FINANCIAL SERVICES MODERNIZATION ACT

Financial Services Modernization Act

Financial Services Modernization Act / Gramm-Leach-Bilely Act

Introduction

During the end of 1999, Gramm-Leach-Bilely Act or GLBA has been enacted in United States with the approval of Congress. The act has deregulated the industry of financial services by increasing or in fact enhancing the power of financial firms and institution in US. GLBA commonly known with the name of Financial Services Modernization Act has become effective throughout the United States by March 12, 2000, allowing the establishment of FCHs (Financial Holding Companies) that are allowed to engage in any business having financial nature. There is a common belief among people with low financial knowledge, that liberty offered by this act has increased the competitiveness of the banks and other financial institutions. However, contrasting views can also be found in place while claiming that the liberty has jeopardized the users of financial services and ultimately the whole financial system (Stevens, 2012). In connection to the availability of different perspectives this paper is going to present a comprehensive overview of the research related to Financial Services Modernization Act in order to find out what it is, what it was meant to do, find out what it did? Moreover, while raising different perspectives this paper will also present my reflective opinion over the act.

Discussion

Federal law Gramm-Leach-Bliley Act of 1999 reformed the banking sector in the United States. This act is considered as an important step in this sector which is to respect the privacy since full title of this Act is devoted to the protection of personal data of bank customers. This act has been received positively by most of the investors and local individuals merely because it respects their privacy (Harvard Law Review, 2012).

On November 12, 1999, after 20 years of debate and controversy the U.S. Congress passed a major financial industry reform bill. The Gramm-Leach-Bliley Act (GLBA) is the name given to the act which has been named after three of its main initiators (Stevens, 2012). The act aims to reform and modernize the financial services sector. Initially, the main objective of the Act was to create a new organization removing all barriers between commercial banks, investment companies and insurance companies. Companies operating in the financial sectors of United States can now freely join and expand their areas of financial activity. In doing so, the law declared the Glass-Steagall Act of 1933 null and void which advocated the separation of banking and investment banking. Its provisions were born from the idea that the encroachment on the banks sector investment had caused the stock market crash of 1929 and the later economic depression (Karl, 2010). This perception now for many people is considered outdated. In fact, American legislature has decided to answer the call of U.S. banks in the hope of improving the competitiveness of US financial services providers abroad. However, the removal of barriers between all these financial institutions also revealed a problem, which is directly related with the personal data of customers (Paulson, ...