The Glass-Steagall Act, the cornerstone of banking law for most of the 20th century, died Friday at the hands of marketplace changes and political compromise. It was 66 years old.
At 1:52 p.m. Eastern time, President William Jefferson Clinton carried out its death sentence, signing the Gramm-Leach-Bliley Act of 1999. In addition to eliminating the Depression-era law separating commercial and investment banking, it buried another key portion of banking law that had prevented banking organizations from underwriting insurance.
The demise of the longtime statutes that for years had dictated who can own banks and what they could do is expected to give birth to a new wave of financial conglomerates.
With the stroke of a pen -- actually 28 pens, one for each of thekeygovernment officials invited to the signing at the Eisenhower Executive Office Building -- President Clinton eulogized the law like an old battleship that had served the country well.
"It is true that the Glass-Steagall law is no longer appropriate to the economy in which we live," the President said. "It worked pretty well for the industrial economy ... but the world is very different."
He said technology and other forces had demanded policy changes so that American firms can stay nimble and retain their dominance.
"Over the past seven years, we've tried to modernize the economy," the President said. "And today what we are doing is modernizing the financial services industry, tearing down these antiquated walls and granting banks significant new authority. ... This is a very good day for the United States."
The President also said the legislation would benefit average Americans by saving consumers "billions of dollars a year," expanding the reach of the Community Reinvestment Act, and creating financial privacy protections "with teeth."
Key Republicans were equally triumphant.
"The world changes, and Congress and the laws have to change with it," Senate Banking Committee Chairman Phil Gramm said. "When Glass-Steagall became law, it was believed that government was the answer. It was believed that stability and growth came from government overriding the functioning of free markets. We are here to repeal Glass-Steagall because we have learned government is not the answer. We have learned that freedom and competition are."
House Banking Chairman Jim Leach hailed the successful bipartisan effort after decades of failure.
The Iowa Republican said it contains the "strongest privacy provisions ever," increases the competitiveness of U.S. financial institutions at home and abroad, and prevents the mixing of financial and commercial activities.
The President was buoyant throughout the half-hour ceremony, cracking jokes to lighten the mood. Upon entering, he said: "I know this is a banking crowd, but you don't have to be stiff. Relax."
No bankers were among the 200 or so who witnessed the signing, however; only lawmakers, their staff members, and current and former regulators were invited.
Though the event was largely a celebration of accomplishments, some of the officials looked to future political battles. President Clinton said the privacy protections should be strengthened and urged Treasury and other administration officials to have a legislative proposal ready next year.
Sen. Paul S. Sarbanes, the ranking Democrat on Senate Banking, said the pressure would now be on regulators to appropriately implement the law. "We are passing the baton, as it were, over to you," he said.