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Actually, that is exactly the reason it was put in place. Banks had a habit of losing money on the investment side, which was commingled with deposits side, le
by MR4D 6y ago
Actually, that is exactly the reason it was put in place. Banks had a habit of losing money on the investment side, which was commingled with deposits side, leading to rumors and the resulting bank runs.
Glass-Steagall prevented many of the activities that led to bank runs, and its passage greatly increased the safety of a saver’s deposits.
This should be a pretty reliable source: https://fas.org/sgp/crs/misc/R44349.pdf https://fas.org/sgp/crs/misc/R44349.pdf
- xg15 6y agoYes, it was about the activities that led to bank runs, in particular: > Banks had a habit of losing money on the investment side, which was commingled with deposits side Not the bank runs themselves.
- MR4D 6y agoBy definition, bank capital is commingled. If you and I both have an account at a bank and the bank loses enough money, then we lose money. What Glass-Steagall did[0] was separate the investments from the deposits, thereby eliminating one of the ways a commercial bank could lose capital. My apologies if my use of the word “commingled” caused any ambiguity. For anybody who has ever worked on Wall Street or in investments, rumors run like the Mississippi during a spring flood through the community. Those same rumors can take down an investment house (e.g. Bear Stevens with the repo rumors) or a pre-Glass-Steagall bank. Hence the importance of eliminating the source of those rumors and the accompanying bank runs. [0] The law did more than that of course. I’m merely showing one key piece of it.