debate records and officials' statements explicitly framed the repeal as financial modernization and deregulation.
Debates
Whether repeal caused later excess or merely ratified changes regulators had already allowed is debated.
▸Repeal of Glass–Steagall (Gramm–Leach–Bliley Act) is debated as a cause of 2008 financial crisis and the Great RecessionDebated
The connection
Critics, including Senator Elizabeth Warren, say the 1999 repeal let giants like Citigroup mix insured deposits with risky securities businesses. Others, including Bill Clinton and many economists, note that the firms at the crisis's core (Bear Stearns, Lehman Brothers, AIG and mortgage lenders) were not combined banks, and that Glass–Steagall never barred subprime lending.
When and how
Washington, 1999; the 2007–09 crisis; argued in Congress, in the 2011 Financial Crisis Inquiry Commission report, and in Warren's 2013 bill to restore the law.
How sure are we?
Firm-by-firm records show which institutions failed and why; the official commission stressed lax mortgage rules, derivatives and leverage more than the repeal.
Debates
Whether the repeal mattered indirectly, by encouraging a culture of size and risk at firms like Citigroup, which needed one of the largest bailouts.
▸Dodd–Frank Act partly reversed Repeal of Glass–Steagall (Gramm–Leach–Bliley Act)Mostly agreed
The connection
Dodd–Frank did not restore the old wall between commercial and investment banking. Its Volcker Rule, named for former Fed chair Paul Volcker, banned banks with insured deposits from trading for their own profit and limited their stakes in hedge funds and private equity, a partial return to Glass–Steagall's idea. Combined giants like JPMorgan and Citigroup stayed intact.
When and how
Washington; added to the law in 2010, finalized by five agencies in December 2013, and loosened in 2019–2020.
How sure are we?
The law and the agencies' rule texts; commentators widely describe the Volcker Rule as a narrower 'Glass–Steagall lite.'
Debates
Whether fully restoring Glass–Steagall, as bills by Elizabeth Warren and others proposed, would make banks safer or just push risk to less regulated firms.