The Glass-Steagall Act, created under the Banking Act of 1934, was terminated during the Clinton administration. It had separated regular banking from investment banking activity.
However, it’s easy to talk about the problems requiring the separation of investment banking and ordinary banking. There are, however, difficulties once the two have been so connected for years. The question of proprietary trading arises.
Both regular and investment banks had executed such trades, ordinary banks to a lesser extent. Moreover, such trading generally represented a very small, insignificant amount of activity and income.
Furthermore, the definition of what is a proprietary or “prop” trade is hard to delineate.
The result, with all our populist politicians, we have bombast, finger-pointing, and economic panic and damage.
We wound up with Dodd-Frank, a complex maze of regulations that has, as one of its missions, an attempt to separate commercial and investment banking. And preventing banks from getting too big to unwind as failures.
The result so far: Banks are getting bigger and the risk of failing is ever-larger. (See the Earl J. Weinreb NewsHole® comments and @BusinessNewshole at Twitter.)
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