Century of Change

1900

• Capital requirements are eased for small-town national banks.

• The United States adopts the gold standard.

1907

• Banking panic—leads to congressionally appointed National Monetary Commission (Aldrich Commission) in 1908 to study the nation's banking system.

1913

• President Woodrow Wilson signs Federal Reserve Act on Dec. 23.

1927

• The McFaddden Act prohibits interstate banking.

1929

• Stock Market crashes on Oct. 24—known as Black Thursday.

1930-33

• Nearly 10,000 banks fail nationally.

1932

• Federal Home Loan Bank Board is created to help homeowners affected by the Great Depression. Membership is limited to savings and loan associations, savings banks and insurance companies if they meet certain qualifications, including making home mortgage loans.

1933

• Bottom of Great Depression.

• Congress passes the Glass-Steagall Act that separates commercial and investment banking and permits use of U.S. government securities as collateral for Federal Reserve notes. Also known as the Banking Act of 1933, it establishes the Federal Deposit Insurance Corp.; places control of open market operations under the Fed.

• United States ends domestic gold standard.

1934

• Securities and Exchange Act provides for minimum margins on purchases of securities on credit; regulated by the Fed.

• Sen. Carter Glass pushes for the repeal of Glass- Steagall, arguing that the law has gone too far in prohibiting national bank branching.

• Title IV of the National Housing Act creates the Federal Savings and Loan Insurance Corp.

1935

• Banking Act of 1935 creates Federal Open Market Committee; Federal Reserve Board becomes Board of Governors, membership on the Board re-established and terms set at 14 years.

1946

• Employment Act establishes goals for national economic policy, including monetary policy.

1956

• Bank Holding Company Act names the Fed the regulator of companies owning two or more banks. Also allows holding companies with only one bank to escape federal supervision and expand into nonbank activities, such as insurance-and prohibits multibank holding companies from entering into bank/insurance combinations.

1966

• Financial Institutions Supervisory Act strengthens powers of bank supervisors—the Comptroller of the Currency (OCC), the Federal Reserve Board, the Federal Deposit Insurance Corp. and the Federal Home Loan Bank Board.

1970

• Amendments to the Bank Holding Company Act of 1956 extend the Fed's regulatory powers to one-bank holding companies, but also gives holding companies more powers.

1977

• Congress passes the Community Reinvestment Act (CRA) to encourage financial institutions to help meet their communities' needs-through safe and sound lending practices and by providing retail banking and community development services.

1978

• Financial Institutions Regulatory Interest Rates Control Act substantially increases regulation of insider trading and changes some Regulation Q ceilings on interest rates.

1980

• Depository Institutions Deregulation and Monetary Control Act of 1980 requires the Fed to price its financial services available to all depository institutions and establishes reserve requirements for all eligible financial institutions.

• Banks, with the blessing of the Fed and the OCC, begin testing discount stock brokerage. The Merrill Lynch Cash Management Account and NOW accounts, offering interest on checking account balances, are created.

1982

• Depository Institutions Act, also known as the Garn-St Germain Act, deregulates some activities of banks and nonbank banks while prohibiting insurance activities of banks.

• New money market deposit accounts are permitted.

• The Fed allows "toe-hold" investments by banking companies in banks across state lines. Regional compacts begin occurring.

1983

• ICI v. Conover cases result in ruling that commingled funds for IRAs are not mutual funds and thus do not violate Glass-Steagall.

1984

• Citicorp requests the Fed's permission to establish a holding company subsidiary to underwrite and deal in bank-eligible securities. The request is rejected but results in the first approvals of Section 20 subsidiaries, that is subsidiaries of bank holding companies defined in Glass-Steagall, three years later.

• A Glass-Steagall reform bill passes the U.S. Senate; however, the House fails to act on the bill.

• The U.S. Supreme Court upholds regional interstate compacts.

Mid-1980s

• Nonbanking companies like Sears charter "nonbank banks"-the unitary thrifts of the 1980s.

1986

• The OCC allows national banks to sell insurance nationwide from bank branches in towns with a population of 5,000 or less, developing a loophole in the banking/insurance wall. The OCC claimed these activities were permissible under a 1916 amendment to the National Banking Act.

• Official end of deposit-interest rate controls.

1987

• Competitive Equality Banking Act and Expedited Funds Availability Act redefines nonbank banks, expands some bank powers and sets a one-year moratorium on bank powers expansions by federal regulators.

• The Fed allows bank holding companies to underwrite securities through Glass-Steagall's Section 20 subsidiaries, but such underwriting may account for only 5 percent of the subsidiary's revenues.

1988

• Risk-based capital guidelines are established that link a bank's capital requirements to the riskiness of its on- and off-balance sheet assets.

• The moratorium on expanded bank powers ends.

1989

• Commercial banks are allowed to join the Federal Home Loan Bank System.

• The Financial Institutions Reform, Recovery, and Enforcement Act of 1989 kills the FSLIC and creates the Savings Association Insurance Fund (SAIF).

• The Office of Thrift Supervision (OTS) is created under the Treasury, which will charter a wave of unitary thrifts in the 1990s.

• The revenue limit of 5 percent on underwriting securities is raised to 10 percent for Section 20 subsidiaries.

1991

• The Federal Deposit Insurance Corp. Improvement Act gives regulatory agencies more authority to establish and enforce capital standards and requires them to establish standards on nearly all areas of a bank's business. The Act also creates Truth in Savings.

• An early version of FDICIA contained provisions that would permit activities prohibited under Glass-Steagall, but those provisions were stripped from the bill.

1992

• The OTS allows thrifts to branch where they choose.

1994

• Riegle-Neal Interstate Banking and Branching Efficiency Act sanctions interstate banking and loosens interstate branching.

1995

• Republican Banking Committee leaders introduce banking modernization bills.

• The U.S. Supreme Court rules that banks can sell annuities, previously considered insurance and allowed to be sold only by insurance companies. In the same case the Court rules that the OCC could grant bank subsidiaries powers "incidental to banking."

1996

• The Fed loosens restrictions on Section 20 subsidiaries of banks and allows mergers of banks and large securities companies. Some banks immediately take advantage of the ruling to acquire securities firms. The Fed also raises the Section 20 revenue limit from 10 percent to 25 percent.

• Financial modernization bill goes nowhere due to opposition from insurance industry.

1997

• The insurance industry drops opposition to financial modernization.

• The OCC's "First Union letter" further opens national bank insurance powers.

• Fed eliminates Section 20 firewalls.

• House and Senate Banking Committee chairmen introduce financial modernization bills, but while the House bill passes in 1998, the Senate version dies. This effort sets the stage for the '99 bill, however. Important compromises are reached regarding the regulation of bank insurance powers and prohibiting a mix of banking and commerce. The Senate got stuck on CRA provisions and the lack of a solution to the "op sub" question, that is whether the new activities would be conducted through a subsidiary or affiliate of the bank.

1999

• The Gramm-Leach-Bliley Act is signed into law and overturns the Glass-Steagall Act of 1933, thus removing many prohibitions on bank activities.

2000

• Regulators rush to meet the March enactment date for provisions of the Financial Services Modernization Law.