The Federal Housing Administration insures mortgages issued by banks so they can be sold to insurance companies. Insurers become "invisible bankers," in the words of Andrew Tobias - a forerunner of today's shadow banking system.

Pictured: FDR in the Oval Office
Alfred Winslow Jones (pictured) starts the first hedge fund, buying stocks on margin and selling others short. It is a pure banking-type, asset-liability hedging concept used to minimize risk, according to Grody.
Citibank, led by Walter Wriston (pictured), invents negotiable certificates of deposit. The commercial savings account is equivalent to the bank underwriting its own bonds. Citibank arranges for the trading of these instruments in the secondary market through a bond dealer acting as a market maker.
American Express nearly collapses after its bank makes commodity loans to a swindler who trades in salad oil forward contracts that prove not to have salad oil backstopping the contracts. (Image: Thinkstock)
Late 1960s
Wall Street nearly succumbs to an epic operational infrastructure failure known as the Paper Crisis. In the aftermath, regulators usher in tremendous reforms, including the first national market system for stock trading and the elimination of monopolistic pricing for securities commissions. (Image: Thinkstock)
Bruce R. Bent (pictured) and Henry R. Brown create the first retail money market fund, the Reserve Fund. It will later become more useful during the high interest rate environment of the early 1980s and with the invention of money market sweep accounts that transcend banking and securities brokerage accounts. (Image: Bloomberg News)
Foreign banks take advantage of an FDIC interpretation to establish branches in states that permit such affiliations. This goes on until 1978, when the International Banking Act of 1978 brings newly established U.S. branches of foreign banks under Glass-Steagall. Through the loophole, Algemene Bank Nederlande (now ABN AMRO) establishes a wholly owned securities firm, ABN Securities, and Credit Suisse acquires a controlling interest in First Boston, a leading securities firm. (Image: Thinkstock)
The Chicago Mercantile Exchange, the former Chicago Butter and Egg Exchange, begins trading currency futures, a direct reaction to the expected volatility of the world going off the gold standard (a policy made in the U.S. by then-Treasury undersecretary Paul Volcker, pictured). The same year the Chicago Board of Trade creates the Chicago Options Exchange to trade options on securities.
Bank One and Merrill Lynch bridge banking and investment banking by introducing the Cash Management Account, a combination of a checking account with a stock brokerage account and a high-yielding money market account that automatically sweeps unused cash into the fund.
The FDIC, led by Bill Seidman (pictured), invents special-purpose vehicles when it packages entire portfolios of mixed assets of failed savings and loans and sells them as collateralized debt obligations to investors. (Image: Thinkstock)
Shearson Loeb Rhodes, a brokerage and stock dealing firm controlled by Sandy Weill (pictured), acquires the Boston Company, a bank and money management firm. By divesting the commercial loan portfolio and keeping the retail checking deposits, the transaction is approved by federal regulators.
IBM and the World Bank create the first interest rate and currency swap contracts, with Salomon Brothers acting as the consultant on the transaction. (Image: Thinkstock)
The FDIC issues a policy statement that state-chartered, non-Federal Reserve member banks can establish subsidiaries to underwrite and deal in securities. This confirms that Glass-Steagall does not restrict affiliations between a state-chartered, non-Federal Reserve System member bank and a securities firm, even when the bank is FDIC-insured. State laws prevail in the regulation of affiliations between banks and securities firms. (Image: Bloomberg News)
The Garn-St. Germain Act lifts many restrictions on the savings and loan industry, allowing them to make commercial loans and invest in corporate bonds - including junk bonds, such as those sold by Michael Milken, pictured.
The OCC allows the mutual fund company Dreyfus and Sears to establish "nonbank bank" subsidiaries not covered under the Bank Holding Company Act. This action relies on the definition of a bank holding company supervised by the Fed as a "bank" that makes commercial loans and provides demand deposits (transaction or checking accounts). It permits Sears, GE, and other commercial companies to own "nonbank banks."
JP Morgan applies for a license as a Futures Commission Merchant and becomes the first bank to register under the CFTC's jurisdiction to trade futures contracts. Pictured: Chicago Board of Trade.
Rules for trading continue to loosen. Section 20 of Glass-Steagall long prohibited Federal Reserve member banks from being affiliated with any organization engaged principally in underwriting or dealing in securities other than "bank-eligible securities." But since the term "engaged principally" was not defined in the act, regulators have to determine the meaning of these terms in enforcing the law. The Fed under Alan Greenspan (pictured) authorizes banks' "Section 20" securities subsidiaries to engage in limited underwriting and dealing in bank-ineligible securities as long as the revenues from such activities do not exceed 5% of total revenues. Over time, these subsidiaries will be allowed to grow to 25% of revenues.
President Clinton signs the Graham-Leach-Bliley Act. Banks are now formally permitted to possess a fully functioning investment bank with no restrictions. But by now Glass-Steagall's prohibitions have already been rescinded, incrementally, by banks, regulators and others. Citigroup is the first full-service global financial supermarket, the precursor of the too-big-to-fail banks of today.
With the Basel II capital standards looming, the largest investment banks that underwrite securities - now enormous and heretofore governed under separate regulatory powers as the result of Glass-Steagall - are designated Consolidated Securities Entities, a bank holding company equivalent. They are to be guided into what effectively would be a separate Basel-like regulatory capital regime overseen by the SEC.

Pictured: The Bank of International Settlements in Basel, Switzerland. (Image: Bloomberg News)
The financial crisis and subsequent Federal Reserve action cause the CSEs either to leave the scene (Lehman), merge into banks (Bear Sterns) or to be converted into banks (Goldman Sachs, Morgan Stanley and Merrill Lynch).

Pictured: Treasury Secretary Henry Paulson. (Image: Bloomberg News)