The Banking Act of 1933, more commonly known as the Glass–Steagall Act, was passed in the wake of the October 1929 stock market crash that plunged the nation into the Great Depression. Following the crash, an already tenuous banking environment became even worse. The banking problem was systemic: Banks in rural areas were small and tied to the local economy, typically crops and real estate, which were losing their value. The crash accelerated the widespread failure of many of these banks. Immediately following the crash, President Herbert Hoover called on Congress to investigate the banking industry, which resulted in introduction of an initial version of the legislation in 1930.
The act combined legislation sponsored by Senator Carter Glass and Representative Henry Steagall, chairman of the House Banking and Currency Committee, and sought tighter regulation of the financial industry mainly by separating the interests of commercial and investment banks. The legislation stipulated that commercial banks were no longer allowed to underwrite securities, except those issued by federal, state, and local governments, and prohibited investment banks from accepting deposits. It also created the Federal Deposit Insurance Corporation—a mechanism for insuring deposits through a pool of funds contributed by participating banks.
This engrossed version of H.R. 5661—the iteration that emerged after committee action, floor debate, and passage by both the House and Senate—was signed into law by President Franklin D. Roosevelt on June 16, 1933.