Why I Wrote it: Bank Regulation via Public Relations

_{**Why I wrote it is a series in which I explain interesting things about the topic I chose or why it matters that people know this history. Please see the story being referenced here.}

Sometimes I struggle to explain why I pick a topic. It is hard to explain why I think knowing this section of history is important for most people. This is not one of those times. The Bank Act of 1933 is one of the most significant pieces of banking legislation ever passed. It has impacted the life of every American, whether they know it or not.

The separation of commercial and investment banks was probably the biggest legacy of the bank act until Congress repealed that portion in 1999. Politicians have considered bringing back the split after the fallout of the 2008 financial crisis. Politicians, economists, and regulators will likely debate it again in the future. So it is essential to understand what led to its inclusion in the Bact Act of 1933.

The popular opinion by most is that the Pecora Commission was the reason politicians split the banking system. However, historians and economists mostly agree that not much was discovered in the commission that justified separating the two divisions. This conclusion led me to ask myself if nothing in the commission justified splitting things up, then is it actually the cause of that portion of the bill?

If you read my article, which I hope you did, you’ll see that I conclude that the public pressure from the commission led to its inclusion. The public declared something had to be done, and politicians acquiesced to the demands of a Senator who had his bank act bill ready to go. Senator Glass wanted to split up the banking system and leveraged public opinion to get it done.

Understanding why Congress passed the bill is essential because officials will continue to debate this topic. Once again, voters and the public will have a say in their words and actions. If they demand a split, then there is a good chance it could happen. With that in mind, knowing why it was initially in place is vital. This article is just one piece of that puzzle. It answers why Congress passed an act that separated commercial and investment banks. It does not answer why Senator Glass deemed it necessary or why in 1999, Congress decided Senator Glass was wrong. However, at least now you know that bad public relations for banks was why Senator Glass got it passed.