Posted: May 30th, 2021
Part 1: Respond to discussion below:
In the aftermath of the financial crisis of 2007-2009, there have been calls to re-instate the separation of commercial and investment banking activities that were removed with the repeal of the Glass-Steagall Act.
Do you think this is a good way to reduce systemic risk?
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Part 2: Respond to classmate below:
“President Clinton signed the Financial Services Modernization Act that repealed Glass-Steagall on November 12, 1999. Congress then had Republicans vote in the Senate passing the Gramm-Leach-Bliley Act. By reinstating the separation of commercial and investment banking it would protect depositors. This would also take away the thought that banks could be to big to fail. In 2011 there were efforts to re-instate Glass-Steagall however, it was not successful. If they would have been able to implement these changes, the banks would have to be completely reorganized and some banks argued that the re-instating would make them to small to compete on a larger scale. The Dodd-Frank Wall Street Reform Act was then passed with the Volcker rule which restricts the banks from using depositors fund’s for risky investments. The Dodd-Frank Act also has a restriction that if banks would become to big to fail, that they would have to be regulated closer to the Federal Reserve. I think the way regulations are now are the way to go to reduce the possibility of a complete collapse in the economy.”
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