Which act separated banking from investing?

Which act separated banking from investing?

• A. Federal Reserve Act
• B. Glass-Steagall Act
• C. Sherman Antitrust Act
• D. Bank Holding Company Act

Answer: (B)

Separating banking from investing means keeping the traditional deposit-taking and loan-making functions of banks separate from buying, underwriting, and trading securities. The Glass-Steagall Act of 1933 did exactly that by prohibiting commercial banks from underwriting or dealing in securities and by restricting securities firms from taking deposits. This created a clear boundary between everyday banking and investment activities, aiming to reduce risk to depositors and curb speculative practices that contributed to the financial crisis of the era. It also established the FDIC to insure deposits, reinforcing confidence in the banking system. The other acts address different aspects of the financial system: the Federal Reserve Act set up the central banking framework, the Sherman Antitrust Act targets monopolistic practices, and the Bank Holding Company Act regulates ownership structures of banks, not the division between banking and investing.

Separating banking from investing means keeping the traditional deposit-taking and loan-making functions of banks separate from buying, underwriting, and trading securities. The Glass-Steagall Act of 1933 did exactly that by prohibiting commercial banks from underwriting or dealing in securities and by restricting securities firms from taking deposits. This created a clear boundary between everyday banking and investment activities, aiming to reduce risk to depositors and curb speculative practices that contributed to the financial crisis of the era. It also established the FDIC to insure deposits, reinforcing confidence in the banking system. The other acts address different aspects of the financial system: the Federal Reserve Act set up the central banking framework, the Sherman Antitrust Act targets monopolistic practices, and the Bank Holding Company Act regulates ownership structures of banks, not the division between banking and investing.