Essay on Separation of Commercial Banks and Investment Banks

On June 16, 1933, President Roosevelt signed into law the widely debated Glass-Steagall Banking Act. Sponsored by Virginia’s U.S. Senator Carter Glass and Alabama’s U.S. Representative Henry Steagall, the Glass-Steagall Banking Act was one of the attempts to restore the American people’s confidence in the banking system. Congress knew the current banking system needed reform. They desired to restrict the use of bank credit for speculation and instead direct bank credit to more productive uses, such as agriculture, commerce, and industry.

The banking industry has undergone major upheaval in recent years, largely due to the lingering recessionary environment and increased regulatory environment. Many banks have failed in the face of such tough environmental conditions. These conditions

One of the most prominent aspect of the Great Depression was that the people of United States lost confidence in the banking system and the banking crises of the 1933 followed. Until 1930s, unregulated banking system existed with the notion that increased competition would make the market more efficient increasing the consumer choice base and thus would promote resource allocation and growth. Since people at that time weren’t too supportive of centralization, there was division of power and all the states and regions had their own banks to mobilize resources and carry out investments. This led to increasing competition to attract the same resources which escalated the rates offered to depositors and induced lenders to invest in high return, high risk areas. As a result, the financial system became fragile and there were frequent mortgage

There are various categories of banking; these include retail banking, directly dealing with small businesses and persons. Commercial and Corporate banking which offers services to medium and large businesses (Koch & MacDonald 2010). Private banking, deals with individuals, offering them one on one service. The last category is investment banking. These help clients to raise capital and often invest in financial markets. Most global banking institutions provide all these services combined. With all these institutions in existence within the same localities and offering similar services, there is a need to regulate the industry so as to protect the consumer and provide fair working environment for all banks (Du & Girma, 2011).

Weak banking systems lead to widespread panic as the public no longer trusted the Federal Reserve in handling the people’s private funds. According to the article “The Story of Bankers Trust Company During the Great Depression,” author describes the depression and the toll banking issues had in Philadelphia where a total amount of “30 of Philadelphia’s 89 banks and trust companies and hundreds of the city’s building and loan associations failed between July 1930 and March 1933” (Wadhwani). Wadhwani refers to the system as a “house of cards” where many of these local banking institutions “too small to survive”  keeping them marginalized, thus explaining why up to “9,000

The American economy is a complex balance of services, financial, manufacturing, agricultural, and banking industries. For this reason, the U.S. is a global economy, relying upon foreign investments and trade to create and retain wealth. Over the years, America has evolved from farming-based, to industrial, to a services-based economy. As a result, the banking system from its inception has weathered the many growing pains associated with a new government and currency, instituting regulations and a centralized bank to examine the economy, and implement policies intended to offset factors negatively affecting the general financial health of the country.

During the 1930s, the most prominent reason for U.S. banking regulation was to prevent bank panics and more economic disaster like those that had been experienced during the Great Depression. Later deregulation and financial innovation in industrialized countries during the 1980s eroded banks monopoly power, thus weakening their banking systems and seeming to embody the fears of post-Depression policy makers who instituted regulation in the first place. Fear that individual bank failures could spread across international borders creates pressure to harmonize bank regulation worldwide. One advocate suggests that universal banking, at least for industrialized countries with internationally active banks, would “level the playing field” by eliminating competitive advantages created by government subsidies. Although this is a valid point, one of the major driving forces behind the globalization of the banking world is the ability of banks to take

The banking industry as a whole after the stock market crashed was going bankrupt due to not being able to carry the “bad debt” that was created from using customer money to buy stock. Because the banks were out of money, they were unable to cover customer withdrawals from their bank, causing many bank customers to lose all of their savings. With the uncertainty of the future of the banking industry, many people withdrew all of their savings, which caused more than 9,000 banks to close their doors and go out of business (Kelly). Due to the effects of the Great Depression, and the collapse of the banking industry, the government created regulations to prevent similar failure in the future. For Example, the SEC, (or Securities Exchange Commission), which regulates the sell and trade of stocks, bonds and other investments was created as a result of The Great Depression. The FDIC (or Federal Deposit Insurance Corporation), was created to insure bank accounts so that that the consumer would be protected if the bank were to go out of business (Kelly). The Great Depression's effect on the banking industry led to many useful changes to the banking industry and helped restore confidence in banks in the American people.

