Glass-Steagall Act of 1932

United States banking legislation passed by the 72d Congress in 1932 to stimulate inflation. It was sponsored by Senator Carter Glass (D-VA) and Representative Henry B. Steagall (D-AL) (see also the Banking Act of 1933 and the Glass-Steagall Act). It has largely been repealed by the Gramm-Leach-Bliley Act of 1999; it has been suggested that repeal led to current economic crises by creating an envioromnent in which banks could subsidize exotic financial instruments but without regulation.

Facing yet another year of depression, and having lost partisan control of Congress, the republican president Herbert Hoover was seeking more reform and relief than ever before. His Reconstruction Finance Corporation (RFC) was helping to bail out banks and other lenders but did little to restore confidence in banks.

Additionally, the Great Depression was perpetuating a deflation of the currency and while the Reconstruction Finance Corporation was attempting to make more money available through loans, more inflationary help was needed.

Continuing the inflationary policy started with the RFC, the Glass-Steagall Act of 1932 allowed the Federal Reserve banks to count U.S. securities and commercial paper, in addition to gold, as part of their reserve deposit. The law released about $750 millions in gold that was being held in back of U.S. Federal Reserve notes. The aim of this legislation was to counter the domestic hoarding of gold and recent outflows of gold as well as to encourage inflation by making more money available. It had only limited effect on the U.S. economy.