Glass-Steagall law. The Glass-Steagall Act (GSA) - as a Means of Extending the Agony of the Dollar! Glass Steagall's Law
(Federal Deposit Insurance Corporation) dated June 16, 1933. Under this law, the deposit and investment functions of banks were separated, which created a barrier to speculative operations. Bank deposit insurance was guaranteed up to $5,000. The composition of the Federal Reserve System expanded to include new groups of banks.
The legal restrictions were repealed in 1999 by the Gramm-Leach-Bliley Act.
Sources
English-Russian economic dictionary of economics and finance. / Edited by Prof., Doctor of Economics. Sciences A.V. Anikina. - St. Petersburg, Economic School, 1993.
Wikimedia Foundation. 2010.
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Recently there was a report in the media that Democratic Senator from Iowa Thomas Harkin introduced Bill 985 in the US Senate to restore the Glass-Steagall Act. This happened on May 16, the 80th anniversary of the adoption of this law. Both its adoption and then its repeal had a tremendous impact on the development of the financial and banking system of the United States and the whole world...
History of the Glass-Steagall Act
The history of the Glass-Steagall Act (hereinafter referred to as the GSA for brevity) dates back to the “Roaring Twenties” of the last century, when America was seized by a fever of speculation, in which banks played a key role. Moneylender bankers forgot about traditional lending operations and plunged into risky transactions in the stock market. They themselves acted as speculative investors, and also, with the help of their loans, supplied non-bank speculators with money, sharing with the latter the unprecedentedly high profits received from securities transactions. It all ended tragically - the stock market crash of 1929, the development of an economic recession (which in the 1930s developed into a protracted depression), and the banking crisis. Then every fifth American bank went to the bottom, along with deposits of depositors. This was the largest deposit confiscation in history, which makes the current confiscation of deposits in Cyprus banks seem moderate. Following these events Even in the US Congress, calls to nationalize banks began to be heard more and more often.
Soon after President Franklin Roosevelt came to power, in 1933, the American Congress passed a law, the draft of which was initiated by two Democrats - Carter Glass and Henry Steagall. The LSS provided for the following critical measures:
1. Separation of credit operations of banks from investment ones (due to the fact that the latter are much more risky); division of banks into commercial (having the right to accept deposits and engage in lending) and investment (having the right to engage only in transactions with securities on the stock market);
2. Creation of a special organization for insuring bank deposits of the population - the Federal Deposit Insurance Corporation (FDIC);
3. Strengthening the supervisory, regulatory and control functions of the US Federal Reserve System in relation to commercial banks; investment banks are removed from the control of the US Federal Reserve, and their risks are not insured by either the state or the Federal Reserve;
4. Assigning to the Federal Reserve the right to regulate maximum interest rates on savings deposits of banks, as well as to establish mandatory reserve standards for banks included in the.
The adoption of the LSS played an important role in stabilizing the US financial and banking system. For several decades, America lived without a banking crisis.
The fight to repeal the Glass-Steagall Act
The LSS curbed the greed of bankers who wanted to combine their status as depository institutions with speculative operations in the stock markets. They tried in every possible way to loosen the shackles of the State Civil Service. The first attempt to change the Glass-Steagall Act was made back in 1956 in connection with the passage of the Bank Holding Company Act. Then it was proposed to lift the ban on combining lending and investment activities for subsidiaries of bank holding companies in all states. However, the attempt failed. Depository and credit institutions continued to be prohibited from conducting investment activities, as well as absorbing companies from other financial services sectors (insurance, asset management) and creating partnerships with them.
The first relaxations in the Glass-Steagall Act appeared at the turn of the 1960s and 70s. They concerned permission for banks to enter the municipal bond market as underwriters (investment brokers). At the same time, investment companies, through their lobbyists, achieved the right to open demand accounts for clients on the money market (money market accounts), which are analogues of short-term deposits. It is noteworthy that such accounts were outside the FDIC insurance system. At the end of 1986 - beginning of 1987. Another significant event occurred: the Fed allowed some particularly reliable commercial banks to receive up to 5% of their gross income from operations with securities (though not yet at the expense of clients’ funds, but at the expense of their own capital). A little later, the bar for the most reliable banks was raised to 10%. This happened under the chairman of the Federal Reserve Volker's field.