The purpose of this research is to review the impact of mergers and acquisitions on credit unions as it applies to the principles of money and banking. Specifically we will review the impact of the merger between E & A Credit Union and First Community Federal Credit Union. Mergers and acquisitions are very common in today’s financial environment. According to the Glenn Christensen (2015), there has been an increase in approved mergers again this year, June 2015 over June 2014. Not only are there more and more mergers, the size of the merger is growing as well (Christensen, 2015). As we look at the history of financial institutions over the years, mergers and acquisitions are very common. Mergers and acquisitions have had a significant impact in the decline of the number of banks since 1985 (Mishkin, 2016). Over the past few decades, thousands of banks merged (Wilcox & Dopico, 2011). Credit unions have seen significant numbers in terms of mergers and acquisitions spanning over many years. In 1969 there were 23,866 credit unions with assets totaling $16 billion (Wilcox & Dopico, 2011). This number dropped dramatically by 2010 to only 7,491 credit unions (Wilcox & Dopico, 2011). The assets grew to $927 billion equaling 7.6% of bank assets in comparison to the only 3% held during 1969 (Wilcox & Dopico, 2011). Although there was a 70% reduction in the number of credit unions, credit unions grew in their share of the market..

At the time after the stock market crash (1929), during the Great Depression, most of the people agreed that the main cause for the event was the “improper banking activity” which was mainly seen as the bank involvement in the stock market investment. Banks were taking high risks in hope for rewards, they were “accused of being too speculative in the pre-Depression era” (HEAKAL, 2010, pg.1). They were not only investing their assets, but they were also buying issues in order to resale them to the public. Nearly five thousand banks failed in the U.S. during the Great Depression. As a result of that most people wouldn’t trust the U.S. financial structure anymore. In order to rebuild the

The Glass-Steagall Act, which was implemented in 1933, was enacted in response to the abuses by the banks prior to the stock market crash of 1929. The law separated commercial banks and investment banks: the commercial banks would be allowed to take deposits and make loans and investment brokers were allowed to underwrite and sell securities. The law worked well for the most part from 1933-1999. Then in 1999, The Gramm-Leach-Bliley Act of 1999 allowed commercial and investment banks to merge. After GLB was passed, it did not take long for the deregulation to cause many banks and Wall Street to take advantage of the situation. The banks began to generate very risky and fraudulent loans and then bundled and sold them worldwide as solid mortgage backed securities on Wall Street. Inevitably, of course, these securities catostrophically changed our world economy for the worst. Subsequently, though, a silver lining emerged iin July of 2010, the Dodd-Frank regulatory reform bill was passed to reduce the chance of this happening again. Although the Dodd-Frank reform bill is a step in the right direction, the measure does not go far enough. Many believe that the only solution is to bring back Glass-Steagall.

Investment Banking is now at a crucial junction, where Investment and Commercial Banking are splitting up due to the ring fence which is being built around these two banking areas. As well, the new upcoming regulation, Basel III, will have a huge impact in the investment banks, with higher liquidity and capital requirements, in order to increase solvency and stability in financial industries.

The Bank of the United States is a symbol of the long held American fear of centralization and government control. The bank was an attempt to bring some stability and control and was successful at doing this. However, both times the bank was chartered, forces within the economy ultimately destroyed it. The fear of centralization and control was ultimately detrimental to the U.S. economy.

Extensive research has determined that the banking industry is in an unstable state. The industry’s profits have

In this essay I will be addressing the “Too Big To Fail” (TBTF) problem in the current banking system. I will be discussing the risks associated with this policy, and the real problems behind it. I will then examine some solutions that have been proposed to solve the “too big to fail” problem. The policy ‘too big to fail’ refers to the idea that a bank has become so large that its failure could cause a disastrous effect to the rest of the economy, and so the government will provide assistance, in the form of perhaps a bailout/oversee a merger, to prevent this from happening. This is to protect the creditors and allow the bank to continue operating. If a bank does fail then this could cause a domino effect throughout