Gramm-Leach-Bliley Act of 1999 - GLBA
Categories: Regulations, Tax
In 1933, in the aftermath of the Great Depression, Congress passed the Glass-Steagall Act, a law that separated commercial banking from investment banking.
To give some context to what this move meant, a little detail about what these different types of banks do. Investment banks work for companies, doing things like bond issuances and stock offerings. Meanwhile, commercial banking consists of what you probably think of as banking: taking money from depositors and loaning the cash out for things like businesses or homes.
One of the main components of the Gramm-Leach-Bliley Act of 1999 was to repeal Glass-Steagall. From the time Gramm-Leach-Bliley took effect, the same companies that held your money or issued your mortgage could provide investment banking services to large corporations.
The results of this were...well, we'll say "mixed." On the one hand, the easing in regulation opened the door for more efficient banking. It also allowed the companies could get bigger, letting them take advantage of economies of scale. Those factors made services cheaper, which opened up credit to drive economic growth.
On the other hand, the financial power of the U.S. became concentrated in a handful of large companies...the so-called “too big to fail” types. This fact contributed to escalating the crash of the mortgage bubble of the mid-2000s into the full-scale financial crisis of 2007-2008.