Glass–Steagall Act of 1932
The first "Glass–Steagall Act" was a law passed by the
government bonds as well as commercial paper.[1]
The "Glass–Steagall Act" is not the official title of the law; it is a colloquialism that refers to its legislative sponsors,
US Senator from Virginia and Henry B. Steagall, the Congressman from Alabama's 3rd congressional district. The official title was "An Act to Improve the Facilities of the Federal Reserve System for the Service of Commerce, Industry, & Agriculture, to Provide Means for Meeting the Needs of Member Banks in Exceptional Circumstances, & for Other Purposes".[2]
Contents
The Glass–Steagall Act of 1932 authorized
paper currency) backed by US government securities when a shortage of “eligible paper” held by Federal Reserve banks would have required such currency to be backed by gold.[3] The Federal Reserve Board explained that the special lending to Federal Reserve member banks permitted by the 1932 Glass–Steagall Act would only be permitted in “unusual and temporary circumstances.”[4]
Historical context
The crash of 1929 evolved into a panic situation due to people losing their savings. Therefore, a massive withdrawal of deposits of the banks took place leading to the bankruptcy of many entities. In 1933, a young prosecutor named Ferdinand Pecora, who was a member of the US Senate's Monetary and Financial Affairs Commission, interrogated several bank managers about their detestable role in the crisis. These hearings and the coming to power of Franklin D. Roosevelt and his New Deal policy gave rise to the law.
See also
- US corporate law
- US banking law
References
- ^ kanopiadmin (18 August 2014). "America's Great Depression - Murray N. Rothbard".
- ^ United States. Congress (February 27, 1932), An Act to Improve the Facilities of the Federal Reserve System for the Service of Commerce, Industry, & Agriculture, to Provide Means for Meeting the Needs of Member Banks in Exceptional Circumstances, & for Other Purposes, retrieved 2020-03-29
- ^ Friedman and Schwartz 1963 , p. 321 and pp. 399-406. Patrick 1993, pp. 71-77.
- ^ Federal Reserve Board (1932), "Review of the Month: The Glass–Steagall bill" (PDF), Federal Reserve Bulletin, 73 (3): 141–142 and 180–181, retrieved July 23, 2015. Each form of special lending to Federal Reserve member banks required approval from at least five members of the Federal Reserve Board. Group lending could be made to fewer than five (but not fewer than two) member banks if the borrowing banks had deposit liabilities equal to at least 10% of the deposits liabilities of member banks in their Federal Reserve district. The special lending to individual member banks could be made only in “exceptional and exigent circumstances.” Both forms of lending were based on the borrowing member banks not having sufficient "eligible assets" to borrow on normal terms.