Congress repealed Glass-Steagall in 1999 through the Gramm-Leach-Bliley Act, ending the Depression-era rule that had kept commercial banks separate from investment banks and insurance underwriters for 66 years. The repeal of Glass-Steagall was driven by more than a decade of Federal Reserve rulings that had already weakened the law, a 1998 merger between Citicorp and Travelers Group that could not legally exist under the old rules, and pressure from U.S. banks that wanted to compete with European universal banks. What followed was a wave of consolidation, the rise of trillion-dollar financial conglomerates, the 2008 crisis, and a partial regulatory response that has since been rolled back.
What the Law Had Separated
The Banking Act of 1933 rested on a simple premise: the bank holding your savings should not also be gambling in the securities markets. Commercial banks take deposits and make loans. Investment banks underwrite stocks and bonds, trade securities, and advise on mergers. Before 1933, many institutions did both, and when their speculative bets went bad, depositors lost everything.
Four provisions did the separating work. Section 16 barred national banks from underwriting or dealing in securities. Section 21 made it illegal for securities firms to accept deposits. Section 20 restricted banks from affiliating with firms primarily engaged in securities dealing. Section 32 prohibited officers and directors from serving at both a bank and a securities firm at the same time.1Federal Reserve Bank of San Francisco. Cracking the Glass-Steagall Barriers The same law created the Federal Deposit Insurance Corporation, giving depositors a federal backstop for the first time.
Together, these rules defined American banking for the next six decades. If a securities operation collapsed, the commercial bank next door was supposed to keep functioning and depositors were supposed to stay whole.
How the Wall Came Down
Glass-Steagall did not fall in a single stroke. The Federal Reserve chipped away at it for more than a decade before Congress finished the job.
Starting in the 1980s, the Fed began allowing bank holding companies to own subsidiaries that engaged in limited securities underwriting, so long as revenue from those activities stayed below a set threshold. The initial cap was 5 percent of the subsidiary’s total revenue. The Fed raised it to 10 percent, and in late 1996 pushed it to 25 percent, effectively letting banks earn a quarter of their affiliate revenue from securities dealing that the law had originally prohibited.2Federal Reserve. Increase in Securities Revenue Limit for Section 20 Subsidiaries
The Citicorp-Travelers Merger
The event that made formal repeal all but inevitable happened before repeal itself. On April 6, 1998, Citicorp and Travelers Group announced a merger that would combine Citicorp’s commercial banking operations with Travelers’ insurance underwriting and its Salomon Smith Barney securities arm. The combined company could not legally exist under Glass-Steagall.
The Federal Reserve approved the merger in September 1998 with a condition: Travelers committed to conforming all its activities and investments to existing banking law within two years, including by divesting impermissible subsidiaries if necessary.3Federal Reserve. Order Approving Formation of a Bank Holding Company Citigroup’s leadership was betting that Congress would change the law before the deadline hit. They were right.
Gramm-Leach-Bliley
President Clinton signed the Gramm-Leach-Bliley Act on November 12, 1999, just over a year after the Citigroup merger closed.4Federal Reserve History. Financial Services Modernization Act of 1999 (Gramm-Leach-Bliley) The law repealed Section 20 and Section 32, eliminating the legal barrier that separated commercial banking, investment banking, and insurance underwriting.
Its centerpiece was the financial holding company. This corporate structure let a single parent entity own a commercial bank, a broker-dealer, and an insurance company as separate subsidiaries under one roof. The statute authorized financial holding companies to engage in any activity the Federal Reserve determined to be “financial in nature or incidental to such financial activity,” a category that explicitly included lending, securities underwriting, insurance, and investment advisory services.5Office of the Law Revision Counsel. 12 US Code 1843 – Interests in Nonbanking Organizations
Supporters argued that American banks needed the ability to compete with European universal banks that already combined these functions. Critics warned that housing deposits, securities trading, and insurance inside the same corporate family recreated exactly the risk Glass-Steagall had been built to prevent.
The Rise of Financial Conglomerates
The merger wave that followed was swift. Institutions that had operated in separate lanes began combining, producing a small group of financial conglomerates of unprecedented scale, each housing deposit-taking, securities underwriting, asset management, and insurance operations within a single organizational chart.
A single institution could now underwrite a corporation’s stock offering, lend money to the same corporation, and sell insurance products to its employees. Cross-selling was the stated rationale. Concentration was the practical result. As of December 2025, JPMorgan Chase held approximately $3.75 trillion in consolidated assets, Bank of America $2.64 trillion, Citibank $1.84 trillion, and Wells Fargo $1.82 trillion. Those four banks alone account for a substantial share of the nearly $24 trillion in total commercial bank assets across just 3,849 remaining institutions.6Federal Reserve. Large Commercial Banks
That scale created a problem the new legal structure had no clean answer for. When a bank holds trillions in assets and sits at the center of countless financial relationships, its failure does not just wipe out shareholders. It threatens to pull down counterparties, markets, and the broader economy. Through most of the 2000s the “too big to fail” concept was theoretical. It became real in 2008.
Fragmented Oversight
Gramm-Leach-Bliley did not create a single regulator to match the single corporate structure it had authorized. Instead, it codified “functional regulation,” in which the type of activity determined which regulator had jurisdiction regardless of where that activity sat within the holding company.
