The Steagall Act was signed into law under the political context of banking transparency. The public demanded a transparent banking system during the reign of Franklin Roosevelt (Buttigieg et al., 2020). The law forced commercial banks to limit investment banking functions to protect depositors from possible losses during bank speculations in stock. It was a response to the 1930s economic crisis welcomed by the Democrats and the republican sides of politics (Galpin, 2019).
The second law, the Financial Services Modernization Act, was signed into law during the presidency of Bill Clinton (Buttigieg et al., 2020). It was signed under the political context of the deregulating banking industry to protect customers. The act favored all political factions and the leaders of the industrial development for its promises and potential to expand business and profit margins. Economically, the law expanded bank activities, thus allowing an increased flow of revenues (Buttigieg et al., 2020). The financial industry was struggling during the period of economic regression. The supporters of this policy argued that deregulating the banks would allow collaboration between businesses and financial institutions to increase profits.
Key Differences Between the Acts from a Financial Market Perspective
The main difference between the two Acts from the financial market’s perspective is based on how the regulations in the industry are addressed. Glass-Steagall Act, for instance, was signed into law to regulate the banking systems’ risky behaviors that endangered deposited funds (Buttigieg et al., 2020). To protect clients from future risks of financial losses brought along by bank speculations in stock markets, the Glass-Steagall Act, implemented in 1933, mandated that the banking sector refrain from investing in stocks (Buttigieg et al., 2020).
Although some of Glass Steagall’s provisions, like the Federal Deposit Insurance Corp., which protects banking savers from liabilities, are still in force, they became fully removed in 1999 (Buttigieg et al., 2020). Glass-Steagall was such a reform initiative intended to stop a recurrence of a financial emergency which was the 1929 stock market disaster and the rising wave of failing commercial banks.
On the other hand, The Gramm-Leach-Bliley Act seeks to protect bank customers’ data from inappropriate use in the financial market. The law requires banks to explain their practices regarding the data collected from their customers (Buttigieg et al., 2020). This precaution prevents the bank from sharing customer information with a third party who could use it to steal from the customers. The act also protects the financial market from illegal exploitation, especially by the bank, against customers.
References
Buttigieg, C. P., Consiglio, J. A., & Sapiano, G. (2020). A critical analysis of the rationale for financial regulation part I: Theories of regulation. European Company and Financial Law Review, 17(5), 419-436. Web.
Galpin, T. J. (2019). Repealing the Glass-Steagall framework: Deregulatory impact and policy considerations in historical context. University of Maryland.