Global Securities Markets: Navigating the World's Exchanges and OTC Markets

A BRIEF HISTORY OF U.S. REGULATION

Only history can explain the patchwork of state and federal agencies involved in regulating banks, securities, and insurance in the United States.

By the time Franklin Delano Roosevelt took office on March 4, 1933, more than 10,000 of the approximately 25,000 banks that had been in existence in 1929 had disappeared. A rash of bank failures in 1932 and 1933 led Congress to act. Moreover, the investigations of a hard-charging former prosecutor, Ferdinand Pecora, caused the public to place the blame for bank failures on securities speculation by banks. The truth appears to be that there was little real evidence of bank-affiliated securities firms involved in financial misdealings. Nonetheless, the evidence brought forward by Pecora of wrongdoing by large New York banks led Congress to clip the wings of those primarily big banks that engaged in commercial and investment banking together. The public was outraged and Main Street wanted revenge on Wall Street for the Great Depression.2

Equally as significant as the separation of commercial and investment banking by the National Banking Act of 1933 (commonly known as Glass-Steagall after its legislative sponsors) was the creation by Glass-Steagall of federal deposit insurance. Proponents of federal deposit insurance successfully argued that it should not be used to prop up, indirectly, speculative investments made by securities affiliates of federally insured banks. Thus was born the separation of commercial ...