bobbyw24
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By Silla Brush - 08/06/10 06:00 AM ET
In seven simple lines buried in this year’s financial overhaul bill, lawmakers swept away one of the last vestiges of the 1933 Glass-Steagall Act that held sway over markets for decades.
The Depression-era bill is best known for separating commercial and investment banking — a wall that was effectively repealed in the late 1990s. Liberal Democrats, consumer advocates and a few Republicans pushed unsuccessfully this year to draw that line once more as part of the Wall Street bill.
But Glass-Steagall had another core pillar: a ban on banks paying interest on checking accounts. Banks and lawmakers chipped away at the ban and other interest rate restrictions over the years, to the point that it basically only barred payments on business accounts. The Dodd-Frank Act did away with the rule entirely.
“This really is the last remnant of that Depression edifice,” said Vincent Reinhart, a former senior Federal Reserve official.
Wayne Abernathy, executive vice president at the American Bankers Association, said the provision “is clearly an anachronism.”
The original goal of the provision was to steady the banking industry during the turmoil of the Great Depression, which saw thousands of banks fail in the early 1930s.
Without a ban, the thinking went, banks could run wild by competing to pay the highest interest rate to attract customers. Keeping interest rates low and steady was also an incentive to banks to lend instead of parking their own money with other banks to receive interest.
The Federal Reserve implemented the ban through “Regulation Q.”
The restrictions and ceilings on interest rates were changed several times in the 1960s, but the biggest shift came in 1980.
Interest rates rose sharply in the late 1970s and a range of new financial . . .
http://thehill.com/business-a-lobby...away-stray-remnant-of-1933-glass-steagall-act
In seven simple lines buried in this year’s financial overhaul bill, lawmakers swept away one of the last vestiges of the 1933 Glass-Steagall Act that held sway over markets for decades.
The Depression-era bill is best known for separating commercial and investment banking — a wall that was effectively repealed in the late 1990s. Liberal Democrats, consumer advocates and a few Republicans pushed unsuccessfully this year to draw that line once more as part of the Wall Street bill.
But Glass-Steagall had another core pillar: a ban on banks paying interest on checking accounts. Banks and lawmakers chipped away at the ban and other interest rate restrictions over the years, to the point that it basically only barred payments on business accounts. The Dodd-Frank Act did away with the rule entirely.
“This really is the last remnant of that Depression edifice,” said Vincent Reinhart, a former senior Federal Reserve official.
Wayne Abernathy, executive vice president at the American Bankers Association, said the provision “is clearly an anachronism.”
The original goal of the provision was to steady the banking industry during the turmoil of the Great Depression, which saw thousands of banks fail in the early 1930s.
Without a ban, the thinking went, banks could run wild by competing to pay the highest interest rate to attract customers. Keeping interest rates low and steady was also an incentive to banks to lend instead of parking their own money with other banks to receive interest.
The Federal Reserve implemented the ban through “Regulation Q.”
The restrictions and ceilings on interest rates were changed several times in the 1960s, but the biggest shift came in 1980.
Interest rates rose sharply in the late 1970s and a range of new financial . . .
http://thehill.com/business-a-lobby...away-stray-remnant-of-1933-glass-steagall-act
