Glass Steagall Act : Banks too big to fail, Bankers too big to jail

November Print Issue

@TheSabha

It was a banking act of 1933, just after Great Depression. It is named after its Congressional sponsors, Senator Carter Glass (D) of Virginia, and Representative Henry B. Steagall (D) of Alabama.

It divided the banks into two groups: the commercial banks, that take your deposits, ordinary people, supposed to give money to small businesses to help grow the economy; and then the investment banks, taking money from rich people, investing it in more speculative activities.

During the Clinton administration the division was eliminated. Citibank wanted to bring together these various financial institutions, and the result of that was : Glass-Steagall repealed.

It resulted into bigger banks that became too big to fail The culture of risk taking, that’s associated with the investment bank, spread to the whole banking system, and so all the banks became speculators, actually lending to small businesses lower than it was before the crisis.

And the kinds of conflicts of interest that were rampant in the years before the Great Depression started to appear all over the place in the financial sector.

To which Bernie Sanders said if you are too big to fail, you are too big to exist, and he wants to break the banks into smaller ones, which can redistribute the risk and capital.