Glass-Steagall Act

Posted in Finance, Accounting and Economics Terms, Total Reads: 371
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Definition: Glass-Steagall Act

It is an act passed in 1933 by the U.S Congress as the Banking Act. According to this act, commercial banks are prohibited from participating in investment banking business. During the great depression period, this act was repealed as an emergency measure to safeguard the failure of 5000 banks.

 

This act had two objectives as below:

• To restore public confidence in US banking system and stop unprecedented run on banks.

• To separate the commercial banking from investment banking so as to separate the conflict of interest that arises when banks are engaged in both banking.

 

According to this act the banks had to choose between commercial banking and investment banking speciality. Thus the act aimed to prevent banks use of deposits in case of failed underwriting job.


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