Glass Steagal Act

Reading
What was the 'Glass-Steagall Act'

An act the U.S. Congress passed in 1933 as the Banking Act, which prohibited
commercial banks from participating in the investment banking business. The Glass-
Steagall Act was sponsored by Senator Carter Glass, a former Treasury secretary,
and Rep. Henry Steagall, a member of the House of Representatives and chairman
of the House Banking and Currency Committee. The Act was passed as an
emergency measure to counter the failure of almost 5,000 banks during the Great
Depression. The Glass-Steagall lost its potency in subsequent decades and was
partially repealed in 1999.
BREAKING DOWN 'Glass-Steagall Act'
Apart from separating commercial and investment banking, the Glass-Steagall Act
also created the Federal Deposit Insurance Corporation (FDIC), which guaranteed
bank deposits up to a specified limit. The Act also created the Federal Open Market
Committee (FOMC) and introduced Regulation Q, which prohibited banks from
paying interest on demand deposits and capped interest rates on other deposit
products (it was repealed in July 2011).
The Glass-Steagall Act's primary objectives were twofold – to stop the

unprecedented run on banks and restore public confidence in the U.S. banking
system; and to sever the linkages between commercial and investment banking that
were believed to have been responsible for the 1929 market crash. The rationale for
seeking the separation was the conflict of interest that arose when banks were
engaged in both commercial and investment banking, and the tendency of such
banks to engage in excessively speculative activity.
The Glass-Steagall Act's partial repeal in 1999 by the Graham-Leach-Bliley Act

(GLBA) is believed in some circles to have contributed to the 2008 global credit crisis.
Commercial banks, around the world, were saddled with billions of dollars in losses
due to the excessive exposure of their investment banking arms to derivatives and
securities that were tied to U.S. home prices. The severity of the crisis forced
Goldman Sachs and Morgan Stanley, the last of the top-tier independent investment
banks, to convert to bank holding companies. Coupled with the acquisition of other
prominent investment banks Bear Stearns and Merrill Lynch by commercial banking
giants JP Morgan and Bank of America, respectively, the 2008 developments
ironically signaled the final demise of the Glass-Steagall Act.
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Pronunciation:
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1
Q&A
1. What happened in 1933?
2. What was the rationale (reason) behind the Act?
3. What two objectives were envisaged (planned) for the Act?
4. Is the Act still in force and what was the implication of the fact?
5. What two major Acts does the article enlist?
6. Why is the word “signaled” highlighted as misspelt?
7. Summarise the information on GSA to your neighbour.
7. Homework.
Build one complex statement into which you will incorporate four of the terms
acquired in this section, including in the recording.
2
Listening
What is the difference between GDP and National income
“GDP” or Gross Domestic Product and National Income are financial terms that are
related to the finance of a country.
National Income is the total value of all services and goods that are produced within
a country and the income that comes from abroad for a particular period, normally
one year.
Gross Domestic Product is defined as the value of the goods and services generated
within a country. The GDP, which is based on ownership, measures the overall
economic output of a country. The GDP also determines the local income of a nation.
The National Income determines the overall economic health of the country, trends in
economic growth, contributions of various production sectors, future growth and
standard of living.
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income/
Q&A
Q1: How is GDP defined and what is National Income?
Q2: Of these two terms, the value of which is broader? Why?
3
Vocabulary
Online banking/ internet banking
To bank online
An overdraft
A direct debit
4
Reading 2
Discussion:
Last week the Royal Bank of Scotland announced its plans to close a third of its
branches – over 240, causing a loss of around 700 jobs. What do you think of the
implications for customers and the bank itself?
5
Graphs and charts
Note the following.
1. a line graph (contains lines)
2. a bar chart (contains bars)
3. a pie chart (contains slices/segments/quadrants)
6
How do you describe statistics?
This pie chart shows/presents ……..

One out of/in three EU citizens was German.
30% of EU citizens were German and nearly 8% of EU citizens were Polish.

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Reading

What was the 'Glass-Steagall Act'

The Glass-Steagall Act's primary objectives were twofold – to stop the

The Glass-Steagall Act's partial repeal in 1999 by the Graham-Leach-Bliley Act

2. a bar chart (contains bars)

3. a pie chart (contains slices/segments/quadrants)

This pie chart shows/presents ……..

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