The 21st Century Glass-Steagall Act
will "rebuild the wall between commercial and investment banking and make our financial system more stable and secure."
The Board has determined that, subject to the framework of prudential limitations established in previous decisions to address the potential for conflicts of interests, unsound banking practices, or other adverse effects, underwriting and dealing in bank-ineligible securities is so closely related to banking as to be a proper incident thereto within the meaning of section 4(c)(8) of the BHC Act.(4) The Board also has determined that underwriting and dealing in bank-ineligible securities is consistent with section 20 of the Glass-Steagall Act
Banks won clearance from Congress to acquire insurers in 1999 with the repeal of the Glass-Steagall Act
It replaces the 1933 Glass-Steagall Act
, which prohibited banks from underwriting stocks and bonds, and the 1956 Bank Holding Company Act, which imposed more restrictions on banking activities.
I will also discuss the final changes the Board made last year to the revenue test that the Board uses to determine compliance with section 20 of the Glass-Steagall Act
and to firewalls regarding cross-marketing between a bank and a securities affiliate, and officer, director, and employee interlocks between two such companies.
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.
One such step that should be given high priority by the president is reform of the Glass-Steagall Act
and other laws and regulations that govern our financial services industry, so that commercial banks may be owned in common with securities firms and other financial services providers.
Repeal of the Glass-Steagall Act
's separations of commercial and investment banking and authorization of insurance activities for banking organizations are the most important changes being considered by the Congress.
As just noted, banking organizations underwrite and deal in securities abroad, and since 1987, banking organizations with the necessary infrastructure may apply for authority to engage in limited underwriting and dealing of securities through special bank holding company subsidiaries under a Federal Reserve Board interpretation of section 20 of the Glass-Steagall Act
To address this problem, the Board advocates not only burden relief of the type provided by S.650 but also reform of anachronistic statutes such as the Glass-Steagall Act
, which needlessly and significantly hinders the ability of U.S.
In 1991, the Board testified in support of a Treasury Department legislative proposal that would have repealed the Glass-Steagall Act
restrictions on the securities activities of banking organizations and, as an integral part of that reform modified the blanket execptions for banks from broker-dealer regulation.
was also part of Banking Act of 1933 which separated Wall Street from Main Street by offering protection to people's savings in commercial banks by prohibiting bankers from using depositors' money in stocks.