Barry Ritholtz on the Repeal of Glass-Steagall

21 05 2012

Glass Steagall law kept commercial or depository banks in the United States separate from their more speculative Wall Street investment banks. It was passed in the aftermath of the wave of bank failures in the early 1930s. It promoted financial stability and worked well until it was repealed. The repeal of Glass-Steagall is commonly associated with a law passed by Congress in 1999. As Barry Ritholtz shows in a recent blog post, the 1999 Gramm-Leach-Bliley Act was really the culmination of a series of changes aimed at watering down the principle that investment and commercial banking should be kept separate.

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2 responses

1 10 2012
Tim

There was an interesting article about the dismantling of the Canadian “Four Pillars” arrangements akin to Glass Steagall in Canada in Policy Options Magazine back in 2005. It was written by former Mulroney Chief of Staff Stanley Hartt.

http://www.irpp.org/po/archive/sep05/hartt.pdf

I think the article is relatively accurate but perhaps could emphasize even the conflict between provincial and federal responsibility in Canada. Historically, the Federal powers under the constitution regarding banking in Canada were intrepreted to view “Banking” as solely being what outside of Canada was called commericial banking whereas other activities such as merchant and investment banking remain to this day under provincial jurisdiction.

Here are two article below that discuss the most recent court fight over which level of government has power over the securities industry.

http://www2.macleans.ca/2011/12/22/this-court-doesnt-lean/
http://www2.macleans.ca/2011/12/22/the-national-securities-regulator-falls-victim-to-judicial-stockholm-syndrome/

One of the more interesting things in the second article is the discussion of the role the Judicial Committee of the Privy Council continues to play in Canadian law.

I also have some primary sources from the time of Hockin Kwinter Accord some of which contradict some of Hartt’s views in his article. My personal opinion is the historical seperation of investment and commercial banking in Canada had much more to do with the inevitable conflict between provincial and federal regulation(and in particular it was the provinces that were more opposed to universal banking). This log jam started to be broken by the Robert Bourassa government in Quebec that was looking to try to try recover Montreal’s place as the financial center of Canada and needed new sources of capital to finance the Hydro Quebec James Bay project. In such starting in the first 1970s Bourassa govt and finishing in the second in the 1980s Bourassa opened the Quebec securities sector first to foreign ownership, then to involvement of the Caisse movement(i.e. Desjardins), then insurance companies, then basically announced that Quebec would have no objection to any other Federally Chartered Banks entering the securities business in Montreal.

1 10 2012
andrewdsmith

Thanks for this very thoughtful and informed comment.

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