Glass-Steagall was the 1930's new deal regulation that said Commercial and Investment had to be separated. There would be no universal banks (that offered both services).
~ Aristotle Sabouni
Created: 2022-03-11 |
Glass-Steagall was the 1930's new deal regulation that said Commercial and Investment had to be separated. There would be no universal banks (that offered both services).
- The theory was that consumers were easily confused by the differences and so didn't understand the risks they were taking, and this would prevent banks from deceiving the public -- since they'd know the difference between walking into one kind of bank or the other.
- There's an added layer of abstraction whereby requiring Commercial Banks to transact with Investment banks to do certain things, there was more transparency (governments could audit those two companies transaction).
- Because of those transactions (between the two types of banks), there's more waste (two companies get a piece of the transaction instead of one in universal banks), but there’s theoretically less conflict of interest (investment is looking out for equity, and commercial is looking out for cashflow, and somehow this helps consumers).
So in their theory, there are lower returns (more waste), and thus lower risks. In truth, there’s just more inefficiency and the same risk. Added steps don't make us safer.
🔗 More
| |
| |
Tags: Financial crisis of 2007-2008/all Glass-Steagall/all