The final phase of dismantling the LSS is associated with the name A. Greenspan. Having replaced the director of J.P. Morgan bank in August 1987 with the chair of the chairman of the Board of Governors of the Federal Reserve, Greenspan immediately stated that “maximum deregulation of the banking system is necessary to increase the competitiveness of American banks in the fight against large foreign banks.” And “deregulation” in Greenspan’s understanding is, first of all, the abolition of the LSS. Naturally, the first bank to receive from the Federal Reserve the right to invest up to 10% of gross income in 1990 was J.P. Morgan. Greenspan's gift allowed the bank to dramatically strengthen its position at the expense of other Wall Street banks. J.P. Morgan, through investment operations, began to swallow its competitors with great appetite: Chemical Bank (in 1991), Chase Manhattan (1995), First Chicago (1995), Great Western Bank (1997), Bank One (2004), etc.
By December 1996, the level of permitted own investment activity for banks was raised to 25% on Greenspan's initiative. Already in August 1997, the first banking structure, Bankers Trust, absorbed the brokerage company Alex, Brown & Co. It was later itself absorbed by Deutsche Bank. The breakdown of the wall between different types of financial services on Wall Street is well under way. For some time, only the ban on banks' entry into insurance activities was maintained. However, after the takeover of the investment bank Solomon Brothers by the Travelers insurance company in 1997 and the subsequent $70 billion takeover of Travelers itself by Citicorp (the parent company of Citibank), the Glass-Steagall Act, which somehow restrained the appetites of financial conglomerates, de facto ceased to exist. Now all that remained was to eliminate this law de jure. On November 4, 1999, on the eve of the burst of another stock market bubble, after 25 years of fighting to repeal the Glass-Steagall Act, lobbyists and their donors celebrated victory. Democratic President Clinton signed the Financial Modernization Act. It is also called the Gramm-Leach-Bliley Act, or GLB Act for short, after the names of its authors. The Glass-Steagall law, having lived in this world for 66 years, died. Or rather, he was killed by the greedy. In numerous speeches that accompanied the adoption of the GLB Act, the banksters painted a rosy prospect for Americans, who would now save time and money by receiving all financial services “from one window.” The catastrophic risks of such a combination were kept silent.
Consequences of the repeal of the Glass-Steagall Act
On November 4, 1999, a mine was laid under the US financial system. And this mine exploded less than a decade later. We are talking about the financial crisis that began in 2008. American Financial Crisis Investigation Commission chaired by Phil Angelides published the results of a study of the causes of the 2008 financial collapse. The Angelides report concluded that the root cause of the crisis is rooted in the push over the past three decades to dismantle citizen protections created by Franklin Roosevelt in the mid-20th century, including the Glass-Steagall Act. The main initiator of the destruction of regulatory mechanisms has been named - former Fed Chairman Alan Greenspan. The commission singled out two Wall Street initiatives that contributed to the financial collapse. One of them was the passage of the Commodity Futures Modernization Act (CFMA) in 2000, which legalized over-the-counter derivatives trading (the face value of which immediately rose to trillions of dollars). The other is the liquidation in November 1999 of the remnants of the LSS. The abolition of the LSS led to rampant speculation by Wall Street banks, inflating “bubbles” in the financial markets and the real estate market. The first signs of the collapse of the “bubbles” appeared already in 2007. And in 2008, the crisis moved into an acute phase, followed by the bankruptcy of many banking and financial giants. The largest of them is Lehman Brothers. Angelides' report criticizes leading Wall Street figures, including Fed Chairman Ben Bernanke, the former chairman of the Federal Reserve Bank of New York and later Obama's Treasury Secretary. Timothy Geithner, Treasury Secretary under Bush Hank Paulson for measures to “rescue” investment banks, which led to the crisis as a result of speculative games. The first financial assistance was provided on March 16, 2008 to Bear Stearns Bank. The famous American nonconformist Lyndon LaRouche qualified it as a violation of the Emergency Banking Act of 1933, which limited government assistance to commercial banks and excluded investment institutions. On July 24, 2008, Paulson assisted mortgage agencies Fannie Mae and Freddie Mac. The EIR magazine, published under the auspices of Lyndon LaRouche, wrote then that with the help of this trick, even more funds were sent to banks that had accumulated mortgage-backed securities.
