Glass-Steagall Act
In 1933 in the aftermath of the Great Depression and its widespread bank failures, Congress enacted the Banking Act of 1933. Four sections of the Banking Act of 1933 are referred to as the Glass-Steagall Act. Many critics believed that banks had engaged in inappropriate securities activities that harmed investors. In particular, critics charged that if a bank had a bad loan to a failing company or even a country, it would sell securities to pay off the loan and leave investors with the poor investment. The Glass-Steagall Act addressed that concern in a very broad way:
- Section 16 - restricted commercial national banks from engaging in most investment banking;
- Section 20 - prohibited any member bank from affiliating in specific ways with an investment bank;
- Section 21 - restricted investment banks from engaging in any commercial banking; and
- Section 32 - prohibited investment bank directors, officers, employees, or principals from serving in those capacities at a commercial member bank of the Federal Reserve System.