- Designed to put state and national banks on equal footing.
- National banks had to conform to state banking regulations.
- It was often easier for a U.S. bank to open a branch in another country than another state.
- Advocates argued this fostered competition by limiting ability of U.S. banks to take over.
- Detractors argued limiting a business from expanding operations hinders competition.
- Great Depression leads to about 9,000 bank failures, depositors lose everything.
1933 - Banking Act of 1933 (Glass-Steagall Act).
- Creates FDIC - Federal Reserve members required to purchase insurance.
- Separates commercial and investment banking.
- Prohibited interest on checkable deposits.
- Put interest rate ceilings on other deposits.
Bank Holding Company Act of 1956 and Douglas Amendment (1956).
- Bank Holding Act defines bank as financial institution that accepts deposits AND makes loans.
- Limited service banks established to provide only-deposit or only-loan services.
- Trend continues today through innovations such as ATMs.
- Limited service operations known as nonbank banks.
- Holding companies and nonbank banks allow banks to cross state lines.
Depository Institutions Deregulation and Monetary Control Act of 1980 (DIDMCA).
- Decreasing profits led to higher risk loans in more real estate loans and corporate credit for leveraged buyouts and takeovers.
- Bank risk increased with new markets in futures, i.e. junk bonds, swaps.
- Moral Hazard increased due to insured deposits.
- Act gave thrift institutions wider latitude in activities Approved NOW and sweep accounts nationally.
- Phased out interest rate ceilings on deposits.
- Imposed uniform reserve requirements on depository institutions.
- Eliminated usury ceilings on loans.
- Increased deposit insurance to $100,000 per account (from $40,000).
Depository Institutions Act of 1982 (Garn-St. Germain).
- Gave FDIC and FSLIC emergency powers to merge banks and thrifts across state lines.