The Glass-Steagall Act – repealed 1999

One of the most important

banking laws in the United States history. It shaped the financial system for 66 years—until it was dismantled in 1999. In my opinion, the businessmen and politicians saw the need to upgrade and adopt a risky move for corporations to become bigger. But in any case, there were only one or two key people who pushed to repeal an old law, driven most likely by ambition, greed or their own sense of purpose.

What was the Glass-Steagall Act?

The old law that put the house of Morgan on the edge. Passed in 1933 during the great depression, it was designed to stabilize the banking system and prevent another catastrophic collapse like the one in 1929—this one is still fresh in my memory, since I just Netflix-binged the documentary film, Titans: The Rise of Wall Street. It’s sad to think what happened but I also feel excited about the future.

The Glass-Steagall Act is named after the two U.S. lawmakers who sponsored it:

Senior Carter Glass (Virginia)

• A powerful figure in banking legislation
• Former Treasury Secretary
• Architect of the Federal Reserve System
• Believed deeply in strict separation between commercial banking and securities speculation.

Representative Henry B. Steagall (Alabama)

• Chairman of the House Banking and Currency Committee
• Focused on deposit protections and consumer banking safety
• Strong advocate for regulating banking practices after the 1929 crash

Glass and Steagall co-authored key sections of the Banking Act of 1933, the part that separated commercial banks from investment banks.

The law was named after them because Glass wrote the structural reforms and Steagall pushed it through politically and added deposit insurance, the FDIC.

The Glass-Steagall Act’s Core Rule

It separated commercial banking from investment banking.

Commercial Banks	Investment Banks
Took deposits from the public	Traded stocks, bonds and securities
Made home loans, savings accounts, basic banking	Underwrote securities, speculated, advised corporations
FDIC-insured	Non-insured, higher risk

Glass-Steagall said these two worlds could NOT be under the same roof.

This prevented banks from gambling with people’s deposits and kept the financial system stable for decades.

Why was it repealed?

It was repealed because, by the 1990’s:

• Banks wanted to get bigger
• Wall Street wanted fewer restrictions
• Politicians believed deregulation would create “financial innovation.”
• Large financial institutions wanted to combine banking, insurance, and investing.

The push came from the Clinton administration and Republican congress, influenced heavily by lobbying from Citigroup and Travelers Insurance.

Congress passed the Gramm-Leach-Bliley Act in 1999. This law removed the separation that Glass-Steagall have held for 66 years. Now allowing companies to grow, merge, own commercial and investment in one roof.

• One company to own a commercial bank, an investment bank and insurance firm all at once.
• Creation of giant financial conglomerates like Citigroup, JPMorgan Chase, Bank of America, and others.

History tells us the ‘repeal’ fuels the subprime fire in 2008

Most economists say: It wasn’t the single cause, but it made the crisis much worse. The repeal allowed the following:

• Banks could now use depositor money to buy risky mortgage-backed securities.
• Mega-banks became “too big to fail.”
• Conflicts of interest grew.
• Risk exploded across the financial system.

How this connects to Dodd-Frank & the Volcker Rule.

After the 2008 collapse, Congress tried to reintroduce a lighter version of Glass-Steagall through the Volcker Rule, which banned banks from gambling with their own money. But Volcker Rule did not fully restore Glass-Steagall—it only addressed proprietary trading.

Timeline summary:

1933 – The Glass-Steagall kept banks safe by separating deposit-taking banks from Wall Street

1999 – Glass-Steagall Repealed – Deregulation allowed mega-banks to mix deposits with risky investments

2008 outcome – Contributed to the scale and severity of the 2008 financial crisis and massive bailout.

To me, reading the history of the lobbying battles that led to the repeal of Glass-Steagall felt like an incredible story—perfect for a movie plot, an edge-of-my-seat thriller where the villain also wanted to be the hero.

The push to kill Glass-Steagall Act began in 1980’s

The slow dismantling of the old law started when Wall Street realized it could chip away at it little by little. This period became a tug-of-war among banks, regulators, Congress, and ambitious businessmen.

