The Glass-Steagall Act effectively separated commercial banking from investment banking and created the Federal Deposit Insurance Corporation, among other things. It was one of the most widely debated legislative initiatives before being signed into law by President Franklin D. Roosevelt in June 1933.
The separation of commercial and investment banking prevented securities firms and investment banks from taking deposits, and commercial Federal Reserve member banks from:
- dealing in non-governmental securities for customers,
- investing in non-investment grade securities for themselves,
- underwriting or distributing non-governmental securities,
- affiliating (or sharing employees) with companies involved in such activities.
Starting in the 1980s, Congress debated various bills to repeal Glass–Steagall’s affiliation provisions (Sections 20 and 32). Some believe that major U.S. financial sector firms established a favorable view of deregulation in American political circles, and in using its political influence in Congress to overturn key provisions of Glass-Steagall and to dismantle other major provisions of statutes and regulations that govern financial firms and the risks they may take. In 1999 Congress passed the Gramm–Leach–Bliley Act, also known as the Financial Services Modernization Act of 1999, to repeal them. Eight days later, President Bill Clinton signed it into law.
Thus, we have banks that don’t want to do traditional banking services, because there is not enough money in it. Loans are more difficult to secure for smaller businesses.
Also the banking world got careless, due to lessen regulation and the elimination of Sections 20 and 32 of Glass Steagall leading to the financial crisis of 2007 – 2008.