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Glass Steagall Act Essay

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THE BACKDROP: The 1930s saw an increase in the number of banks in the US which led to an increase in the fragility of the system. The steps that were then taken were aimed at preserving the interests of the depositors and realizing the fact that one bank failure could lead to a bank run. During the two year period of 1930-32, nearly one-fifth of the banks in the US closed down. As an interventionist measure, the Glass-Steagall Act was enacted in 1933, which marked the beginning of a regulatory regime and the reforming of the banking sector. The US bank sector at that time showed that competition in the banking sector can hamper stability as banks are central to any market economy and can affect it. The Act was an effort to decrease competition to increase stability.
Important features of the Glass-Steagall Act were:
1. It created a Federal Deposit Insurance Corporation(FDIC) which would reimburse depositors below a fixed ceiling in case of a bank failure. This provision of security virtually removed the difference that existed between banks since all were now ensured.
2. It put restrictions by putting limits upon the number of banks and the level of branching in the system. With this, the …show more content…

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