What was the 'The Gramm-Leach-Bliley Act of 1999 (GLBA)'

The Gramm-Leach-Bliley Act of 1999 (GLBA) was a bi-partisan regulation under President Bill Clinton, passed by Congress on November 12, 1999. The GLBA was an attempt to update and modernize the financial industry. The GLBA is most well-known as the repeal the Glass-Steagall Act of 1933, which stated that commercial banks were not allowed to offer financial services, like investments and insurance-related services, as part of normal operations.

The act is also known as Gramm-Leach-Bliley Financial Services Modernization Act.

BREAKING DOWN 'The Gramm-Leach-Bliley Act of 1999 (GLBA)'

Due to the remarkable losses incurred as a result of 1929's Black Tuesday and Thursday, the Glass-Steagall Act was originally created to protect bank depositors from additional exposure to risk, associated with stock market volatility. As a result, for many years, commercial banks were not legally allowed to act as brokers. Since many regulations have been instituted since the 1930s to protect bank depositors, GLBA was created to allow these financial industry participants to offer more services.

GLBA was passed on the heels of commercial bank Citicorp’s merger with the insurance firm Travelers Group. This led to the formation of the conglomerate Citigroup, which offered not only commercial banking and insurance services, but also lines of business related to securities. Its brands at this stage included Citibank, Smith Barney, Primerica, and Travelers. Citicorp’s merger was a violation of the then-existing Glass–Steagall Act, as well as the Bank Holding Company Act of 1956.

To allow the merger to take place, the U.S. Federal Reserve gave Citigroup a temporary waiver in September 1998—a precursor to Congress’s passage of GLBA. Moving forward, other similar mergers would be fully legal. Repealing Glass–Steagall also removed the ban of “simultaneous service by any officer, director, or employee of a securities firm as an officer, director, or employee of any member bank.”

The Gramm-Leach-Bliley Act and Consumer Privacy

The Gramm-Leach-Bliley Act also required financial institutions offering consumers loan services, financial or investment advice, and/or insurance, to fully explain their information-sharing practices to their customers. Firms must allow their customers the option to "opt-out" if they do not want their sensitive information shared. While many consider critical information, such as bank balances and account numbers, to be confidential, in reality this data is consistently bought and sold by banks, credit card companies, and others. Gramm-Leach-Bliley required limited privacy protections against such personal data sales, along with pretexting (obtaining personal information through false pretenses).

RELATED TERMS
  1. Financial Holding Company (FHC)

    A financial holding company (FHC) is a type of bank holding company ...
  2. Emergency Banking Act Of 1933

    A bill passed during the administration of former U.S. President ...
  3. Financial Supermarket

    A financial supermarket is a financial institution or company ...
  4. Investment Company Act of 1940

    The Investment Company Act of 1940 was created through an act ...
  5. Financial Services Modernization ...

    A law that works to partially deregulate the financial industry. ...
  6. Securities Act Of 1933

    The Securities Act Of 1933 is a federal piece of legislation ...
Related Articles
  1. Investing

    Citadel's Billionaire Griffin Argues for a New Glass-Steagall

    Illinois' richest man said that it is his “fantasy” to break up big banks and that he would like to see a new Glass-Steagall Act.
  2. Investing

    The Globalization Of Financial Services

    The key to survival for many financial institutions will be to efficiently serve a global customer base.
  3. Personal Finance

    Retail Banking vs. Corporate Banking

    Retail banking is the visible face of banking to the general public. Corporate banking refers to the aspect of banking that deals with corporate customers. Check out more on the differences between ...
  4. Insights

    Financial Regulators: Who They Are and What They Do

    Find out how these financial regulators govern the financial markets.
  5. Insights

    How New Bank Rules Will Buoy Bank Stocks

    A new bill proposing to repeal aspects of Dodd-Frank would provide a lift to bank earnings.
  6. Insights

    The SEC: A Brief History Of Regulation

    The SEC has continued to make the market a safer place and to learn from and adapt to new scandals and crises.
  7. Investing

    Who Are Wells Fargo’s Main Competitors?

    Explore information on the main competitors of Wells Fargo, the other three of the "big four" U.S. banks: Citigroup, JPMorgan Chase and Bank of America.
  8. Insights

    Bank Stocks: The Attack on Dodd-Frank

    Bank stocks were given an initial boost after the House passed the new bill to repeal Dodd-Frank.
RELATED FAQS
  1. How was Glass-Steagall weakened prior to its repeal?

    Learn about the gradual relaxation of the strict banking regulations under Glass-Steagall, eventually culminating in the ... Read Answer >>
  2. What's the difference between investment banks and commercial banks?

    Understand the principal differences between investment banks and commercial banks, and the areas of banking services that ... Read Answer >>
  3. How do investment banks help the economy?

    Learn more about the functions of investment banks in a modern economy and how investment banks have been treated differently ... Read Answer >>
  4. What is the difference between the Volcker Rule and the Glass-Steagall Act?

    Read about the differences between the Volcker rule and provisions in the Glass-Steagall Act, two attempts at regulating ... Read Answer >>
Trading Center