On September 25, 2008, Paulson pushed the Troubled Asset Relief Program (TARP) through Congress. Then LaRouche warned: “There has never been a case in history when any government bought up empty papers of foreign investors. Paulson is forcing American taxpayers to bail out his British and European friends. This is criminal and unconstitutional." The House of Representatives voted against the aid on September 29, 2008, but Obama, then a presidential candidate, supported it. On October 3, 2008, the House of Representatives, bowing to pressure, approved the program. Congressmen were told that if the Program was not accepted, a disaster would occur and martial law would have to be introduced. Speaking on LPAC-TV on January 26, 2011, LaRouche said: “The 2008 commission report is perceived by many politicians and experts as an alternative to Obama. The commission concluded that there was no need for assistance. There was no such need under Bush, and there was none under Obama either. We have destroyed the ability to support the world's population. The planet is on the verge of genocide, but it is still possible to save it. And it is impossible to do this without the United States. If we restore the Glass-Steagall law, we can cleanse the system of 17 trillion pieces of junk paper. And we can push this process in Europe and other regions.”
The fight to restore the Glass-Steagall Act
The financial crisis in the United States and around the world has sharply increased criticism of banks. Today, President Barack Obama is among the critics. The media believe that it was adopted after the financial crisis of 2008-2009. on financial reform would not have been adopted without the support of B. Obama. Some of those who at one time sought the dismantling of the LSS, today unexpectedly find themselves in the camp of supporters of its restoration. Among them, for example, is the former Treasury Secretary in the Bush Jr. cabinet, H. Summers. Proponents of reviving the “wall” between commercial and investment banks are led by former Federal Reserve Chairman Paul Volcker. Younger former Fed leaders include Thomas Hoenig; he was at one time Chairman of the Federal Reserve Bank of Kansas City and is currently Deputy Chairman of the Federal Bank Deposit Insurance Corporation. In an interview with the English Central Banking Journal on May 10, 2013, he reaffirmed his position regarding the restoration of the Glass-Steagall Act and stated that the complete separation of banking and investment activities “must be formalized legally.”
Of course, there is a lot of rhetoric and even slyness in the criticism of banks by Obama and a number of other prominent government figures. Thus, the aforementioned Frank-Dodd Act (its full name: “On Wall Street Reform and Consumer Protection”) did not solve the key problem - the separation of deposit and lending activities from the investment and insurance activities of American banks. L. LaRouche called the Frank-Dodd law “a useless, half-hearted measure.” While such assessments are fair, it must be admitted that in the United States a favorable atmosphere is being created for those who really want to restore the Glass-Steagall Act. There have already been several attempts to pass laws in the US Congress that would bring order to the country's banking system in the spirit of the LSS, and here are the most important of them.
In early 2010, Senators Maria Cantwell (Democrat from Washington State) and John McCain (Republican from Arizona) proposed an amendment to the Frank-Dodd Act restoring the main provisions of the LSS. The amendment did not receive the necessary support.
In April 2011, U.S. House of Representatives Marcy Kaptur(D-Ohio) reintroduced a bill to restore the Glass-Steagall Act called H.R. 1489 - a proposal to "revoke certain provisions of the Graham-Leach-Bliley Act and restore the separation between commercial banking and securities trading as provided by the Glass-Steagall Banking Act of 1933, and for other purposes." The bill was co-sponsored by Walter Jones Jr. (Republican from North Carolina) and James Moran (Democrat from Virginia). By the time the 112th Congress expired, the authors of the bill managed to obtain support from 84 members of the lower house. With the start of the 113th Congress, M. Kaptur and W. Jones again introduced a bill (H.R. 129) to restore the LSS. As of today (May 2013), 62 congressmen support the bill.
