Glass-Steagall critics in particular have argued that the evidence from the Pecora Investigation did not support the separation of commercial and investment banking.

That study disputed Glass-Steagall critics who suggested securities markets had been harmed by prohibiting commercial bank involvement.

With banking commentators such as Mayer and Minsky no longer opposing Glass-Steagall repeal, consumer and community development advocates became the most prominent critics of repeal and of financial “ modernization ” in general.

Carl Felsenfeld and David L. Glass wrote that “ he public — which for this purpose includes most of the members of Congress ” does not understand that the investment banks and other “ shadow banking ” firms that experienced “ runs ” precipitating the financial crisis ( i. e., AIG, Bear Stearns, Lehman Brothers, and Merrill Lynch ) never became “ financial holding companies ” under the GLBA and, therefore, never exercised any new powers available through Glass-Steagall “ repeal .” They joined Jonathan R. Macey and Peter J. Wallison in noting many GLBA critics do not understand that Glass-Steagall ’ s restrictions on banks ( i. e., Sections 16 and 21 ) remained in effect and that only the affiliation provisions in Sections 20 and 32 were repealed by the GLBA.

As noted above, even in the United States seventeen foreign banks were free from this Glass-Steagall restriction because they had established state chartered branches before the International Banking Act of 1978 brought newly established foreign bank US branches under Glass-Steagall.

Reflecting the regulatory developments Volcker noted, the commercial and investment banking industries largely reversed their traditional Glass-Steagall positions.

International rankings of banks by size also seemed less important when, as Alan Greenspan later noted, “ Federal Reserve research had been unable to find economies of scale in banking beyond a modest size .” Still, advocates of “ financial modernization ” continued to point to the combination of commercial and investment banking in nearly all other countries as an argument for “ modernization ”, including Glass-Steagall “ repeal .”

After the GLBA repealed Sections 20 and 32, commentators also noted the importance of scholarly attacks on the historic justifications for Glass-Steagall as supporting repeal efforts.

Lawrence White and Jerry Markham rejected these claims and argued that products linked to the financial crisis were not regulated by Glass-Steagall or were available from commercial banks or their affiliates before the GLBA repealed Glass-Steagall sections 20 and 32. Alan Blinder wrote in 2009 that he had “ yet to hear a good answer ” to the question “ what bad practices would have been prevented if Glass-Steagall was still on the books ?” Blinder argued that “ disgraceful ” mortgage underwriting standards “ did not rely on any new GLB powers ,” that “ free-standing investment banks ” not the “ banking-securities conglomerates ” permitted by the GLBA were the major producers of “ dodgy MBS ,” and that he could not “ see how this crisis would have been any milder if GLB had never passed .” Similarly, Melanie Fein has written that the financial crisis “ was not a result of the GLBA ” and that the “ GLBA did not authorize any securities activities that were the cause of the financial crisis .” Fein noted “ ecuritization was not an activity authorized by the GLBA but instead had been held by the courts in 1990 to be part of the business of banking rather than an activity proscribed by the Glass-Steagall Act .” As described above, in 1978 the OCC approved a national bank securitizing residential mortgages.

The ICB noted Glass-Steagall had been “ undermined in part by the development of derivatives .” The ICB also argued that the development before 1999 of “ the world ’ s leading investment banks out of the US despite Glass-Steagall in place at the time ” should caution against assuming the “ activity restrictions ” it recommended in its “ ringfencing ” proposal would hinder UK investment banks from competing internationally.

Writing in 1993, Jane D ’ Artista and Tom Schlesinger noted that “ the ongoing integration of financial industry activities makes it increasingly difficult to separate banking and securities operations meaningfully ” but rejected Glass-Steagall repeal because “ the separation of banking and securities functions is a proven, least-cost method of preventing the problems of one financial sector from spilling over into the other ” ( which they stated was “ most recently demonstrated in the October 1987 market crash .”)

Congressional efforts to “ repeal the Glass-Steagall Act ” referred to those four provisions ( and then usually to only the two provisions that restricted affiliations between commercial banks and securities firms ).

Even before Glass-Steagall, however, national banks had been prohibited from investing in equity securities and could only purchase as investments debt securities approved by the Comptroller.

Section 21 was not the only Glass-Steagall provision that treated differently what a company could do directly and what it could do through a subsidiary or other affiliate.

After many of Comptroller Saxon ’ s decisions granting national banks greater powers had been challenged, commercial banking firms had been able to expand their non-securities activities through the “ one bank holding company .” Because the Bank Holding Company Act only limited nonbanking activities of companies that owned two or more commercial banks, “ one bank holding companies ” could own interests in any type of company other than securities firms covered by Glass-Steagall Section 20.

