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It repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. With the passage of the Gramm–Leach–Bliley Act, commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate. The legislation was signed into law by President Bill Clinton.

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The Case for Preserving the Glass-Steagall Act:


1. Conflicts of interest characterize the granting of credit - lending - and the use of credit - investing - by the
same entity, which led to abuses that originally produced the Act.
2. Depository institutions possess enormous financial power, by virtue of their control of other people's
money. Its extent must be limited to ensure soundness and competition in the market for funds, whether
loans or investments.
3. Securities activities can be risky, leading to enormous losses. Such losses could threaten the integrity of
deposits. In turn, the Government insures deposits and could be required to pay large sums if depository
institutions were to collapse as the result of securities losses.
4. Depository institutions are supposed to be managed to limit risk. Their managers, thus, may not be
conditioned to operate prudently in more speculative securities businesses.


The case against preserving the Glass-Steagall Act:


1. Depository institutions will now operate in "deregulated" financial markets in which distinctions between
loans, securities, and deposits are not well drawn. They are losing market shares to securities firms that
are not so strictly regulated and to foreign financial institutions operating without much restriction from
the Act.
2. Conflicts of interest can be prevented by enforcing legislation against them and by separating the lending
and credit functions through forming distinctly separate subsidiaries of financial firms.
3. The securities activities that depository institutions are seeking are both low-risk, by their very nature, and
would reduce the total risk of organizations offering them, by diversification.
4. In much of the rest of the world, depository institutions operate simultaneously and successfully in both
banking and securities markets. Lessons learned from their experiences can be applied to our national
financial structure and regulation.

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It also authorizes banks’ direct operating subsidiaries to engage in risky new principal activities like securities underwriting and, in five years, merchant banking with Treasury and Federal Reserve approval. The flimsy limitations and firewalls will not hold back contagion and underscore the foolishness in not reforming deposit insurance, and thus the threat to taxpayers and depositors.

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The Glass–Steagall Act is a term often applied to the entire Banking Act of 1933, after its Congressional sponsors, Senator Carter Glass (D) of Virginia, and Representative Henry B. Steagall (D) of Alabama.[1] The term Glass–Steagall Act, however, is most often used to refer to four provisions of the Banking Act of 1933 that limited commercial bank securities activities and affiliations between commercial banks and securities firms.[2]

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repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company.

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First of all, Gramm-Leach-Bliley is hardly the momentus event the left makes it out to be. The 1933 Glass-Steagal Act that prohibited commercial banks from owning investment banks, and vice versa, had been steadily weakened since the 70s by an increasingly diverse and complex new financial reality. Waivers from regulators for merger became routine and the 1998 merger between Travelers and Citigroup functionally repealed the law. Gramm-Leach-Bliley only put a de jure stamp of approval on a de facto regulatory framework.
Second, the left has simply offered no explanation as to how the merging of commercial and investment banks caused the current crisis. In fact, the evidence so far shows that Gramm-Leach-Bliley has helped soften the blow to taxpayers by allowing commercial banks to take over trouble investment firms. Just look at which organization’s have failed:



• Bear Stearns was an investment bank before it was sold to JP Morgan Chase (which includes a commercial bank).
  
• Fannie Mae were[sic] Freddie Mac were government sponsored entities before the government bought them.
  
• Lehman Brothers was an investment bank before it want bankrupt.
  
• Merrill Lynch was an investment bank befor it was sold to Bank of America (which is a commercial bank).
  
• AIG is an insurance company with no commercial banking division.


Remember, Glass-Steagal was passed to protect commercial banks from failure by forbidding them from investment bank practices like trading in securities and underwriting stocks and bonds. As you can see above non of the failed institutions are commercial banks that got in trouble through risky investment banking. Instead, it is the commercial banks that are providing some stability to the system by purchasing troubled investment banks. Without Gramm-Leach-Bliley they would not even be allowed to technically do this.

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Remember, Glass-Steagal was passed to protect commercial banks from failure by forbidding them from investment bank practices like trading in securities and underwriting stocks and bonds. As you can see above non of the failed institutions are commercial banks that got in trouble through risky investment banking. Instead, it is the commercial banks that are providing some stability to the system by purchasing troubled investment banks. Without Gramm-Leach-Bliley they would not even be allowed to technically do this.