Understanding of the need to separate banking operations in the spirit of the LSS is also growing in the Senate. But the influence of the banksters on the upper house is much stronger. As already mentioned, Senator Tom Harkin (Democrat, Iowa) introduced on May 16, 2013 in the US Senate Bill No. 985 (SB 985) to restore the Glass-Steagall Act. T. Harkin's bill was registered simultaneously with the introduction of draft resolutions in the legislatures of two states (Delaware and Illinois) calling on the representatives of these states in Congress to support the restoration of the LSS law. Before this, similar resolutions had already been introduced in 18 state legislatures. Lyndon LaRouche congratulated Harkin on introducing SB 985 despite massive pressure from the White House and Senate leadership. LaRouche said: “This is a very important step. Obviously, it will have serious consequences. We managed to overcome resistance to this initiative. Things take a different turn. The agenda is changing. Despite all efforts to prevent the introduction of this bill for consideration, Senator Harkin managed to insist on his own. This is not a victory yet, but a sign that the situation is not so hopeless..."
Mixing (combining) deposit-credit and investment activities is typical not only for US banks. Today it is also inherent in the European banking system. In Europe, this issue is not yet discussed so hotly. Few politicians in Europe understand how powerful this mine is, capable of blowing up the European Union. So far, the latest initiative in Europe in favor of the separation of banking activities belongs to the regional council of Tuscany, which adopted a resolution entitled “Banking and legal reform in the spirit of the Glass-Steagall Act.”
At the level of the G-7, G-8, G-20 summits and other world forums, where issues of increasing financial stability and reforming the global financial system are constantly discussed, the problem of separating the deposit-credit and investment activities of banks is raised very carefully. And in vain. Experts understand that without solving this fundamental problem, all talk about financial stability turns into empty chatter.
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On May 16, 2013, US Senator Thomas Harkin (Democratic Party, Iowa) introduced Senate Bill No. 985 to restore the Glass-Steagall Act. . It is noteworthy that this happened on the 80th anniversary of the adoption of this law. It should be noted that both the adoption and, at one time, the repeal of this law had a tremendous impact on the development of the financial and banking system of the United States and the whole world.
How it all began
The history of the Glass-Steagall Act (hereinafter referred to as the GSA for short) dates back to the “Roaring Twenties” of the last century, when America was seized by a fever of speculation, in which banks played a key role. Moneylender bankers forgot about traditional lending operations and plunged into risky transactions in the stock market. They themselves acted as speculative investors, and also, with the help of their loans, supplied non-bank speculators with money, sharing with the latter the unprecedentedly high profits received from securities transactions. It all ended tragically with the stock market crash of 1929, the development of an economic recession (which then, in the 1930s, developed into a protracted depression), and a banking crisis. Then every fifth American bank went to the bottom, along with deposits of depositors. Perhaps, in the history of mankind, this was the largest “confiscation” of deposits (against the background of which the current confiscation in Cyprus seems quite moderate). Even in the US Congress, calls to nationalize banks began to be heard more and more often.
Soon after coming to power President Franklin Roosevelt, In 1933, the American Congress passed a law, the draft of which was initiated by two Democrats - Carter Glass and Henry Steagall. The act was named after them. The LSS provided for the following critical measures:
1) separation of banks’ credit operations from investment ones (due to the fact that the latter are much more risky); division of banks into commercial (having the right to accept deposits and engage in lending) and investment (having the right to engage only in transactions with securities on the stock market);
2) creation of a special organization for insuring bank deposits of the population - the Federal Deposit Insurance Corporation (FDIC);
3) strengthening the supervisory, regulatory and control functions of the US Federal Reserve System in relation to commercial banks; investment banks are removed from the control of the US Federal Reserve and their risks are not insured by either the state or the Federal Reserve;
4) assigning to the Federal Reserve the right to regulate maximum interest rates on savings deposits of banks, and also, taking into account the situation, establish mandatory reserve standards for banks included in the Federal Reserve.
