The repeal of the US Banking Act 1933 (commonly known as the Essay

The repeal of the US Banking Act 1933 (commonly known as the Glass-Steagall Act) was a substantial cause of the global bankin - Essay Example Stock markets in most of the countries plunged and there was widespread inflation everywhere. Food and oil prices rose to an all time high. Oil price went as high as $147 a barrel. (Oil and Gasoline, April 6, 2011). Lack of purchasing power led to a fall in demand for goods and as a result several industries suffered. International institutions like IMF and European Union outlined several corrective policies and advised nations on adopting more risk aversive regulatory measures for the national financial institutions. All over the world the governments dished out policies and bailout programs for the citizens and institutions to tackle problems like inflation and unemployment. Most of the countries spent huge amount of money from their federal reserve’s in an effort to bring them back to the path of sustained growth. German government helped Hypo Real Estate with $50 billion (Bettinga and Parkin, September 29, 2008). Investors from UK had huge losses in the London Stock Exchan ge. On October 2008 the British government announced a plan worth $850 billion to rescue its banks from going into insolvency. (Nanto, 2010, p.58) The US government adopted the Troubled Asset Relief Program in 3rd October 2008 to rescue the distressed homeowners and also lent to $182 billion to AIG to prevent it from going down (GAO, 2009; The Troubled Asset Relief Program, n.d.). In total they pledged $700 billion to fight the recession in their country. The bailout though saved the economy for the time being, a lot of senators argued that these monetary assistance from public money cannot chart long-term growth stability for the country. They emphasized on the need for the Glass- Steagall Act that was enacted at the time of the Great Depression to be reinforced. In this paper we shall try to address the issue concerning whether the Glass-Steagall Act was needed to prevent the Financial Crisis. About the Act United States experienced worst recessions in its history during the 1930s . One of the primary reasons behind the recession was that the bankers and brokers of the nation were guilty of dubious financial practices like using their customer’s deposit to invest in stocks and securities. Also they used their financial might to inflate the prices of the securities and did not have enough capital cushions to back up their investments. So when the public got scared and wanted to withdraw their deposits a large number of banks went insolvent. A large number of small banks filed for bankruptcy and the nation faced an extreme crisis. Under such circumstances the US Banking Act of 1933 also called the Glass-Seagull Act was enacted under President Roosevelt to prevent the country from further such disasters. The Glass-Steagall Act had two main components. They are as follows: Setting up the Federal Deposit Insurance Corporation (FDIC) to insure the deposit of the customers and secure their deposit: This was done firstly, to restore the customers faith in bank deposits and secondly, to collect money so that the banks can be assisted in terms of liquidity crisis. A lot of banks were saved from bankruptcy by receiving capital from the FDIC. Separating the commercial banking activities from the investment banking activity: Firstly, this would prevent the banks from using the saving of their customer to indulge in buying stocks and bonds.