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ORIGINAL: tazzygirl
First.. I made no partisan comments in regards to this. Perhaps, if you believe I did, you may want to go back and double check.

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Remember, Glass-Steagal was passed to protect commercial banks from failure by forbidding them from investment bank practices like trading in securities and underwriting stocks and bonds. As you can see above non of the failed institutions are commercial banks that got in trouble through risky investment banking. Instead, it is the commercial banks that are providing some stability to the system by purchasing troubled investment banks. Without Gramm-Leach-Bliley they would not even be allowed to technically do this.

This was a written a bit early, wasnt it? WaMu failed not long after this was posted.
The article was posted... September 22, 2008 at 12:40 pm
WaMu failed and was seized Sept 25th. Citigroup had to be rescued from bankruptcy.

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Was WaMu a commercial bank, or a "savings and loan association?"

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Remember, Glass-Steagal was passed to protect commercial banks from failure by forbidding them from investment bank practices like trading in securities and underwriting stocks and bonds.

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Citigroup was formed prior to Gramm-Leach-Bliley

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Traveler's (which was insurance, and not investments to begin with).

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ORIGINAL: tazzygirl

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Was WaMu a commercial bank, or a "savings and loan association?"

You really believe there is a difference? An S&L is a bank that was created to specialize in home mortgages.

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Remember, Glass-Steagal was passed to protect commercial banks from failure by forbidding them from investment bank practices like trading in securities and underwriting stocks and bonds.

And Citi was still a bank that failed as a result of being allowed to deal with investments.

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Citigroup was formed prior to Gramm-Leach-Bliley

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Traveler's (which was insurance, and not investments to begin with).

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According to the definitions that a commercial bank is one that deals almost exclusively with businesses, yes, I do see a difference.

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Citigroup is another large commercial bank with national and international presence. The banking institution runs 16.000 offices in 140 countries. In 2009, Citigroup split into two entities, following two federal bailouts and change of senior executives. Citi Holdings is a branch involved in asset management and brokerage while Citicorp offers transaction services, underwriting and corporate loans, market making solutions, and fund management. After a third bailout and investment of $45 billion by the federal government in February, taxpayers turned into the largest shareholder in Citigroup. In December, the bank announced plans to replace the remaining bailout, worth $20 billion, with financing coming from private investments.

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ORIGINAL: tazzygirl

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According to the definitions that a commercial bank is one that deals almost exclusively with businesses, yes, I do see a difference.

In fact, there are very very few banks remaining that do business ONLY with other businesses or ONLY with the public..... thanks to the law that created this mess... the one we are debating now.
http://www.natwest.com/commercial.ashx
Personal Banking, Private Banking, Business Banking, Commercial Banking...
http://www.lloydstsbbusiness.com/contact_us.asp
The same
The 1999 repeal of the Depression-era Glass-Steagall Act, which limited the businesses in which commercial banks could operate by legally separating commercial and investment banking, created huge new areas of business as well. As a result of the repeal, many commercial banks went into nontraditional commercial banking businesses such as selling insurance products and securities. (For example, the investment banking firm J.P. Morgan bought commercial bank Chase in 2000 to become JPMorgan Chase.)

Also, to bring your attention to the following....
The largest commercial banks, Bank of America Corp, JP Morgan Chase & Co, HSBC Bank, Citigroup, and Goldman Sachs Group accounted for 96 percent of all exposures and had the largest share of derivative exposures of the commercial banking sector in the United States.

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Citigroup is another large commercial bank with national and international presence. The banking institution runs 16.000 offices in 140 countries. In 2009, Citigroup split into two entities, following two federal bailouts and change of senior executives. Citi Holdings is a branch involved in asset management and brokerage while Citicorp offers transaction services, underwriting and corporate loans, market making solutions, and fund management. After a third bailout and investment of $45 billion by the federal government in February, taxpayers turned into the largest shareholder in Citigroup. In December, the bank announced plans to replace the remaining bailout, worth $20 billion, with financing coming from private investments.

http://www.commercialbanksguide.com/usa+commercial+banks/
Wasnt this the same bank the government had to bail out?
............
WaMu is a savings bank.
http://en.wikipedia.org/wiki/Washington_Mutual

