Question

In 1934, Congress enacted the Glass-Steagall Act, which prohibited commercial banks from using depositors' money to speculate in stocks. More than six decades of financial stability ensued. Why was this law repealed in 1999?

1-Because economists from elite universities, many of them under contract with investment banks, regarded the "Chinese wall" separating commercial and investment banks as outmoded.

2-Because financial services industry leaders demanded more insurance than Glass-Steagall provided.

3-Glass-Steagall was concerned with international commerce, not with financial regulation.

4-Because federal revenue was precipitously declining, necessitating bank taxation at a new level as a part of the Tax Reform Act of 1999.

Answer 1

Ans 1. Because economists from elite universities, many of them under contract with investment banks, regarded the "Chinese Wall" separating commercial and investment banks as outmoded. They wanted to modernize financial institutions. It allowed the banks to speculate with safe money. The lines between banks, investment banks, insurance companies and other financial institutions blurred. This created many opportunities for the tax payer to be put in jeopardy and conflicts of interest was created.