The Pros And Cons Of The Glass-Stegall Act

The Glass-Stegall Act was meant to be a terminal solution to commercial bank failure as well as the Great Depression. It was instituted by Senator Carter Glass Carter who served as the Treasury and Secretary at the time and was backed by Bascom Steagall (CONGRESS.GOV). GSA was an essential move towards separation of investment and activities of commercial banks. The involvement of commercial banks in investments was deemed as the main reason leading to the financial crash since before the occurrence of the Great Depression; commercial banks took excessive risk with depositors. However, GSA caused many controversies; people considered it as an impediment to the formation of competing financial institutions in the US. Eventually, its repeal took place in 1999 (CONGRESS.GOV).

FDIC posed a threat to the bigger banks that perceived the institution as leading to their decline. They believed that they would be bankrolling the small banks. Deposits were insured up to $2500, a temporary fund as of January 1934 and on July 1934 the amount rose to $5000 (CONGRESS.GOV). There have been sequential increments over the years, for example the current value is at $250000. Legislation was passed requiring members of the Federal Reserve Bank to become FDIC stockholders as on or before 1st July 1934.The banks would not be allowed to become members of the Federal Reserve Bank unless they first received FDIC membership (CONGRESS.GOV). GSA was later considered as an overreaction to the crisis by the financial community that made Glass get involved in its