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http://articles.washingtonpost.com/2012-07-28/business/35489373_1_glass-steagall-commercial-banks-biggest-banks

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The repeal of Glass-Steagall may not have caused the crisis — but its repeal was a factor that made it much worse. And it was a continuum of the radical deregulation movement. This philosophy incorrectly held that banks could regulate themselves, that government had no place in overseeing finance and that the free market works best when left alone. This belief system manifested itself in damaging ways, including eliminating regulation and oversight on derivatives, allowing exemptions for excess leverage rules for a handful of players and creating dangerous legislation.

As the events of 2007 to 2009 have revealed, this erroneous belief system was a major factor leading to the credit boom and bust, as well as the financial collapse.

I have been unable to find any evidence that the Gramm-Leach-Bliley Act — the legislation that repealed Glass-Steagall — was a primary cause of the financial crisis. Imagine a “but for” scenario where Glass-Steagall had not been overturned but the rest of the deregulatory actions had still taken place. Would the crisis have occurred? Without a doubt, yes.

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Consider where we would be today if we put Citi and Bank of America into prepackaged bankruptcy (as was done with GM). It would have been much more painful, but ultimately, much healthier.

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WaMu, since it wasn't a commercial bank, wouldn't have been affected by any changes in Glass-Steagall.

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ORIGINAL: tazzygirl

Gramm-Leach-Bliley repealed the separation between banks and investments. It was that removal that escalated the problem, which both of your sources agree too. If that wall had still been there, we may never have had the problem to begin with, or the problem may have been manageable within a few institutions instead of requiring trillions of dollars in bail outs.

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ORIGINAL: tazzygirl
It qualifies for this discussion.

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The rest of your post has nothing to do with the situation.

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Gramm-Leach-Bliley repealed the separation between banks and investments. It was that removal that escalated the problem, which both of your sources agree too. If that wall had still been there, we may never have had the problem to begin with, or the problem may have been manageable within a few institutions instead of requiring trillions of dollars in bail outs.

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Um, actually, my sources did state that the problem would have still happened even if Gramm-Leach-Bliley hadn't been passed. Yes, it wouldn't have been as bad, but it still would have happened.

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And, did you notice that Gramm-Leach-Bliley only capped off lots of deregulation? And, that G-L-B passed with strong bipartisan support?

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ORIGINAL: tazzygirl

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Um, actually, my sources did state that the problem would have still happened even if Gramm-Leach-Bliley hadn't been passed. Yes, it wouldn't have been as bad, but it still would have happened.

And would have been limited in many cases to 20% of their lending ability. Most banks could have pulled out of that one on their own or with minimal assistance instead of the trillions it ended up costing.

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And, did you notice that Gramm-Leach-Bliley only capped off lots of deregulation? And, that G-L-B passed with strong bipartisan support?

If you recall, my contention was not that it was a partisan vote. My contention was that businesses had politicians in their pockets at the expense of the public. You are looking for an argument on right vs left.. and there is none.

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Now, had Glass-Steagall never been passed, there would never have been any need to de-regulate in the late 90's. There wouldn't have been any issues competing with international banks (which was one reason behind Gramm-Leach-Bliley). By the time the late 90's arrived, banks would have learned how to do both.

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Not only did Gramm-Leach-Bliley not actually cause the Great Recession, it was also a bipartisan bill that had 90% support in the Senate and 83% support in the House. When you consider that 10 no or "no vote" votes in the Senate, 3 were Republicans, and there were 15 House Republicans that voted either "no" or "no vote." With a 55-45 R-D split in the Senate and a 222-211-1 R-D-I split in the House, there was no way this Act wasn't going forward without bipartisanship.

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ORIGINAL: tazzygirl

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Now, had Glass-Steagall never been passed, there would never have been any need to de-regulate in the late 90's. There wouldn't have been any issues competing with international banks (which was one reason behind Gramm-Leach-Bliley). By the time the late 90's arrived, banks would have learned how to do both.

Its that deregulation that started the downslide. You have rose colored glasses when it comes to business. Believing they would have learned to do both? They knew how to do both. They also knew how to screw everything up and land us in the mess we are in now.