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Unless we see a complete meltdown among Democrats in the US Congress, the Restoring American Financial Stability Act of 2010 will be signed into law in the next week or so. One of the surprises of the bill is the Volcker Rule, which reinstates provisions of the Banking Act of 1933, also known as the Glass-Steagall Act.
There were actually two Glass-Steagall acts. Both were responses to the Great Depression that started in 1929. The first act, in 1932, expanded the powers of the Federal Reserve in order to help stop deflation. The second act, in 1933, created the Federal Deposit Insurance Corporation (FDIC), regulated interest rates on savings accounts, and created a wall between depository banks that held money for checking and savings accounts on the one hand and investment banks that speculated in the places like stock market on the other hand.
The Glass-Steagall act of 1933 has slowly been repealed (section by section) by conservatives over the last 30 years. In November of 1999 the Gramm-Leach-Bliley Act repealed the provisions that separated investment banks for depository institutions. When the conference committee produced a final version of the new financial reform legislation last week, many people were surprised to see that it included the Vocker Rule, which reinstates that separation.
In the words on one source, the Volcker rule would prohibit "proprietary trading, investment banking advisory services, and anything having to do with hedge funds or private equity…at the country's largest banks." A similar rule would force major banks out of the business of trading in commodity derivatives or other highly complex financial vehicles.