d unresolvable
The Separation of Commercial and Investment Banking
The Glass-Steagall sections of the Banking Act forbade
investment banks from accepting bank deposits and commercial
banks, including state-chartered banks which were members of
the FRS, from underwriting, distributing, selling or dealing in
investment securities, subject to certain exceptions, or the
affiliation of banks with firms which were primarily engaged in
the securities underwritng business.
The current Congress is considering legislation supported by
the Administration which would repeal Glass-Steagall. Its passage
would ratify what has already transpired because "commercial
banks have been underwriting and selling stocks and bonds . . .
since 1989, when banking regulators began allowing them to run
limited securities operations . . ."3 Even under Glass-Steagall,
commercial banks were allowed to engaged in underwritings abroad
which became a major business in the Eurobond market after 1970
and to underwrite government bonds. Through a series of court
cases in the 80s, the banks acquired "the power to . . .
purchase affiliates engaged in the retail securities business and
to underwrite commercial paper . . . mortgage related securities
In 1989-1990, the Federal Reserve Board ("FRB") authorized
bank holding companies ("BHC's"), which did not take deposits, to
underwrite stocks, provided that they segregated that business
èfrom their banking business and kept underwriting's percentage of
total revenues to less than 10%. In the early '90s, Congress
blocked various attempts to repeal Glass-Steagall. The banks
argued that repeal would greatly strengthen competition and
pointed out that the top 10 investment banking firms controlled
91% of the securities underwriting market. Critics, like Henry
Kaufman, the economist said, "Institutions that are bo...