The decline of the Glass–Steagall Act most likely caused the current financial crisis. Some analysts may disagree, however most data certainly points in this direction. Reagan did it and his administration created major change concerning the Glass-Steagall Act. And of course we know that Clinton finished the job in 1999 with the Gramm–Leach–Bliley Act. But what about Carter? What about some chronology?
Often overlooked in this vast universe is the fact that Carter played a role in this process. The Depository Institutions Deregulation and Monetary Control Act was signed by President Jimmy Carter on March 31, 1980. Here come the bailouts!
Depository Institutions Deregulation and Monetary Control Act
- It forced all banks to abide by the Fed’s rules.
- It allowed banks to merge.
- It removed the power of the Federal Reserve Board of Governors under the Glass–Steagall Act to use Regulation Q to set maximum interest rates for any deposit accounts other than demand deposit accounts (with a six-year phase-out).
- It allowed Negotiable Order of Withdrawal accounts to be offered nationwide.
- It raised the deposit insurance of US banks and credit unions from $40,000 to $100,000.
- It allowed credit unions and savings and loans to offer checkable deposits.
- It allowed institutions to charge any loan interest rates they choose.
- It required that banks be charged Fed Float for use of funds received before clearing between depository institutions.
Decline of the Glass–Steagall Act
The Decline of the Glass–Steagall Act was a gradual process that would take some 66 years.
As early as 1963, the Office of the Comptroller of the Currency (James J. Saxon) tried to deregulate the banks but the courts would not allow it at the time.
Banks began to finance residential mortgages through securitization in the late 1970′s and more so in the 1980′s. Also noted is that the savings and loans were becoming less regulated during the 1970′s. In 1967, there were revisions made to write bonds, and throughout the 1970′s more actions were initiated.
When Ronald Reagan became president he appointed banking regulators who shared an “attitude towards deregulation of the financial industry.” So much for the boundaries of restriction and a sane fiscal policy. Them days are over.
Alan Greenspan’s easy-money policies of the Fed would eventually tarnish his ‘rock star’ reputation. He favored the move to repeal the Glass–Steagall Act. He was very influential during his tenure.
Throughout the 1980′s and 1990′s, the pros and cons were debated. An overwhelming majority would make the decision to repeal. The aftermath of repeal brought forth financial collapse. The effects are still felt today.
The national banking system has changed since it began in 1863. Abraham Lincoln signed the legislation which enacted the National Currency Act.
And there was no Federal Reserve Bank.
More:
1. Reinstating Glass-Steagall — Senator Elizabeth Warren
2. Takedown of Glass-Steagall
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