Banking Act of 1933

Law

variants: popularly Glass-Steagall Act of 1933

12 U.S.C. §§ 24, 335, 371, 377, 378 | (1933)

Legal Definition of Banking Act of 1933

one of three Depression-era bank reform measures that established federal deposit insurance and helped curb bank speculation. The Glass-Steagall Act created the Federal Deposit Insurance Corporation, which backs deposits using federal dollars, and required the separation of investment banking and commercial banking, thus allowing different interest rates for long-term and short-term financing. A later act, known as the Emergency Banking Relief Act, 12 U.S.C. 51a–51c (1933), created a “bank holiday” (business moratorium) to stop a depositor panic and to allow for the reorganization of solvent banks under federal review-and-licensing guidelines. It also authorized the president to take the United States off the gold standard, ending a foreign drain on gold and reassuring depositors. Finally, the Banking Act of 1935 gave the Federal Reserve Board the power to determine the cash reserves of commercial banks, a move that came to be recognized as an appropriate technique for controlling the money supply. In 1999, Congress passed the Financial Modernization Act, popularly the Gramm-Leach-Bliley Act, 113 Stat. 1338 et seq., which repealed core provisions of the Glass-Steagall Act. Particularly, the Financial Modernization Act repealed provisions of Glass-Steagall that prohibited banks from affiliating with securities firms. It created the financial holding company as a vehicle through which a bank could engage in previously prohibited financial services, such as securities investment and insurance underwriting.