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The 1998 Repeal of Glass Steagall ( 1933) - Essay Example

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The reasoning behind the enactment of this act was to provide the customers with a one stop financial mart, where they could undertake all their financial activities with one institution, including both saving and investment (Bartiromo, 2008).
Before the legislation, individuals could make their savings with the financial banks but turn to other financial institutions for investment. The legislation allowed the commercial banks to merge with other financial services providing institutions and form Financial Holding Companies (FHC). With such mergers, the combination of these financial service providers allowed them to indulge in all forms of financial activities for their customers (Gramm, 2009). Thus, the FHCs were free to provide such services as granting loans, insurance underwriting and policy offers, brokerage and investment services to their customers, without the necessity of customers seeking such services from different institutions (Benston, 1972). Thus, the enactment was sort after, to ease customer activities of saving and investment.
The other importance attached to the legislation is the fact that it would allow the financial institutions to exploit all the opportunities and revenue efficiencies, by increasing the scope of profit making that was previously hindered by the laws that were in place, notably the Glass Steagall Act (White, 1986). Through the consolidation of all the financial services within the jurisdiction of one institution, the institutions could capture the revenues generated through the various financial services such as insurance underwriting, brokerage, deposits and savings and the issuance of commercial loans (Bartiromo, 2008).
Since the operational expenses of such institutions would be reduced, through having consolidation of overhead costs as well as having the same staffs handle different customer transactions, the costs for such institutions would be highly reduced, thus creating economies of scale. The costs ...Show more
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Summary

The 1998 Financial Services Modernization Act is a law that served to remove the barriers that earlier separated the commercial banks form other forms of financial institutions and allowed such institutions to merge (Calabria, 2009). Thus with the enactment of the law,…
The 1998 Repeal of Glass Steagall ( 1933)
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