The Federal Reserve became the umbrella supervisor for the parent financial holding company, responsible for overall safety, capital adequacy, and risk management.4Federal Reserve History. Financial Services Modernization Act of 1999 (Gramm-Leach-Bliley) The umbrella role did not supersede the individual regulators underneath. The SEC oversaw the broker-dealer subsidiaries. The OCC or FDIC supervised the commercial bank subsidiaries. State insurance commissioners regulated the insurance arms.
In practice, no single regulator could see the full picture of risk building across a conglomerate. Information sharing between agencies was uneven, coordinated examinations were logistically difficult, and each regulator focused on the health of the subsidiary within its jurisdiction rather than on how risks in one subsidiary might cascade into another.
2008 and the Dodd-Frank Response
The 2008 financial crisis matched the scenario Glass-Steagall’s authors had feared. Interconnected financial conglomerates had loaded up on complex mortgage-backed securities and related derivatives. When the housing market collapsed, the losses did not stay contained in one subsidiary or one business line. They spread through entire conglomerates and radiated outward to counterparties, money markets, and the real economy. The federal government stepped in with unprecedented bailouts because letting these institutions fail would have been worse.
Congress responded in 2010 with the Dodd-Frank Wall Street Reform and Consumer Protection Act. The law did not restore Glass-Steagall’s bright-line separation. It attempted to make the post-1999 system safer through targeted restrictions and enhanced oversight.
The Volcker Rule
The most prominent Dodd-Frank restriction was the Volcker Rule, codified at 12 U.S.C. ยง 1851. It prohibits banking entities from proprietary trading, meaning using the bank’s own money to make short-term speculative bets in securities, derivatives, and other financial instruments. It also bars banks from acquiring or retaining ownership interests in hedge funds or private equity funds.7Office of the Law Revision Counsel. 12 US Code 1851 – Prohibitions on Proprietary Trading and Certain Relationships With Hedge Funds and Private Equity Funds The idea was to prevent banks with access to federal deposit insurance and the Fed’s lending facilities from using those public backstops to fuel speculative trading.
The rule allows exceptions for market-making, hedging, underwriting, and trading in government securities. The final implementing regulations did not take effect until April 2014.
Systemic Risk Oversight
Dodd-Frank also created the Financial Stability Oversight Council, a body of ten federal financial regulators charged with identifying emerging threats to the financial system. The FSOC was given authority under Section 113 to designate nonbank financial companies as threats to financial stability, subjecting them to consolidated Federal Reserve supervision and enhanced prudential standards.8U.S. Department of the Treasury. Designations Bank holding companies with $50 billion or more in assets were automatically subject to enhanced standards, including stress testing and heightened capital requirements.
For the eight U.S. banks designated as global systemically important, the Federal Reserve imposes an additional capital surcharge on top of standard requirements. Those surcharges currently range from 1.0 percent to 4.5 percent of risk-weighted assets, with an average of 2.7 percent.9Federal Reserve. Regulatory Capital Rule – Risk-Based Capital Surcharges for Global Systemically Important Bank Holding Companies
The 2018 Rollback and What Followed
The Dodd-Frank framework barely survived a decade before significant portions were unwound. In 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act raised the threshold for enhanced prudential standards from $50 billion to $250 billion in assets. It also raised the threshold for mandatory company-run stress tests from $10 billion to $250 billion and the threshold for mandatory risk committees from $10 billion to $50 billion.10Congress.gov. S.2155 – Economic Growth, Regulatory Relief, and Consumer Protection Act
Dozens of midsize banks with assets between $50 billion and $250 billion were freed from the enhanced oversight Dodd-Frank had imposed. Supporters argued the $50 billion threshold had been too low and swept in regional banks that posed no systemic risk. Critics warned that lighter oversight for midsize banks was an invitation for trouble.
The Volcker Rule itself was also loosened. Amendments finalized in 2019 and 2020 tailored compliance requirements based on the size of a firm’s trading operations and expanded the list of funds excluded from the rule’s restrictions. Venture capital funds, certain credit funds, customer facilitation vehicles, and family wealth management vehicles were all carved out of the covered fund definition.11Federal Register. Prohibitions and Restrictions on Proprietary Trading and Certain Interests in and Relationships With Covered Funds
The 2023 Bank Failures
In March 2023, Silicon Valley Bank, the 16th largest bank in the country with more than $200 billion in assets, collapsed after a classic bank run. Signature Bank, with nearly $100 billion in assets, failed days later. Both sat below the $250 billion threshold that would have subjected them to enhanced prudential standards under the 2018 rollback. The federal government intervened to protect depositors at both banks by invoking the systemic risk exception, the scenario the 2018 law’s supporters had said midsize banks could not trigger.
Where Banking Separation Stands Today
The Glass-Steagall separation has never been restored. Bills to reinstate it have been introduced repeatedly, most recently the Return to Prudent Banking Act of 2023, which would have prohibited insured banks from affiliating with broker-dealers or investment companies and given existing conglomerates two years to unwind those affiliations.12Congress.gov. HR 2714 – Return to Prudent Banking Act of 2023 None have advanced beyond introduction.
The regulatory trajectory has moved the other way. In late 2025, the OCC proposed raising the asset threshold for its own heightened safety and soundness standards from $50 billion to $700 billion, which would reduce the number of banks subject to those standards from 31 to five. The four largest banks would still exceed the threshold. Institutions the size of SVB and Signature would not.
American banking today is defined by the choices made in 1999 and the adjustments made since. A handful of conglomerates dominate the field, regulated by a fragmented system whose jurisdictions were designed for a simpler era. Whether that architecture can withstand the next crisis remains an open question.