Should consumer and investment banking be separate?

Executive Summary

A Depression-era financial regulation that was repealed almost two decades ago with widespread support is again the subject of fierce debate. The Glass-Steagall Act created a barrier between consumer banking activities, such as deposit-taking and lending, and riskier ventures such as investment banking. Supporters of reinstating the law say it could help the United States avert a new financial crisis by limiting excessive risk-taking; opponents say Glass-Steagall repeal played no role in creating the meltdown of 2008-09. While winning congressional approval for a reinstatement would be difficult, experts say populist anger against Wall Street is likely to keep the issue front and center for the foreseeable future.

Among the key takeaways:

  • President Trump and some of his top advisers have signaled interest in reviving the law in some fashion, although the specific form is unclear.

  • The 1999 decision to repeal Glass-Steagall’s separation of banking activities had bipartisan backing, passed by a Republican-controlled Congress and signed by a Democratic president.

  • The debate over Glass-Steagall comes at a time when Republicans are advocating repeal or dilution of the main regulatory law to emerge from the financial crisis, the Dodd-Frank Act.

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Resources for Further Study



Blinder, Alan, “After the Music Stopped: The Financial Crisis, The Response and the Work Ahead,” Penguin Books, 2013. A Princeton University economist discusses the causes of the financial crisis, dismisses the idea of reinstating Glass-Steagall and proposes how to reform the financial system.

Johnson, Simon, and James Kwak, “13 Bankers: The Wall Street Takeover and the Next Financial Meltdown,” Pantheon Books, 2010. Professors from the Massachusetts Institute of Technology (Johnson) and the University of Connecticut (Kwak) recount how eliminating Glass-Steagall and other actions during the 20th century bolstered the power and risk-taking of the country’s largest banks, leading up to the 2008 crisis.


Carney, John, “The Secret History of Glass-Steagall,” The Wall Street Journal, July 19, 2016, A journalist offers a detailed look at how restrictions under Glass-Steagall were slowly loosened even before the law’s formal repeal in 1999.

Cohan, William D., “Bring Back Glass-Steagall? Goldman Sachs Would Love That,” The New York Times, April 21, 2017, A financial columnist examines why Goldman Sachs would potentially benefit from a return to Glass-Steagall while many of its competitors would face great disruption.

Irwin, Neil, “What Is Glass-Steagall? The 82-Year-Old Banking Law That Stirred the Debate,” The New York Times, Oct. 14, 2015, A journalist provides a broad explainer on the history of Glass-Steagall and the current fight over it.

White, Gillian B., and Bourree Lam, “Could Reviving a Defunct Banking Rule Prevent a Future Crisis?” The Atlantic, Aug. 23, 2016, Prominent economists and financial experts debate whether bringing back the Depression-era provision could improve financial stability.

Reports and Studies

“The Financial Crisis Inquiry Report: Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States,” Financial Crisis Inquiry Commission, January 2011, The official report by a congressionally appointed commission to investigate the root causes of the financial crisis, which concludes that the crash was attributable to numerous business and regulatory failures.

Carpenter, David H., Edward V. Murphy and M. Maureen Murphy, “The Glass-Steagall Act: A Legal and Policy Analysis,” Congressional Research Service, Jan. 19, 2016, A report by Congress’s research arm reviews Glass-Steagall’s history and the contemporary debate over the provision.

Naylor, Bartlett, “Too Big: The Mega-banks are Too Big to Fail, Too Big to Jail, and Too Big to Manage,” Public Citizen, June 2016, A consumer advocate lays out the case for why Glass-Steagall is needed to help curb risky activities by banks and why the largest financial institutions should be broken up.

Wilmarth, Arthur Jr., “Citigroup: A Case Study in Managerial and Regulatory Failures,” Indiana Law Review, pp. 69-137, last revised Oct. 19, 2014, A George Washington University law professor examines the performance of Citigroup, the first universal bank to emerge after the relaxation of Glass-Steagall restrictions, arguing that the concept of the megabank conglomerate is flawed and no longer viable.

The Next Step


“Ringfencing will help in the next banking crisis,” Financial Times, Jan. 10, 2017, The Financial Times editorial board argues that “ring-fencing” – a regulatory system that permits bank holding companies to own both commercial and investment banking subsidiaries but with safeguards – will prove useful during a financial crisis, despite banks’ concerns that being required to comply with ring-fencing rules by 2019 as the United Kingdom withdraws from the European Union will create too many complications.

Carney, John, “Protectionist Walls Are Popping Up … Around Banks,” The Wall Street Journal, Dec. 26, 2016, Regulators around the world are opting for a national approach over a global one as they create a type of ring-fencing meant to ensure local banking branches will remain viable during a financial crisis.

Dunkley, Emma, “Challenger banks under pressure to meet ‘ringfencing’ rules,” Financial Times, May 14, 2017, Smaller banks must meet ring-fencing rules by 2019, but complying with the regulations could lead to far higher costs, analysts say.

Future of Banking Regulations

Isaac, William M., and Richard M. Kovacevich, “The Shattered Arguments for a New Glass-Steagall,” The Wall Street Journal, April 25, 2017, A former Federal Deposit Insurance Corp. chairman (Isaac) and former Wells Fargo CEO (Kovacevich) argue that Bear Stearns, Lehman Brothers and Merrill Lynch all failed because they did not diversify their risks enough, and warn that separating commercial and investment banking would prohibit banks from achieving the diversification necessary to withstand a crisis.

Rappeport, Alan, “Bill to Erase Some Dodd-Frank Banking Rules Passes in House,” The New York Times, June 8, 2017, House Republicans passed the Financial Choice Act, which would greatly alter the Dodd-Frank law, without any Democratic support, and analysts say the bill won’t get Senate approval without extensive changes.

Tabor, Nick, “Why It’s Going to Take Another Financial Catastrophe to Fix Wall Street,” New York Magazine, April 13, 2017, Neil Barofsky, the federal government’s former special inspector general for the Troubled Asset Relief Program, says Dodd-Frank did not go far enough in reforming the banking system, and worries that another financial crisis will be needed before rules are in place to break up big banks.


American Bankers Association
1120 Connecticut Ave., N.W., Washington, DC 20036
1-800-BANKERS (1-800-226-5377)
Trade association for the commercial banking industry.

Competitive Enterprise Institute
1310 L St., N.W., 7th Floor, Washington, DC 20005
Libertarian think tank that studies a host of issues, including banking and finance.

Federal Deposit Insurance Corp.
550 17th St., N.W., Washington, DC 20429
Agency that provides deposit insurance for the banking system.

Public Citizen
1600 20th St., N.W., Washington, DC 20009
Left-leaning consumer advocacy group founded by Ralph Nader.

Securities Industry and Financial Markets Association
120 Broadway, 35th Floor, New York, NY 10271
Organization representing the securities industry, including investment firms, asset managers and banks.

U.S. Department of the Treasury
1500 Pennsylvania Ave., N.W., Washington, DC 20220
Federal government department charged with maintaining financial stability and economic growth.

DOI: 10.1177/237455680318.n1