AP Success - AP US History: Glass-Steagall Act

In the wake of the 1929 stock market crash and the subsequent Great Depression, Congress was concerned that commercial banking operations and the payments system were incurring losses from volatile [stock] markets. An important motivation for the act was the desire to restrict the use of bank credit for speculation and to direct bank credit into what [Senator] Glass and others thought to be more productive uses, such as industry, commerce, and agriculture.

In response to these concerns, the main provisions of the Banking Act of 1933 effectively separated commercial banking from investment banking…Basically, commercial banks, which took in deposits and made loans, were no longer allowed to...deal in [stocks], while investment banks, which underwrote...[stocks], were no longer allowed to have close connections to commercial banks…

Another important provision of the act created the Federal Deposit Insurance Corporation (FDIC), which insures bank deposits with a pool of money collected from banks…A temporary fund became effective in January 1934, insuring deposits up to $2,500…This limit was raised numerous times over the years until reaching the current $250,000.