The Financial Crisis Of 2008

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The financial crisis of 2008 did not arise by chance. The meltdown was precipitated by systematic striping away of the New Deal era policies of bank regulation. Most notable of these deregulatory acts was that of the Gramm-Leach-Bliley Act of 1999. This bill repealed the legislation which held commercial banks and investment banks separate. As the beginning of the 21 century approached many bankers clamored for an end to the policy of the “firewall” between Investment and commercial banks. Gramm-Leach-Bliley Act of 1999, sought to create more competition in the financial services industry. The policy, however, lead to the conglomeration of many corporate entities as banks had the capital to invest (in the form of consumer deposits) in a…show more content…
GSA itself contained many provisions aimed at reducing the volatility of the U. S. banking system. One of its main tenants was the separation of Investment banks and commercial banks. In order to understand this separation, one must first understand these labels. A commercial bank is the kind of bank which takes deposits and makes loans. These practices were viewed as less risky, than those of investment banks, which underwrite bonds and other securities. The GSA effective separated the two by not allowing them to have close ties for example common ownership. The GSA also limited the types of things commercial banks could profit from or own. For example, a commercial bank wasn’t allow to derive more than 10% of its profits from securities based activities. The GSA also created the FDIC, which insured consumer deposits in commercial banks. Investment banks by contrast, were allowed no such safety net due the inherent risks of investing. THE FDIC initially only insured deposits for $2500. Over times the limit was raised again and again until it reached its current level of $250000. Federal deposit insurance is one of the few components of Glass-Steagall which has survived to today. The GSA also required member banks of the Federal Reserve System to file three reports annually to the Federal Reserve Bank and the Federal Reserve board. This strengthened the Federal Reserve System. All Federal Reserve member banks were obligated to become stockholders in

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