June 6, 2011
By Megan Mardle
...I'm second to none (click here) in my appreciation for the FDIC, but this is an excessively rosy reading of regulatory history. The regulations that gave us the FDIC and the SEC also gave us a number of stupider regulations, like centrally fixed interest rates for savings accounts, and the infamous Regulation Q, which fixed the interest rates on checking accounts (demand deposits) at 0.0%. Among other things, the interest rate regulations played a major role in the Savings and Loan Crisis, and they led to the creation of money market accounts, which operated outside of the FDIC system, and played a major role in our most recent financial disaster; a run on the money markets was ultimately what seems to have convinced the government to start spraying money into the financial system with a firehose....
By Megan Mardle
...I'm second to none (click here) in my appreciation for the FDIC, but this is an excessively rosy reading of regulatory history. The regulations that gave us the FDIC and the SEC also gave us a number of stupider regulations, like centrally fixed interest rates for savings accounts, and the infamous Regulation Q, which fixed the interest rates on checking accounts (demand deposits) at 0.0%. Among other things, the interest rate regulations played a major role in the Savings and Loan Crisis, and they led to the creation of money market accounts, which operated outside of the FDIC system, and played a major role in our most recent financial disaster; a run on the money markets was ultimately what seems to have convinced the government to start spraying money into the financial system with a firehose....
US Senator Bernie Sanders wants the return of " Glass–Steagall Act."
In 1933, (click here) in the wake of the 1929 stock market crash and during a nationwide commercial bank failure and the Great Depression, two members of Congress put their names on what is known today as the Glass-Steagall Act (GSA). This act separated investment and commercial banking activities. At the time, "improper banking activity," or what was considered overzealous commercial bank involvement in stock market investment, was deemed the main culprit of the financial crash. According to that reasoning, commercial banks took on too much risk with depositors' money. Additional and sometimes non-related explanations for the Great Depression evolved over the years, and many questioned whether the GSA hindered the establishment of financial services firms that can equally compete against each other. We will take a look at why the GSA was established and what led to its final repeal in 1999.
