Question

An article in the New York Times observes that “the Glass-Steagall Act ... forced the separation of investment banking from commercial banking” and “Glass-Steagall aimed to protect the com-mon folk who deposited money in their banks for safekeeping.” In separating commercial bank-ing from investment banking, was Congress’s main goal the protection of the average person’s bank deposits? Briefly explain.

Answer 1

With this act, the main goal of the congress was to prevent speculative investments made by the bankers by using the funds of depositors, and as a result, prevent moral hazard behavior of the management of the bank. It had many benefits such as protection of the interests of the investors of the bank, depositors of the bank as well as preventing any panic among the consumers that take place due to the failure of the one bank or a banking system. Hence, the act helped congress to give some stability to the economy by regulating the banking process.

Therefore, it can be said that one goal was to protect the depositors, but at the same time, there were some bigger goals to be achieved with this act.