The first "Glass–Steagall Act" was a law passed by the
United States Congress
The United States Congress is the legislature of the federal government of the United States. It is bicameral, composed of a lower body, the House of Representatives, and an upper body, the Senate. It meets in the U.S. Capitol in Washing ...
on February 27, 1932, prior to the inclusion of
more comprehensive measures in the
Banking Act of 1933, which is now more commonly known as the Glass-Steagall Act. It was the first time that currency (non-specie, paper currency etc.) was permitted to be allocated for the
Federal Reserve System
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
. It was passed in an effort to stop
deflation
In economics, deflation is a decrease in the general price level of goods and services. Deflation occurs when the inflation rate falls below 0% (a negative inflation rate). Inflation reduces the value of currency over time, but sudden deflation ...
and expanded the
Federal Reserve
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
's ability to offer loans to member banks (rediscounts) on more types of assets such as
government bonds as well as
commercial paper
Commercial paper, in the global financial market, is an unsecured promissory note with a fixed maturity of rarely more than 270 days. In layperson terms, it is like an " IOU" but can be bought and sold because its buyers and sellers have some ...
.
The "Glass–Steagall Act" is not the official title of the law; it is a colloquialism that refers to its legislative sponsors,
Carter Glass
Carter Glass (January 4, 1858 – May 28, 1946) was an American newspaper publisher and Democratic politician from Lynchburg, Virginia. He represented Virginia in both houses of Congress and served as the United States Secretary of the Treasu ...
, a
US Senator
The United States Senate is the upper chamber of the United States Congress, with the House of Representatives being the lower chamber. Together they compose the national bicameral legislature of the United States.
The composition and powe ...
from
Virginia
Virginia, officially the Commonwealth of Virginia, is a state in the Mid-Atlantic and Southeastern regions of the United States, between the Atlantic Coast and the Appalachian Mountains. The geography and climate of the Commonwealth ar ...
and
Henry B. Steagall
Henry Bascom Steagall (May 19, 1873 – November 22, 1943) was a United States representative from Alabama. He was chairman of the Committee on Banking and Currency and in 1933, he co-sponsored the Glass–Steagall Act with Carter Glass, an ac ...
, the
Congressman from
Alabama's 3rd congressional district
Alabama's 3rd congressional district is a United States congressional district in Alabama that elects a representative to the United States House of Representatives. It is based in east central Alabama and encompasses portions of Montgomery an ...
. The official title was "An Act to Improve the Facilities of the Federal Reserve System for the Service of Commerce, Industry, & Agriculture, to Provide Means for Meeting the Needs of Member Banks in Exceptional Circumstances, & for Other Purposes".
Contents
The Glass–Steagall Act of 1932 authorized
Federal Reserve Banks
A Federal Reserve Bank is a regional bank of the Federal Reserve System, the central banking system of the United States. There are twelve in total, one for each of the twelve Federal Reserve Districts that were created by the Federal Reserve A ...
to (1) lend to five or more
Federal Reserve System
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
member banks on a group basis or to any individual member bank with capital stock of $5 million or less against any satisfactory collateral, not only “eligible paper,” and (2) issue
Federal Reserve Bank Note
Federal Reserve Bank Notes are banknotes that are legal tender in the United States issued between 1915 and 1934, together with United States Notes, Silver Certificates, Gold Certificates, National Bank Notes and Federal Reserve Notes. They were ...
s (i.e.,
paper currency
A banknote—also called a bill (North American English), paper money, or simply a note—is a type of negotiable promissory note, made by a bank or other licensed authority, payable to the bearer on demand.
Banknotes were originally issued ...
) backed by US government securities when a shortage of “eligible paper” held by Federal Reserve banks would have required such currency to be backed by gold. The
Federal Reserve Board
The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement the mon ...
explained that the special lending to Federal Reserve member banks permitted by the 1932 Glass–Steagall Act would only be permitted in “unusual and temporary circumstances.”
[. Each form of special lending to Federal Reserve member banks required approval from at least five members of the Federal Reserve Board. Group lending could be made to fewer than five (but not fewer than two) member banks if the borrowing banks had deposit liabilities equal to at least 10% of the deposits liabilities of member banks in their Federal Reserve district. The special lending to individual member banks could be made only in “exceptional and exigent circumstances.” Both forms of lending were based on the borrowing member banks not having sufficient "eligible assets" to borrow on normal terms.]
Historical context
The crash of 1929 evolved into a panic situation due to people losing their savings. Therefore, a massive withdrawal of deposits of the banks took place leading to the bankruptcy of many entities. In 1933, a young prosecutor named
Ferdinand Pecora
Ferdinand Pecora (January 6, 1882 – December 7, 1971) was an American lawyer and New York State Supreme Court judge who became famous in the 1930s as Chief Counsel to the United States Senate Committee on Banking and Currency during its investi ...
, who was a member of the US Senate's Monetary and Financial Affairs Commission, interrogated several bank managers about their detestable role in the crisis. These hearings and the coming to power of Franklin D. Roosevelt and his New Deal policy gave rise to the law.
See also
*
US corporate law
United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governanc ...
*
US banking law
Banking in the United States began by the 1780s along with the country's founding and has developed into highly influential and complex system of banking and financial services. Anchored by New York City and Wall Street, it is centered on var ...
References
External links
Public Law 72-44, 72d Congress, H.R. 9203
{{DEFAULTSORT:Glass-Steagall Act Of 1932
1932 in American law