Although primarily dealing with the savings and loan crisis, CEBA also established a moratorium to March 1, 1988, on banking regulator actions to approve bank or affiliate securities activities, applied the affiliation restrictions of Glass-Steagall Sections 20 and 32 to all FDIC insured banks during the moratorium, and eliminated the “ nonbank bank ” loophole for new FDIC insured banks ( whether they took only deposits or made only commercial loans ) except industrial loan companies.

No Federal Reserve Board order was necessary for Morgan Stanley to enter that “ single financial market .” Glass-Steagall only prohibited investment banks from taking deposits, not from making commercial loans, and the prohibition on taking deposits had “ been circumvented by the development of deposit equivalents ”, such as the money market fund.

Although he rejected this scholarship, Martin Mayer wrote in 1997 that since the late 1980s it had been “ clear ” that continuing the Glass-Steagall prohibitions was only “ permitting a handful of large investment houses and hedge funds to charge monopoly rents for their services without protecting corporate America, investors, or the banks .” Hyman Minsky, who disputed the benefits of “ universal banking ,” wrote in 1995 testimony prepared for Congress that “ repeal of the Glass-Steagall Act, in itself, would neither benefit nor harm the economy of the United States to any significant extent .” In 1974 Mayer had quoted Minsky as stating a 1971 presidential commission ( the “ Hunt Commission ”) was repeating the errors of history when it proposed relaxing Glass-Steagall and other legislation from the 1930s.

As Kotlikoff notes, in 1987 Robert Litan proposed “ narrow banking .” Litan suggested commercial banking firms be freed from Glass-Steagall limits ( and other activity restrictions ) so long as they isolated FDIC insured deposits in a “ narrow bank ” that was only permitted to invest those deposits in “ safe securities ” approved by the FDIC.

Boston University economist Laurence J. Kotlikoff suggests commercial banks only became involved with CDOs, SIVs, and other “ risky products ” after Glass-Steagall was “ repealed ,” but he rejects Glass-Steagall reinstatement ( after suggesting Paul Volcker favors it ) as a “ non-starter ” because it would give the “ nonbank / shadow bank / investment bank industry ” a “ competitive advantage ” without requiring it to pay for the “ implicit ” “ lender-of-last-resort ” protection it receives from the government.

Carter Golembe ( addressing the FDIC insurance provisions ) and Helen Garten ( addressing the Glass-Steagall separation of investment and commercial banking and the FDIC insurance provisions ) describe the 1933 Banking Act as legislation intended to protect the existing banking system dominated by small “ unit banks .” Garten labels this a “ conservative ” action at a time when there was serious consideration of nationalizing banks or of permitting a consolidated banking system through nationwide branch banking.

While the need to create a legal framework for existing bank securities activities became a dominant theme for the “ financial modernization ” legislation supported by Leach, Rubin, Volcker, and others, after the GLBA repealed Glass-Steagall Sections 20 and 32 in 1999, commentators identified four main arguments for repeal: ( 1 ) increased economies of scale and scope, ( 2 ) reduced risk through diversification of activities, ( 3 ) greater convenience and lower cost for consumers, and ( 4 ) improved ability of U. S. financial firms to compete with foreign firms.

During the Senate debate of the bill that became the Dodd-Frank Act, Thomas Hoenig wrote Senators Maria Cantwell and John McCain ( the co-sponsors of legislation to reinstate Glass-Steagall Sections 20 and 32 ) supporting a “ substantive debate ” on “ the unintended consequences of leaving investment banking commingled with commercial banking ” and reiterating that he had “ long supported ” reinstating “ Glass-Steagall-type laws ” to separate “ higher risk, often more leveraged, activities of investment banks ” from commercial banking.

The 2007 financial crisis called into question the business model of the investment bank without the regulation imposed on it by Glass-Steagall.

Commercial banks, however, were frustrated with the continuing restrictions imposed by Glass-Steagall and other banking laws.

The corporation, formed by J. P. Morgan & Co. partners Henry S. Morgan ( grandson of J. P. Morgan ), Harold Stanley and others, came into existence on September 16, 1935, in response to the Glass-Steagall Act that required the splitting of commercial and investment banking businesses.

The Comptroller of the Currency, therefore, ruled that Section 16 permitted national banks to engage in “ proprietary trading ” of “ investment securities ” for which it could not act as a “ dealer .” Thus, Glass-Steagall permitted “ banks to invest in and trade securities to a significant extent ” and did not restrict trading by bank affiliates, although the Bank Holding Company Act did restrict investments by bank affiliates.

This difference ( which would later be termed a “ loophole ”) provided the justification for the “ long demise of Glass-Steagall ” through regulatory actions that largely negated the practical significance of Sections 20 and 32 before they were repealed by the GLBA.

