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Glass–Steagall Act (1933) and its 1999 repeal
1933; repealed in part 1999· Law or rule
Fact, law or dataA rule, statute, definition or measured number.
The Banking Act of 1933, known as Glass–Steagall, split deposit-taking banks from securities underwriting; Congress repealed key parts in 1999.
See it on the Money & Finance map →How it works
After the 1929 crash and thousands of bank failures, Senator Carter Glass and Representative Henry Steagall wrote rules forcing firms to choose: take deposits and make loans, or underwrite and trade securities. J.P. Morgan & Co. kept banking; partners left to form Morgan Stanley in 1935. The same act created the FDIC and capped deposit interest rates. Regulators loosened the wall from 1987, and the Gramm–Leach–Bliley Act of 1999, prompted by the 1998 Citicorp–Travelers merger, let them combine.
Why it matters
It shaped American finance for 66 years, keeping investment banks like Goldman Sachs and Morgan Stanley apart from deposit banks, and remains a rallying point in arguments over bank risk.
Facts, rules and data
The statute's text; Senate hearings led by counsel Ferdinand Pecora (1932–34) that built the case; Federal Reserve orders from 1987 to 1997 that gradually relaxed it.
Debates and risks
Historians question whether mixing banking and securities caused the 1930s failures at all; most banks that failed were small and had no securities arms.
Connections (3)
▸Glass–Steagall Act (1933) and its 1999 repeal separated deposit banks from Investment banks: underwriting, deals and tradingFact, law or data
The connection
The act gave firms a year to choose: take deposits or deal in securities. That split created a separate investment-banking industry. J.P. Morgan & Co. chose deposits, so partners founded Morgan Stanley; First Boston spun out of a Boston bank. Goldman Sachs and Morgan Stanley stayed securities firms until becoming bank holding companies in 2008.
When and why
Signed by Franklin Roosevelt on June 16, 1933; Morgan Stanley opened in September 1935.
How we know
The statute's Sections 16, 20, 21 and 32; firm histories; Fed orders from 1987 to 1997 that gradually let bank affiliates underwrite securities again.
Debates and risks
Whether the wall reduced risk or merely shaped the industry is debated; standalone investment banks Bear Stearns and Lehman still failed in 2008.
▸Glass–Steagall Act (1933) and its 1999 repeal was a response to The 1929 crash and the Great DepressionFact, law or data
The connection
About 9,000 US banks failed from 1930 to 1933. Senate hearings found banks' securities arms had sold shaky bonds and stock to their own depositors. Congress concluded that mixing deposits with speculation helped cause the collapse, so it separated the two and added deposit insurance.
When and why
Senate Banking Committee hearings led by counsel Ferdinand Pecora, 1932–34, exposed National City Bank (today's Citigroup); the act passed in June 1933.
How we know
The hearing record and congressional debates show the intent. Later research found banks with securities arms failed less often (Eugene White, 1986) and underwrote bonds no worse than others (Kroszner and Rajan, 1994).
Debates and risks
Did Congress diagnose the wrong cause? Many economists think so, blaming failures more on deflation, small undiversified banks and Fed inaction.
▸Glass–Steagall Act (1933) and its 1999 repeal is debated as a contributor to The 2008 global financial crisisExperts disagree
The connection
Critics argue the 1999 repeal let giant conglomerates like Citigroup mix insured deposits with trading and mortgage securities, raising risk. Defenders note the main failures, Bear Stearns, Lehman, AIG, Washington Mutual and Countrywide, were not combinations the old law barred, and that bank takeovers of Bear and Merrill Lynch helped contain the crisis.
When and why
Gramm–Leach–Bliley Act, signed by President Clinton in November 1999; crisis 2007–09.
How solid is the link?
Uncertain: the Financial Crisis Inquiry Commission (2011) blamed deregulation broadly but did not single out the repeal; economists remain split.
Debates and risks
Whether a new Glass–Steagall would make banks safer is still argued; bills from Senators Elizabeth Warren and John McCain (2013) and later versions never passed.