Why was the Glass Steagal Law important? Choose the best/most correct answer.

Question

a.Glass Steagal was instituted after the great recession and it merged the commercial and investment banking arms of banks.

b.Glass Steagal separated the commercial loan balance sheet of a bank from the investment banking arm (a must riskier part of bank operations). It was important because without this separation when a bank fails due to bad investments, it also fails all of its commercial duties to keep the economy liquidity.

c.Clinton revoked Glass Steagal that has the effect of separating the commercial loan balance sheet of a bank from the investment banking arm (a must riskier part of bank operations).

d. The great depression was not caused by the same types of problems that resulted in the Great Recression.

Answer 1

Glass–Steagall separated commercial banking from investment banking. The idea was to protect everyday deposits and the basic lending system from the much riskier investment banking activities. Without that separation, a bank’s failure from risky investments could also take down its normal lending and payment functions — which are essential to economic stability.

So option b is the most accurate description of why the law was important.

When Glass–Steagall was repealed in 1999, it basically opened the door for banks to become “financial supermarkets.” They could now put commercial banking (your checking accounts and business loans) under the same roof as investment banking (trading, underwriting, risky securities).

That led to banks getting much bigger and more interconnected — which is where the “too big to fail” problem really took off. Once those lines blurred, banks could use cheap, insured deposits to fund riskier investment activities. Culturally, a lot of traditional, conservative banks started acting more like Wall Street trading shops.

Many experts argue that this shift helped fuel the 2007–2008 financial crisis. Mortgage risk-taking, securitization, and the collapse of massive financial conglomerates were all enabled, at least partly, by having everything mixed together in one big institution. When those banks stumbled, the whole system felt it.

Even today, the absence of Glass–Steagall-style separation means banks remain huge, complex, and tightly connected. That makes regulation harder and the system more fragile when shocks happen.

Not everyone agrees Glass–Steagall alone caused the crisis — there were plenty of other problems too — but most agree the repeal amplified risk, encouraged consolidation, and made financial blowups more damaging.

In short: removing Glass–Steagall let banks get bigger and riskier, contributed to the 2008 collapse, and still shapes why we worry about financial stability today. It has reopened the same door that had led to the great crash and the depression in some peoples opinion.