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Simple English definitions for legal terms
Banking Act of 1933
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A quick definition of Banking Act of 1933:
The Banking Act of 1933, also known as the Glass-Steagall Act, was a law created during the Great Depression to help prevent another financial crisis. It separated commercial banks (which take deposits and make loans to individuals and businesses) from investment banks (which buy and sell stocks and bonds). This was done to protect people's savings and prevent banks from taking too many risks with their money.
A more thorough explanation:
The Banking Act of 1933 is also known as the Glass-Steagall Act. This law was passed in response to the Great Depression and aimed to prevent another financial crisis by separating commercial banking from investment banking.
Commercial banks are the ones that take deposits from individuals and businesses and use that money to make loans. Investment banks, on the other hand, help companies issue stocks and bonds and engage in other risky financial activities.
The Glass-Steagall Act required commercial banks to focus on traditional banking activities and prohibited them from engaging in investment banking. This separation was meant to protect depositors' money from being used for risky investments that could lead to bank failures.
For example, if a commercial bank wanted to invest in the stock market, it would have to create a separate subsidiary to do so. This subsidiary would not be allowed to use the bank's deposits to fund its investments.
The Banking Act of 1933 helped stabilize the banking system and restore public confidence in banks. However, the law was eventually repealed in 1999, which some argue contributed to the 2008 financial crisis.