Bank Powers:

Issues Related to Repeal of the Glass-Steagall Act

GGD-88-37: Published: Jan 22, 1988. Publicly Released: Feb 12, 1988.

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In response to a congressional request, GAO provided information on issues concerning the expansion of banks' securities powers through repeal of the Banking Act of 1933 (Glass-Steagall) and the ramifications of eliminating or extending the moratorium on expansion of bank powers.

GAO found that repeal of the act could: (1) benefit consumers in terms of lower prices and better services; and (2) create a need for regulatory oversight and legislation to protect consumers and enhance the safety and soundness of banking and commercial institutions. GAO believes that: (1) to protect consumer interests, it will be necessary to gradually phase out the act's restrictions while ensuring adequate capitalization, requiring a bank holding company structure, and increasing regulatory oversight; and (2) extending the moratorium would be unfair to other lending institutions that are not protected by the act's provisions.

Matters for Congressional Consideration

  1. Status: Closed - Not Implemented

    Comments: House and Senate bills did not require this action. It is unknown what may be included in future legislation.

    Matter: Congress should allow some transactions between affiliates, but only on an arm's-length basis, in order to adequately satisfy the liquidity needs of securities firms that are affiliated with banks. If necessary, sections 23A and 23B should be strengthened to provide additional regulatory resources as may be necessary for supervision and enforcement. Congress should also consider increasing the penalties for infractions of sections 23A and 23B.

  2. Status: Closed - Not Implemented

    Comments: House and Senate bills did not require this action. It is unknown what may be included in future legislation.

    Matter: If Glass-Steagall is repealed, Congress should stipulate that banks be allowed to lend to their securities affiliates, but that all such transactions be conducted on an arm's-length basis.

  3. Status: Closed - Not Implemented

    Comments: Legislation failed to pass this Congress.

    Matter: If Glass-Steagall is repealed, Congress should require the holding company to act as a source of strength to its bank components.

  4. Status: Closed - Not Implemented

    Comments: Legislation failed to pass this Congress.

    Matter: If Glass-Steagall is repealed, Congress should prohibit undercapitalized holding company parents from engaging in extended activities.

  5. Status: Closed - Not Implemented

    Comments: Until allowable powers are decided upon, resource needs cannot be estimated.

    Matter: Congress should increase resources for banking and securities industry regulators in order to preserve safety and soundness and protect consumer interests. The necessary increases in resources could be obtained by raising fees and premiums for banks that have securities affiliates, or by instituting a new fee for examinations of holding companies engaged in both banking and securities activities.

  6. Status: Closed - Not Implemented

    Comments: Legislation failed to pass both Houses of Congress.

    Matter: If Glass-Steagall is repealed, Congress should organize extended activities in a holding company rather than in the bank. The holding company organizational form provides the bank and the deposit insurance fund with the highest degree of insulation from potential risks.

  7. Status: Closed - Not Implemented

    Comments: Legislation failed to pass this Congress.

    Matter: Congress should require the bank holding company to act as source of strength to the bank. Moreover, if the holding company avoids that responsibility, Congress should consider making the holding company financially liable for any losses by the insurance fund.

 

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