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Senate Democratic leaders have shown little appetite for taking on Wall Street before Election Day, despite urging by one of their star recruits, Massachusetts Senate candidate Elizabeth Warren.
Warren has called on Congress to resurrect the 1933 Glass-Steagall Act, which established a firewall between investment banks that traditionally specialized in speculative trades and commercial banks that historically earned money primarily from lending.
If Warren, an outspoken critic of Washington’s oversight of the financial services industry, wins in November, it could put her on a collision course with Senate leaders.
The Banking Act of 1933 (Pub.L. 73-66, 48 Stat. 162, enacted June 16, 1933) was a law that established the Federal Deposit Insurance Corporation (FDIC) in the United States and imposed banking reforms, several of which were intended to control speculation. It is often referred to as the Glass–Steagall Act, after its Congressional sponsors, Senator Carter Glass (D) of Virginia, and Representative Henry B. Steagall (D) of Alabama.
Glass–Steagall Act 1933
The Gramm–Leach–Bliley Act (GLB), also known as the Financial Services Modernization Act of 1999, (Pub.L. 106-102, 113 Stat. 1338, enacted November 12, 1999) or the Citigroup Relief Act is an act of the 106th United States Congress (1999–2001). It repealed part of the Glass–Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. With the passage of the Gramm–Leach–Bliley Act, commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate. The legislation was signed into law by President Bill Clinton.
Gramm–Leach–Bliley Act 1999
A year before the law was passed, Citicorp, a commercial bank holding company, merged with the insurance company Travelers Group in 1998 to form the conglomerate Citigroup, a corporation combining banking, securities and insurance services under a house of brands that included Citibank, Smith Barney, Primerica, and Travelers. Because this merger was a violation of the Glass–Steagall Act and the Bank Holding Company Act of 1956, the Federal Reserve gave Citigroup a temporary waiver in September 1998. Less than a year later, GLB was passed to legalize these types of mergers on a permanent basis. The law also repealed Glass–Steagall's conflict of interest prohibitions "against simultaneous service by any officer, director, or employee of a securities firm as an officer, director, or employee of any member bank."
The Glass-Steagall bank act was effectively "repealed" by the Gramm–Leach–Bliley Act of 1999.