The Reasons for the Gramm-Leach-Bliley Act

Abstract

One of the most repeated allegations about the financial crisis is that the passage of the Gramm-Leach-Bliley Act (GLBA) that repealed two sections of the Glass-Steagall Act in 1999 was a significant contributing factor in the subprime mortgage meltdown. However, these allegations never specify the exact link between GLBA and the crisis. The reason is that there is no readily apparent link between the two events. Simply put, the provisions of the Glass-Steagall Act that were repealed by GLBA did not prohibit the origination of subprime mortgage loans, to the securitization of mortgage loans, or to the purchase of mortgage-backed securities that resulted in the large losses that banks and other investors suffered when the housing bubble finally burst.

Keywords: Gramm-Leach-Bliley Act, GLBA, Glass-Steagall, bank deregulation, subprime, mortgages, financial collapse, financial crisis,