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

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The 1998 Repeal of Glass Steagall (1933)

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. ...
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 incurred under a customer’s administration and financial services transactions can be spread over a wide range of products and services offer for the same customer, thus serving to create economies of scale (Calabria, 2009). The other importance associated with the legislation is that it serves to create conveniences for both the customers, and the financial institutions, in that the customers will have their activities transacted by the same institution, while the financial institutions have all the information regarding the customers (White, 1986). Better still for the customers, major paper work and documentation that would be required when transacting each activity differently, with different financial institutions is eliminated through the legislation. Since the information about the individual is held by the same institution, different departments or sections of the institutions handling different financial services can access and use the same information (Bartiromo, 2008). However, there are some moral hazards posed by this repeal of Glass Steagall Act (1933). The legislation, though meant to ease the financial transactions of the bank customers, served to increase the costs incurred by the bank customers (Gramm, 2009). Through the legalization of consolidation of financial service providers by the legislation, a wave of merger and acquisition swept in, that made the financial sector remain dominated by a few major companies, ...Show more

Summary

Name: Course: Date: The 1998 Repeal of Glass Steagall (1933) 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)…
Author : turcotteadalber
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