The adoption of the LSS played an important role in stabilizing the US financial and banking system. For several decades, America lived without a banking crisis (although, of course, individual bank failures occurred regularly).
The fight to repeal the law
Obviously, the LSS restrained the greedy aspirations of bankers who wanted to combine their privileged status as depository institutions with speculative operations in the stock markets. In other words, they were constantly tempted to use investors' money for high-risk investments. Not by washing, but by rolling, they tried to loosen the bonds of the ZGS. The first attempt to change the Glass-Steagall Act was made back in 1956 in connection with the passage of the Bank Holding Company Act. Then it was proposed to lift the ban on combining lending and investment activities for subsidiaries of bank holding companies in all states. However, the attempt failed. Depository and credit institutions continued to be prohibited from conducting investment activities, as well as absorbing companies from other sectors of financial services - insurance, asset management - and also organizing partnerships with them.
The first relaxations of the LSS appeared at the turn of the 1960s and 70s. They concerned permission for banks to enter the municipal bond market as underwriters (investment brokers). At the same time, investment companies, through their lobbyists, achieved the right to open demand accounts for clients in the money market (money market accounts), which are actually analogues of short-term deposits. It is noteworthy that such accounts were outside the FDIC insurance system.
At the end of 1986 - beginning of 1987. Another significant event occurred: the Fed allowed some particularly reliable commercial banks to receive up to 5% of their gross income from operations with securities (though not yet at the expense of clients’ funds, but at the expense of their own capital). A little later, the bar for the most reliable banks was raised to 10%. This happened back when Fed Chairman Paul Volcker.
The final phase of dismantling the LSS is associated with the name A. Greenspan. Having replaced the director of J.P. Morgan bank in August 1987 with the chair of the chairman of the Board of Governors of the Federal Reserve, Alan Greenspan immediately stated that “maximum deregulation of the banking system is necessary to increase the competitiveness of American banks in the fight against large foreign banks.” And “deregulation” in Greenspan’s understanding is, first of all, the abolition of the LSS. As they say, “the process has begun.” Naturally, the first bank to receive from the Federal Reserve the right to invest up to 10% of gross income in 1990 was the “native” bank of J.P. Morgan. Greenspan's gift allowed the bank to dramatically strengthen its position among and at the expense of other Wall Street banks. J.P. Morgan, through investment operations, began to swallow its competitors with great appetite: Chemical Bank (in 1991), Chase Manhattan (1995), First Chicago (1995), Great Western Bank (1997), Bank One (2004), etc.
By December 1996, the level of permitted own investment activity for banks was raised to 25% on Greenspan's initiative. Already in August 1997, the first banking structure, Bankers Trust, absorbed the brokerage company Alex, Brown & Co. It was later itself absorbed by Deutsche Bank. The breakdown of the wall between different types of financial services on Wall Street is well under way. For some time, only the ban on banks' entry into insurance activities was maintained. However, after the takeover of the investment bank Solomon Brothers by the insurance company Travelers in 1997 and the subsequent takeover of Travelers itself by Citicorp (the parent company of Citibank) for $70 billion the following year, the Glass-Steagall Act, which somehow restrained the appetites of financial conglomerates, de facto ceased to exist. Now it remained for the historically important law to be eliminated de jure.
On November 4, 1999, on the eve of the burst of another stock market bubble, after 25 years of fighting to repeal the Glass-Steagall Act, lobbyists and their donors celebrated victory. Democratic President Clinton signed the Financial Modernization Act. It is also called the Gramm-Leach-Bliley Act - after the names of its authors (Gramm-Leach-Bliley Act or GLB Act for short). The Glass-Steagall law, having lived in this world for 66 years, has died. Or rather, he was killed by greedy banksters. In numerous speeches that accompanied the adoption of the law, the banksters cynically painted a rosy prospect for American citizens, who would now save time and money by receiving all financial services “from one window.” The catastrophic risks of such a combination were modestly kept silent.
