The Virtues of Glass-Steagall: An Argument Against Legislative Appeal

Tuesday, January 1st, 1991 at 12:00 am by Don More
Don More, The Virtues of Glass-Steagall: An Argument Against Legislative Appeal, 1991 Colum. Bus. L. Rev. 433

The Glass-Steagall Act, comprising four sections of the Banking Act of 1933, restricts commercial bank involvement in investment banking. Since the 1970s, Glass-Steagall has come under heavy criticism as a Depression-era relic. Proponents of repeal argue that Congress overstated the risks resulting from combined commercial and investment banking activities. Furthermore, they view Glass-Steagall’s restrictions and accompanying judicial and regulatory interpretations as a hindrance to commercial bank competitiveness in modern financial markets. In recent years Congress has considered, but declined to enact, a number of proposals that would replace Glass-Steagall with legislation expanding commercial bank powers. Despite support from many commentators for such reform, a close analysis of 1) language in the Act, 2) legislative reports, 3) banking history, 4) judicial and regulatory interpretations, and 5) criticisms of the Act yield strong arguments in favor of maintaining the status quo. This Note argues against repeal of Glass-Steagall, refuting two commonly accepted views about the Act, and concludes that the separation of commercial and investment banking was rationally conceived and should be maintained, with continued judicial and regulatory input.

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