Discussion Paper

Were Banks 'Boring' before the Repeal of Glass-Steagall?

Abstract: Since the global financial crisis and Great Recession, many critics have called for regulatory and legislative reforms to restore a system of ?boring? banks constrained to traditional banking activities like deposit taking and lending. The narrative underlying this argument holds that the partial repeal of the Glass-Steagall Act in 1999 by the Gramm-Leach-Bliley Act enabled banks to expand into nontraditional activities such as securities trading and underwriting, thereby contributing to the financial crisis some ten years later. The implication is that if we could restore the Glass-Steagall Act, banks would become boring once again, and financial stability would be enhanced. The reality, however, may be more complex; an in-depth look ?under the hood? of banks? organizational structure over the past forty years shows that bank holding companies (BHCs) began expanding into those financial activities in the early 1980s and that this expansion was, in fact, nearly complete by 1999.

Keywords: Banks; Glass-Steagall; Business Scope;

JEL Classification: G2;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2017-07-31

Number: 20170731