Home > Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Financial Services Modernization Act of 1999 repealed the Glass-Steagall Act opening up competition among banks, securities companies and insurance companies. The Glass-Steagall Act prohibited a bank from offering investment, commercial banking, and insurance services. The Gramm-Leach-Bliley Act allowed investment and commercial banks to consolidate, for example Citigroup and Salomon. The combined industry is known as the financial services industry. This act was desired by most of the largest banks, brokerages, and insurance companies in the country at the time. The justification was that people usually put more money in investments in a good economy, but when it turns bad, they put their money into savings accounts. With the new act, they would do both with the same company, so the company would be doing well in all economic times. This has to some extent proven out.
Prior to the passage of the act, most financial services companies were doing this anyway. On the retail/consumer side, a bank called Norwest led the charge in offering all types of financial services products in 1986. Also at the time American Express attempted to own almost every genre of financial business (although there was little synergies between them). Things culminated in 1997 when Travelers, a financial services company with everything but a retail/commercial bank, bought out Citibank, creating the largest and most profitable company in the world. At the time this was technically illegal, and was a large impetus for the passage of the Gramm-Leach-Bliley.
Since the passage of the act, a lot of consolidation has occoured in the financial services industry, but not as much as was expected. Retail Banks for example, do not tend to buy Insurance underwriters, since they expect they can make more money selling other companies insurance products in their branches (this is called insurance brokerage). Many other retail banks have been slow to adopt investments and insurance products, and to package those products in a convincing way. Brokerage companies have had a hard time getting into banking, because they do not have a large branch and backshop footprint. Banks have recently tended to buy other banks, such as the recent Bank of America and Fleet Boston merger, yet they have had less success integrating with investment and insurance companies. Many banks have expanded into investment banking, but have found it hard to package it with their banking services, without resorting to questionable tie-ins which caused scandals at Smith Barney.
Senator Phil GrammWilliam Philip "Phil" Gramm (born July 8, 1942 in Fort Benning, Georgia) served as a Democratic Congressman ( 1978- 1983), a Republican Congressman ( 1983- 1984), and a Republican Senator from Texas ( 1985- 2002). In 1967, he received a Ph. in economics f led the Senate Banking Committee which sponsored the bill for the act; he later joined UBS Warburg, the U.S. investment arm of the largest Swiss bank.
Some restrictions remain to provide some amount of separation between the investment and commercial banking operations of a company. For example, the commercial banks aren't allowed to pay commission to their employees who convince customers to also use some investment services. They are only allowed to pay them a small fee for simply setting up appointments to meet with a fincancial advisor. Much of the debates about financial privacyFinancial Privacy is a blanket term for a multitude of issues: Financial Institutions ensuring that their customers information remains private to those outside the institution. Issues include the Patriot Act, and other debates of privacy vs. The term is are spefically centered around allowing or preventing the banking brokerage and insurances divisions of a company from working together.
See also: financial supervisionFinancial supervision is government supervision of financial institutions by regulators. The objective is to uphold existing regulations for the financial sector and ultimately to maintain stability of financial markets. Aims of supervision The specific a, financial institutionA financial institution acts as an agent that provides financial services for its clients. Financial institutions generally fall under financial supervision from a government authority. Examples of basic types Bank Building Society Check cashing store Cres
United States law
