The Gramm-Leach-Bliley Act of 1999: A Bridge Too Far? Or Not Far Enough?

Abstract:     
The Gramm-Leach Bliley Act (GLBA), which was hailed at the time of its enactment in 1999, has recently been flailed by critics who claim that it was a major cause of the financial crisis of 2007-2009. These critics often call for a revival of the Glass-Steagall barriers between commercial banking and investment banking, which the GLBA largely eliminated. The so-called Volcker Rule is a recent manifestation of this anti-GLBA sentiment.

After reviewing the Glass-Steagall Act of 1933 and related subsequent developments, this paper discusses the enactment of GLBA and demonstrates that the GLBA and little or nothing to do with the crisis and thus that a re-enactment of the Glass-Steagall barriers or enactment of the Volcker Rule would not prevent future such barriers. The paper argues that the GLBA’s erection of a new barrier to a non-financial firm’s ownership of a depository institution was misguided. Thus, in an important sense, the GLBA did not go far enough in breaking down barriers.

Number of Pages in PDF File: 30

Keywords: Gramm-Leach-Bliley Act, Glass-Steagall Act, Volcker Rule, commercial banking, investment banking, financial crisis

JEL Classification: G21, G24, G28

Accepted Paper Series