In the aftermath of the financial crisis of 2007–2009, there have been calls to re-instate the separation of commercial and investment banking activities that were removed with the repeal of the Glass-Steagall Act. Do you think this is a good way to reduce systemic risk? Be sure to respond to at least one of your classmates’ posts. Glass-Steagall Act

Within the aftermath of the monetary disaster of 2007–2009, there have been calls to re-instate the separation of economic and funding banking actions that had been eliminated with the repeal of the Glass-Steagall Act. Do you suppose this can be a good solution to cut back systemic danger?
You should definitely reply to a minimum of one in all your classmates’ posts.

 

Glass-Steagall Act

 

Reply

The Glass-Steagall Act was necessary in stopping a inventory market crash like 1929. The reason being that throughout the interval, there was improper banking exercise as overzealous industrial banks participated in inventory market investments, which was perceived as the first reason for the monetary crash. Economists argued that banks grew to become grasping, accumulating large dangers to achieve large rewards (Chen, 2020). Banking grew to become sloppy, and its goal was blurred; therefore, the Glass-Steagall Act was necessary in restoring belief within the banking system.

Nonetheless, the repeal of the Glass-Steagall Act was not the first reason for the 2007-2009 monetary disaster. Whereas the repeal allowed funding and industrial banks to consolidate by means of monetary holding companies, few bloated monetary companies resembling Bear Stearns invested closely in mortgage-backed securities (Chen, 2020). Glass-Steagall was carried out to control banks. Subsequently, although quite a few mortgage-backed derivatives had been developed and bought by banks, underlying belongings of the derivatives- subprime mortgages, had been initially bought by non-bank lenders. Subsequently the act wouldn’t have prevented the preliminary loans. Moreover, funding banks, together with Bear Stearns, Lehman, and Goldman Sachs, had been the first gamers within the subprime mortgage meltdown and had been by no means

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