Consequences of repealing the law
In fact, on November 4, 1999, a mine was laid under the US financial system. And this mine exploded less than a decade later. We are talking about the financial crisis that began in 2008. American Financial Crisis Investigation Commission chaired by Phil Angelides published the results of a study of the causes of the 2008 financial collapse.
The Angelides report concluded that the root cause of the crisis is rooted in the push over the past three decades to dismantle the citizen protections created by Franklin Roosevelt in the mid-twentieth century, including the Glass-Steagall Act. The main initiator of the destruction of regulatory mechanisms has been named - former Fed Chairman Alan Greenspan. The commission singled out two Wall Street initiatives that contributed to the financial collapse. One of them was the passage of the Commodity Futures Modernization Act (CFMA) in 2000, which legalized over-the-counter derivatives trading (the face value of which immediately rose to trillions of dollars). The other is the liquidation we described above in November 1999 of the remnants of the LSS. The abolition of the LSS led to rampant speculation by Wall Street banks, inflating “bubbles” in the financial markets and the real estate market.
The first signs of the collapse of the “bubbles” appeared back in 2007. And in 2008, the crisis entered an acute phase, which was accompanied by the bankruptcies of many banking and financial giants. The largest of them is Lehman Brothers. Angelides' report criticizes leading Wall Street figures, including Fed Chairman Ben Bernanke, former Chairman of the Federal Reserve Bank of New York and later Obama Treasury Secretary Timothy Geithner, and Bush Treasury Secretary Hank Paulson for the investment bank bailouts that led to the crisis. as a result of speculative games.
The first financial assistance was provided on March 16, 2008 to Bear Stearns Bank. Famous US opposition politician Lyndon LaRouche then qualified it as a violation of the Emergency Banking Act of 1933, which limited government assistance to commercial banks and excluded investment institutions. On July 24, 2008, Paulson assisted mortgage agencies Fannie Mae and Freddie Mac. EIR magazine, published under the auspices of Lyndon LaRouche, wrote at the time that this was a ploy to funnel even more funds to banks that had accumulated mortgage-backed securities.
On September 25, 2008, Paulson pushed the Troubled Asset Repurchase Program (TARP) through Congress. Then LaRouche warned: “There has never been a case in history when any government bought up empty papers of foreign investors. Paulson is forcing American taxpayers to bail out their British and European friends. This is criminal and unconstitutional." The House of Representatives voted against the aid on September 29, 2008, but Obama, then a presidential candidate, supported it.
On October 3, 2008, the House of Representatives, under pressure, approved this program; congressmen were then told that if it was not adopted, a disaster would occur and martial law would have to be introduced. Speaking on LPAC-TV on January 26, 2011, LaRouche said: “The commission's 2008 report is perceived by many politicians and experts as an alternative to Obama. The commission concluded that there was no need for assistance. There was no such need under Bush, and there was none under Obama either. We have destroyed the ability to support the world's population. The planet is on the verge of genocide. But there remains a chance to save her. And it is impossible to do this without the United States. If Glass-Steagall was restored, the system could be cleared of 17 trillion pieces of junk paper. And we can push this process in Europe and other regions.”
The fight for the restoration of the LSS
In early 2010, senators Maria Cantwell(Democrat from Washington State) and John McCain(Republican from Arizona) proposed amendments to the Frank-Dodd Act, essentially restoring the main provisions of the AHS. The amendment did not receive the necessary support.
In April 2011, a member of the US House of Representatives Marcy Kaptur(D-Ohio) reintroduced a bill to restore the Glass-Steagall Act called H.R. 1489 - a proposal to "revoke certain provisions of the Graham-Leach-Bliley Act and restore the separation between commercial banking and securities trading as provided by the Glass-Steagall Banking Act of 1933, and for other purposes." Co-authors of the bill - Walter Jones Jr. (R-NC); James Moran (Democrat from Virginia). By the end of the 112th Congress, the authors of the bill managed to obtain support from 84 members of the lower house. With the start of the 113th Congress, M. Kaptur and W. Jones again introduced a bill (H.R. 129) to restore the LSS. As of today (May 2013), 62 congressmen support the bill.
