Bank Powers: Issues Related to Repeal of the Glass-Steagall Act
GGD-88-37
Published: Jan 22, 1988. Publicly Released: Feb 12, 1988.
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Highlights
In response to a congressional request, GAO provided information on issues concerning the expansion of banks' securities powers through repeal of the Banking Act of 1933 (Glass-Steagall) and the ramifications of eliminating or extending the moratorium on expansion of bank powers.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| If Glass-Steagall is repealed, Congress should organize extended activities in a holding company rather than in the bank. The holding company organizational form provides the bank and the deposit insurance fund with the highest degree of insulation from potential risks. | Legislation failed to pass both Houses of Congress. | |
| Congress should increase resources for banking and securities industry regulators in order to preserve safety and soundness and protect consumer interests. The necessary increases in resources could be obtained by raising fees and premiums for banks that have securities affiliates, or by instituting a new fee for examinations of holding companies engaged in both banking and securities activities. | Until allowable powers are decided upon, resource needs cannot be estimated. | |
| If Glass-Steagall is repealed, Congress should prohibit undercapitalized holding company parents from engaging in extended activities. | Legislation failed to pass this Congress. | |
| If Glass-Steagall is repealed, Congress should require the holding company to act as a source of strength to its bank components. | Legislation failed to pass this Congress. | |
| If Glass-Steagall is repealed, Congress should stipulate that banks be allowed to lend to their securities affiliates, but that all such transactions be conducted on an arm's-length basis. | House and Senate bills did not require this action. It is unknown what may be included in future legislation. | |
| Congress should allow some transactions between affiliates, but only on an arm's-length basis, in order to adequately satisfy the liquidity needs of securities firms that are affiliated with banks. If necessary, sections 23A and 23B should be strengthened to provide additional regulatory resources as may be necessary for supervision and enforcement. Congress should also consider increasing the penalties for infractions of sections 23A and 23B. | House and Senate bills did not require this action. It is unknown what may be included in future legislation. | |
| Congress should require the bank holding company to act as source of strength to the bank. Moreover, if the holding company avoids that responsibility, Congress should consider making the holding company financially liable for any losses by the insurance fund. | Legislation failed to pass this Congress. |
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