ABSTRACT
The modem structure of financial regulation in the United States has its origins in the Great Depression. Federal deposit insurance, the Securities and Securities Exchange acts, the Federal Home Loan Bank System, and the mutual fund industry are products of that era. Laws and regulations dating from that period succeeded in restoring the soundness and viability of the financial system and served the country well for many years. Government regulation has helped to hold the cost of funds to depository institutions below the market rate of interest. The Depression-era financial regulations established savings and loan associations as specialists in mortgage finance. Laws, regulations, and the tax code compelled these firms to invest in long-term housing-related loans and prevented them from making short-term consumer or commercial loans. The Glass-Steagall Act of 1933 makes it unlawful for any firm engaged in the business of issuing, underwriting, selling, or distributing securities (investment banking) to engage in the business of deposit taking (commercial banking).
