# Glass-Steagall Act **Type:** Federal law (Banking Act of 1933) **Signed:** June 16, 1933 by Franklin D. Roosevelt **Sponsors:** Senator Carter Glass (D-VA) / Representative Henry B. Steagall (D-AL) **Vote:** Voice vote in both chambers ## Summary [[The New Deal]] banking law that **separated commercial banking from investment banking** — prohibiting deposit-taking banks (which enjoy FDIC insurance and access to the Federal Reserve's lending facilities) from engaging in securities underwriting, dealing, and brokering. The Act's premise was simple: banks that hold the public's deposits should not be gambling with that money in securities markets. The separation was a direct response to the 1929 crash and the bank failures of the early 1930s, in which banks had used depositors' money to speculate in securities, and when the speculations failed, depositors lost their savings. Glass-Steagall also created the **Federal Deposit Insurance Corporation (FDIC)** — the federal insurance system that guarantees bank deposits up to a specified limit (currently $250,000), eliminating the bank runs that had destroyed the banking system in 1929-1933. ## The Repeal Glass-Steagall's separation provisions were repealed in 1999 by the **Gramm-Leach-Bliley Act** (named for Senator Phil Gramm, R-TX; Representative Jim Leach, R-IA; and Representative Thomas Bliley, R-VA). The repeal was signed by [[President Clinton]] and passed with significant bipartisan support (Senate 90-8, House 362-57), reflecting the bipartisan embrace of financial deregulation in the 1990s. The repeal allowed the creation of financial conglomerates — institutions like Citigroup that combined commercial banking, investment banking, and insurance under one corporate umbrella. These conglomerates became the "too big to fail" institutions whose interconnected risk-taking produced the 2008 financial crisis. ## KB Significance **1. The deregulation-to-crisis case study.** Glass-Steagall's repeal and the subsequent 2008 financial crisis constitute the vault's most complete case study of the deregulation cycle: (a) regulation works (Glass-Steagall prevented bank speculation with deposits for 66 years; the banking system was stable), (b) the regulated industry lobbies for deregulation (financial industry spent hundreds of millions lobbying for repeal), (c) deregulation passes (Gramm-Leach-Bliley, 1999), (d) the risks that regulation prevented materialize (2008 crisis), (e) taxpayers bear the costs (bailouts, recession, foreclosures), (f) the post-crisis regulation ([[Dodd-Frank Act]]) is weaker than the original, (g) the weakened regulation is further weakened (2018 Dodd-Frank rollback), (h) repeat. This cycle is the structural pattern the vault tracks across environmental, financial, and labor regulation. **2. The bipartisan deregulation consensus.** Glass-Steagall's repeal was bipartisan — signed by a Democratic president, passed with large majorities in both parties. This complicates the vault's primarily left-right analytical framework: the financial deregulation project of the 1990s was a product of neoliberal consensus, not partisan Republican capture. Clinton's Treasury Secretary Robert Rubin (former Goldman Sachs co-chairman) and his successor Larry Summers were enthusiastic deregulators. The bipartisan consensus on financial deregulation collapsed after 2008 — but the damage was done, and the post-crisis regulatory response (Dodd-Frank) was weaker than Glass-Steagall restoration because the financial industry's lobbying power had grown during the deregulation period. **3. The FDIC as surviving legacy.** While Glass-Steagall's separation provisions were repealed, the FDIC — the Act's other major creation — survived and remains one of the most successful federal programs in history. Since the FDIC's creation in 1933, no depositor in an FDIC-insured bank has lost a penny of insured deposits. The FDIC's success demonstrates that government insurance and regulation can work — a proposition the libertarian right rejects in principle while relying on in practice (no serious political actor proposes eliminating deposit insurance). **4. The restoration debate.** The question of restoring Glass-Steagall separation has recurred periodically since 2008 — both Trump (2016 campaign) and Sanders/Warren (progressive wing) have endorsed it, though from different analytical frameworks and with different political commitments. The restoration has never advanced legislatively because the financial industry's lobbying power makes it politically impossible. The inability to restore a regulation whose repeal demonstrably contributed to the worst financial crisis in 80 years is itself a demonstration of the donor-class capture thesis: the evidence supports restoration, but the political economy prevents it. ## See Also - [[Dodd-Frank Act]] — the post-2008 regulatory response (weaker than Glass-Steagall restoration) - [[Senate Finance Committee]] — committee of jurisdiction for financial regulation - [[Regulatory Capture]] — the dynamic Glass-Steagall's repeal enabled