While the 80’s cultural and political climate was clamoring for a free-market ideology, screaming risk is needed for progress to happen. Banks claimed they were being “held back” by Depression-era rules and that foreign banks were gaining an advantage.

Commercial banks desperately wanted to enter investment banking because securities underwriting was more profitable than traditional loans.

So, banks began to create “Section 20 subsidiaries,” (affiliates that technically could do securities work). They started experimenting with new products (money market funds, derivatives), and lobbying the Federal Reserve to reinterpret the rules. They basically haven’t fully considered the repeal yet, but finding some loopholes.

Citicorp and Travelers Insurance start pushing hard, lobbying Congress, pressuring regulators, funding think-tanks, arguing that banking needed modernization. Citicorp especially insisted that they need to be a “financial supermarket.”

Think like you can buy Tesla stocks from Amazon today, basically that’s what Citicorp wanted to do.

The Savings & Loan (S&L) crisis became a turning point. Hundreds of thrift institutions collapsed. And in 1987, Alan Greenspan arrives—the final push.

When Alan Greenspan became the Federal Reserve Chair, everything accelerated because Greenspan was deeply pro de-regulation, a disciple of Ayn Rand, a believer that markets self-police without government oversight. He immediately began expanding banks’ authority to engage in securities. Approving larger Section 20 subsidiaries and downplaying conflicts of interest the law was designed to prevent.

By the end of the 1980’s, banks were effectively doing much of what Glass-Steagall banned—just through subsidiaries and interpretations. The decade was a coordinated dismantling—without officially repealing the law, yet.

By the early 1990’s several forces aligned:

Big banks wanted to merge. JPMorgan, Bankers Trust, Citicorp, Travelers, and others wanted to sell:

• Stocks
• Insurance
• Investment banking
• Commercial loans

All under one roof. But Glass-Steagall made these combinations illegal.

The Federal Reserve began quietly approving exceptions:

• letting banks trade some securities
• letting commercial banks own small brokerage units
• allowing limited underwriting activity

The Fed basically said: We’ll allow it unless Congress stops us. This gave the banks momentum.

The Boxing match: 1998–1999

In the boxing ring of America’s financial future, Wall street and mega banks steps in as heavyweights clashing forces with consumer advocates and a few senators. Meanwhile in a parallel world, Rocky Balboa’s 42 million budget film has brought us some great entertainment with his 5th boxing match, while the slow dismantling of Glass-Steagall is underway—grossing over $300 million in lobbying spend in a single year. Wow!

Ring A: The Wall Street and Mega-Banks

• Citicorp
• Travelers
• JPMorgan
• Bank of America
• American Bankers Association
• Securities Industry Association
• Insurance lobbyists

Their marketing message was:

“Let us innovate and compete globally.”

Ring B: Consumer advocates & some senators

• Senator Byron Dorgan
• Senator Paul Wellstone
• Ralph Nader
• Small banking groups

Their message was :

“If you repeal this, banks will gamble with deposits and eventually crash the world economy.”

They were right—but politically outmatched!

Treasury Secretary Robert Rubin and Deputy Larry Summers pushed hard for deregulation. Rubin says: “Glass–Steagall is obsolete.”

The Republican Congress listened.

The final match resulted in the creation of Gramm–Leach–Bliley Act (1999). The bill passed after two years of intense lobbying.

Banks won the boxing match.

Glass–Steagall was officially repealed in November 1999.

How Banks Immediately Exploited the Repeal

Once Glass–Steagall was gone, the floodgates opened.

Massive bank mergers happened overnight

Examples:

• Citicorp + Travelers → Citigroup
• JPMorgan + Chase Manhattan → JPMorgan Chase
• Bank of America bought Merrill Lynch
• Wells Fargo bought Wachovia

The U.S. turned into a land of financial supermarkets. Banks began using depositor money to buy and securitize mortgages

This gave rise to:

• Subprime lending
• Mortgage-backed securities
• Collateralized debt obligations (CDOs)
• Synthetic CDOs
• Off-balance-sheet investment vehicles

Banks used FDIC-insured deposits to fuel the mortgage machine.

