ARTICLE: Why Congress Must Amend Glass-Steagall: Recent Trends in Breaching the Wall Separating Commercial and Investment Banking Skip over navigation
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Copyright (c) 1990 New England School of Law
New England Law Review

ARTICLE: Why Congress Must Amend Glass-Steagall: Recent Trends in Breaching the Wall Separating Commercial and Investment Banking

Winter, 1990

25 New Eng. L. Rev. 457

Author

Edward J. Markey *

Excerpt

I. INTRODUCTION

When the Glass-Steagall Act 1 was passed in 1933, it was envisioned that the commercial and investment banking industries were neatly divisible. Certainly, the degree to which the activities of these two industries presently intersect was beyond the ken of the legislators of the time. To a great extent, the theory on which Glass-Steagall was based depended upon this separability. Thus, as the two industries have become homogenized over time, that Act has lost much of its effectiveness.

Coincident with this legislative deterioration has been a growing disharmony between the industrial and regulatory structures governing the financial services sector. The financial market has changed so significantly since 1933 that, while the regulatory aims of Glass-Steagall are still relevant, the mechanisms provided by the Act are no longer adequate to effectuate them.

Three trends have contributed to this disequilibrium. First, new financial instruments have been created that permit securities firms to engage in more traditional commercial banking services and that allow commercial banks entry into what was once the exclusive preserve of the securities industry. 2 Second, the judiciary has certified that this type of "product expansion" is consistent with current law, including Glass-Steagall and the Bank Holding Company Act of 1956 (the Bank Holding Company Act). 3 Finally, the banking regulators have adopted a very restrained view of what those laws actually prohibit. 4

This has resulted in what is tantamount to an ill-coordinated, incremental repeal. The solution to this problem will require the balancing of two apparently ...
 
 
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