Academic journal article Journal of Accountancy

Modernizing Banking: The Repeal of Glass-Steagall

Academic journal article Journal of Accountancy

Modernizing Banking: The Repeal of Glass-Steagall

Article excerpt

The Glass-Steagall Act was enacted during the Great Depression to protect banks and safeguard the financial system. However, as Robert E. Rubin, secretary of the Treasury, told the House Committee on Banking and Financial Services, "The banking industry is fundamentally different from what it was two decades ago, let alone in 1933." Since its enactment, the Glass-Steagall Act has restricted the securities activities and affiliations of banks, separating commercial banking from investment banking. Although this distinction has become less marked over the last several years, obstacles to the integration of banking with securities underwriting and dealing still remain.

As of April the House and Senate banking committees were poised to repeal this decades-old law. The chairmen of these committees, Congressman Jim Leach (R-Iowa) and Senator Alfonse D'Amato (R-N.Y.), have introduced legislation to allow affiliations between commercial and investment banking. The Clinton administration also has voiced support for Glass-Steagall's repeal, although it has not produced legislation of its own.

House Banking Committee chairman Leach considers repeal a top priority. His bill, HR-1062, would create financial services holding companies (FSHCs) that would be allowed to operate both bank and securities affiliates. The bill also would allow securities firms to own wholesale depository institutions through an investment bank holding company structure. As is now the case with bank holding companies, the FSHC would be regulated by the Federal Reserve Board; however, each subsidiary would be regulated by function - banks by the appropriate banking regulator and securities affiliates by the Securities and Exchange Commision. …

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