fire wall

noun
Updated on: 26 Jul 2017

Definition of fire wall

  1. 1 :  a wall constructed to prevent the spread of fire

  2. 2 usually firewallplay \ˈfī(-ə)r-ˌwȯl\ :  computer hardware or software that prevents unauthorized access to private data (as on a company's local area network or intranet) by outside computer users (as of the Internet)

First Known Use of fire wall

circa 1666


Financial Definition of FIRE WALL

fire wall

What It Is

Firewall refers to the strict separation between banking and brokerage activities within full-service banks, and between depository and brokerage institutions as stipulated by the Glass-Steagall Act of 1933.

How It Works

Prior to the Great Depression, investors would borrow on margin from commercial banks and use the money to purchase stocks. Following the logic that capital appreciation in the purchased stocks would offset and be used to repay the loan amount, this practice was legal and considered acceptable, particularly during the period of rapid growth experienced in the two decades prior. This practice, however, exposed ordinary depositors to high levels of risk because the banks were using their money to finance these loans.

The advent of the Great Depression in late 1929 led to numerous government-mandated reforms in the financial industry. The legislation comprised in the Glass-Steagall Act of 1933 put an end to brokerage activities that compromised depositors' accounts.

Why It Matters

Named for the construction element that keeps a fire from spreading from one area of a building to another, the firewall provision comprised in the Glass-Steagall Act protects depositors from the high-risk environment of investment banking.


FIRE WALL Defined for English Language Learners

fire wall

noun

Definition of fire wall for English Language Learners

  • : a very thick wall that keeps fire from spreading

  • : a computer program or piece of equipment that keeps people from using or connecting to a computer or a computer network without permission

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