Understanding of the need to separate banking operations in the spirit of the LSS is also growing in the upper house of the American parliament - the Senate. But the influence of the banksters on the upper house is traditionally much stronger.
We already mentioned at the beginning of the article that Senator Tom Harkin (Democrat, Iowa) introduced Bill No. 985 (SB 985) to restore the Glass-Steagall Act on May 16, 2013 in the US Senate. The capital's politicians are supported by public activists and parliamentarians from many states.
Glass-Steagall Law in a Global Context
It is obvious that the restoration of the LSS is not a purely internal matter of the United States. It would have a positive impact on the global financial and economic situation. Firstly, because it would reduce the likelihood of new crises emerging in the United States, which, in the conditions of current globalization, immediately spread from the American epicenter throughout the world. Secondly, because the adoption of a law in the United States on the separation of commercial and investment banks could encourage other countries to adopt similar laws.
It should be said that the mixing (combination) of deposit-credit and investment activities is characteristic not only of US banks. Once upon a time, this topic was not relevant for Europe due to the much lesser degree of development of stock markets and, accordingly, the lesser involvement of European banks in the high-risk investment business. Europe has never had an equivalent to the Glass-Steagall Act. Today, the combination of deposit-credit and investment operations has also become inherent in the European banking system. The process of bank universalization has advanced greatly in Europe today. Few politicians and economists in Europe understand how powerful this “mine” is, which could blow up the European Union. In Europe, the latest initiative in favor of unbundling of banking activities was put forward by the regional council of Tuscany, which adopted a resolution entitled “Banking and legal reform in the spirit of the Glass-Steagall Act.” And institutions such as the European Commission, the European Parliament and the European Central Bank are absorbed in the fight against the debt crisis, with virtually no discussion of the risks of creating banking conglomerates.
As for Russia, today the problem of separating deposit and credit operations from investment and other activities is practically not discussed by anyone. We haven’t stepped on this “rake” yet and don’t understand how big a bump we can get. In general, I have the impression that our authorities even encourage the mixing of deposit operations and purely speculative financial transactions “in one bottle,” called a “bank.” This is being done under the banner of creating “universal” banks, financial “supermarkets”, and improving the quality of customer service (receiving all financial services “from one window”). Over the past months, the issue that we need a financial mega-regulator in Russia has been regularly discussed. As is known, the Central Bank was designated as such. It is interesting that the main argument in favor of creating a mega-regulator and appointing the Central Bank as such was the following. The main financial institution in Russia today has become a commercial bank. At the same time, commercial banks are gradually turning into diversified banking holding companies, combining such types of operations as deposit, credit, investment, leasing, insurance and even pensions. It is clear that it is difficult for different organizations to monitor the activities of such a multi-headed financial hydra. Therefore, they say, a single mega-regulator is needed. Surprisingly, almost none of the opponents of the idea of a financial mega-regulator questioned the combination of different types of operations within one organization, which is traditionally called a “bank.”
At the level of the G-7, G-8, G-20 summits and other global forums, where issues of increasing financial stability and reforming the global financial system are constantly discussed, the problem of separating the deposit-credit and investment activities of banks is addressed very carefully and in doses. At the same time, experts understand that without solving this cardinal problem, all talk about financial stability in the world turns into empty chatter.
It is no longer surprising that in Europe and the United States the most famous laws are adopted during times of economic upheaval. The Glass-Steagall Act was no exception - in 1933, amid the stock market crash that had begun 4 years earlier, the nationwide failure of commercial banks and the Great Depression, two members of Congress signed on to what is now known as the GSA (Glass-Steagall Act). ). It was this act that separated investment and commercial banking.
At that time, improper banking—what it was perceived to be—the overzealousness of commercial banks in participating in the investment market, was recognized as the main culprit in the financial collapse. According to this logic, commercial banks have taken on too much risk for depositors' money. However, despite the timing, many analysts still express their opinions regarding the creation of the GSA and its abolition in 1999.