Academic journal article Journal of Accountancy

Rubin Calls for Modernization through Reform of Glass-Steagall Act

Academic journal article Journal of Accountancy

Rubin Calls for Modernization through Reform of Glass-Steagall Act

Article excerpt

Robert E. Rubin, secretary of the Treasury, recommended that Congress pass legislation to reform or repeal the Glass-Steagall Act of 1933 to modernize the country's financial system. In testimony before the House Committee on Banking and Financial Services, Rubin said Clinton administration proposals would permit affiliations between banks and other financial services companies, such as securities firms and insurance companies. However, the secretary emphasized that the Clinton administration did not endorse affiliations between banks and industrial companies.

The Glass-Steagall Act was enacted during the Great Depression to restrict the securities activities and affiliations of banks and has long been seen as having separated commercial banking. The act was intended to protect banks, prevent conflicts of interest and other abuses and safeguard the financial system. Rubin said supporters of the act today say Glass-Steagall is necessary to protect the federal deposit insurance system.

"However," said Rubin, "the banking industry is fundamentally different from what it was two decades ago, let alone in 1933." He said the industry has been transformed into a global business of facilitating capital formation through diverse new products, services and markets. "U.S. banks generally engage in a broader range of securities activities abroad than is permitted domestically," said the Treasury secretary. "Even domestically, the separation of investment banking and commercial banking envisioned by Glass-Steagall has eroded significantly."

Rubin said Glass-Steagall imposed unnecessary costs and made providing financial services less efficient and more costly. …

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