Glass stated Glass-Steagall had unduly damaged securities markets by prohibiting commercial bank underwriting of corporate securities.

Courts later applied this aspect of the Camp ruling to uphold interpretations of Glass-Steagall by federal banking regulators.

Also in the 1970s savings and loans, which were not restricted by Glass-Steagall other than Section 21, were permitted to offer “ negotiable order of withdrawal accounts ” ( NOW accounts ).

Helen Garten concluded that the “ traditional regulation ” of commercial banks established by the 1933 Banking Act, including Glass-Steagall, failed when nonbanking firms and the “ capital markets ” were able to provide replacements for bank loans and deposits, thereby reducing the profitability of commercial banking.

Minsky, however, supported traditional banking regulation and advocated further controls of finance to “ promote smaller and simpler organizations weighted more toward direct financing .” Writing from a similar “ neo-Keynesian perspective, Jan Kregel concluded that after World War II non-regulated financial companies, supported by regulatory actions, developed means to provide bank products (“ liquidity and lending accommodation ”) more cheaply than commercial banks through the “ capital markets .” Kregel argued this led banking regulators to eliminate Glass-Steagall restrictions to permit banks to “ duplicate these structures ” using the capital markets “ until there was virtually no difference in the activities of FDIC-insured commercial banks and investment banks .”

They supported a bill sponsored by Senate Banking Committee Chairman Jake Garn ( R-NV ) that would have amended Glass-Steagall Section 20 to cover all FDIC insured banks and to permit bank affiliates to underwrite and deal in mutual funds, municipal revenue bonds, commercial paper, and mortgage backed securities.

If it was “ debatable ” whether Glass-Steagall was justified in the 1930s, it was easier to argue that Glass-Steagall served no legitimate purpose when the distinction between commercial and investment banking activities had been blurred by “ market developments ” since the 1960s.

In arguing that the GLBA ’ s “ repeal ” of Glass-Steagall played no role in the late-2000s financial crisis, Melanie Fein notes courts had confirmed by 1990 the power of banks to securitize their assets under Glass-Steagall.

Supporting the Leach and Rubin arguments, Volcker testified that Congressional inaction had forced banking regulators and the courts to play “ catch-up ” with market developments by “ sometimes stretching established interpretations of law beyond recognition .” In 1997 Volcker testified this meant the “ Glass-Steagall separation of commercial and investment banking is now almost gone ” and that this “ accommodation and adaptation has been necessary and desirable .” He stated, however, that the “ ad hoc approach ” had created “ uneven results ” that created “ almost endless squabbling in the courts ” and an “ increasingly advantageous position competitively ” for “ some sectors of the financial service industry and particular institutions .” Similar to the GAO in 1988 and Representative Markey in 1990 Volcker asked that Congress “ provide clear and decisive leadership that reflects not parochial pleadings but the national interest .”

Another example was the Glass – Steagall Act passed in 1933 during the Great Depression in the United States, most of the Glass-Steagall provisions were repealed during the 1980s and 1990s.

Although Paul Volcker “ had changed his position ” on Glass-Steagall reform “ considerably ” during the 1980s, he was still “ considered a conservative among the board members .” With Greenspan as Chairman, the Federal Reserve Board “ spoke with one voice ” in joining the FDIC and OCC in calling for Glass-Steagall repeal.

In 1933, during the first 100 days of President Franklin D. Roosevelt ’ s New Deal, the Securities Act of 1933 and the Glass-Steagall Act ( GSA ) were enacted, setting up a pervasive regulatory scheme for the public offering of securities and generally prohibiting commercial banks from underwriting and dealing in those securities.

Kuttner acknowledged “ de facto enroads ” before Glass-Steagall “ repeal ” but argued the GLBA ’ s “ repeal ” had permitted “ super-banks ” to “ re-enact the same kinds of structural conflicts of interest that were endemic in the 1920s ”, which he characterized as “ lending to speculators, packaging and securitizing credits and then selling them off, wholesale or retail, and extracting fees at every step along the way .” Stiglitz argued “ the most important consequence of Glass-Steagall repeal ” was in changing the culture of commercial banking so that the “ bigger risk ” culture of investment banking “ came out on top .” He also argued the GLBA “ created ever larger banks that were too big to be allowed to fail ”, which “ provided incentives for excessive risk taking .” Warren explained Glass-Steagall had kept banks from doing “ crazy things .” She credited FDIC insurance, the Glass-Steagall separation of investment banking, and SEC regulations as providing “ 50 years without a crisis ” and argued that crises returned in the 1980s with the “ pulling away of the threads ” of regulation.