Glass-Steagall Act

An act passed by Congress in 1933 that prohibited commercial banks from collaborating with full-service brokerage firms or participating in investment banking activities. The Glass-Steagall Act was enacted during the Great Depression to protect bank depositors from the additional risks associated with security transactions. However, some research shows that banks with securities subsidiaries actually performed better in the Great Depression than those that did not.

The act was dismantled in 1999. Consequently, the distinction between commercial banks and brokerage firms has blurred; many banks own brokerage firms and provide investment services. Some believe this has led to an overlarge financial sector, cumulating in the financial crisis of 2008.

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