Glass-Steagall Act

The Glass-Steagall Act is part of the Banking Act of 1933—federal legislation that responded to excessive risk taking by banks in “the Roaring Twenties.” During that decade, several big Wall [Page 1587]Street banks began selling stock as well as doing their traditional banking services—taking in deposits and making loans. Some banks lent money to pools of speculators, who used the money to pump up share prices. The banks sold the shares to their customers, only to have the share prices collapse when the speculators dumped them.

Many banks had a conflict of interest during this period, as they were both taking in customers’ deposits and gambling in the market while holding few assets in reserve. After the stock market collapse in 1929, many depositors lost faith ...