Conflicts of interest exploded

Depository Banks could now:

• Sell consumers securities
• Bet against those same securities
• Package loans they owned
• Offer insurance on them

— all within one corporate entity.

This multiplied the risk in the financial system.

• Leverage skyrocketed – Banks went from 10:1 leverage to 30:1 overnight
• Risk migrated into every corner of Wall Street

Mortgage lenders, rating agencies, insurers, investment banks—all interconnected.

This is why the 2008 crash was so big.

The Specific Role Citigroup Played in Forcing the Law Change

Citigroup essentially forced Congress’ hand that in 1998, the “Illegal Merger” Strategy was implemented by Citicorp (a commercial bank) wanted to merge with Travelers Insurance (owner of Salomon Brothers investment bank). This merger was illegal under Glass–Steagall.

Even though Glass–Steagall forbid this combination, the CEO of Travelers Insurance, Sandy Weill and Citicorp’s CEO, John Reed announced a $70 billion merger, creating the largest financial conglomerate in the world at that time.

They exploited a loophole. The Fed allowed a temporary, two-year grace period for newly merged banks to comply with laws.

Citigroup used this grace period as a political weapon: “We already merged. You have two years to change the law.”

It put enormous pressure on Congress, and so the drama unfolds. If Glass–Steagall wasn’t repealed, Citigroup would have to divorce Travelers Insurance. Wall Street does not want that to happen. Wall Street warned Congress that reversing the merger would cause market chaos.

It’s like really forcing a rigged boxing match.

Citigroup Executives Personally Lobbied Congress, especially Sandy Weill and Robert Rubin (later became an executive at Citi after helping repeal the law).

They met with lawmakers multiple times and argued: “American banks need to be global to compete with foreign giants.”

Citi’s power was unmatched. And they spent Millions in Lobbying and Campaign Donations.

Citigroup alone spent $100+ million on lobbying and millions more in political contributions. They practically wrote the deregulation bill themselves. Even Senator Phil Gramm (the bill’s sponsor) said: “We’re doing what Citi needs.”

Without Citigroup, Glass–Steagall would not have been repealed.

Their merger forced the government into a corner. The repeal essentially legalized what Citigroup had already done.

The Sub Prime Mortgage Bubble Connection

Citigroup merged, leveraged, speculated, and fueled the mortgage bubble with depositor’s money. They became one of the major engineers of the subprime mortgage crisis, playing a significant role in structuring, packaging, and selling large volumes of high-risk mortgage-backed securities that contributed to systemic vulnerabilities across global markets. When the bubble burst, Citigroup was rescued with a massive government bailout.

Sandy Weill — The Key Architect & De-Facto CEO

Full name: Sanford “Sandy” Weill
Role: CEO and Chairman of Citigroup (after the merger)
Period of influence: 1998–2003
Weill was the main force behind the repeal. He orchestrated the illegal Citicorp–Travelers merger and then pressured Congress to legalize it.

John Reed — Co-CEO (Shorter Involvement)
Role: Co-CEO of Citigroup with Sandy Weill during 1998–2000.
Reed supported the merger but was less aggressive about dismantling Glass–Steagall. According to reports, internal clashes with Weill led him to leave in early 2000.

Who Had the Ulterior Motive? — Sandy Weill

While Reed was formally co-CEO for part of the time, Sandy Weill was the driving force, politically and strategically.

Why?

• Weill wanted to build the world’s first true financial supermarket. Travelers (his company) brought investment banking + insurance.
• Citicorp brought traditional banking.

Combining them broke Glass–Steagall — intentionally. Weill personally lobbied Congress and the Clinton administration to repeal the law.

Quote often attributed to him: “We want to be the one-stop shop for finance.”

His merger forced Congress to change the old law. Then had to be bailed out in 2008.

Who do you think is the hero in this whole story?

I think the bailer who rescued the villain is our hero. If I may say the “reluctant heroes” who had to choose between bad and worse.

• The families who lost homes
• The workers who lost pensions
• The taxpayers who funded the bailouts

Please share you thoughts. We appreciate your comments, ideas and opinion.

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