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. Glass-Steagall Act

    The Glass-Steagall Act was passed by the U.S. Congress in 1933 ...
  2. Deregulation

    Deregulation is the reduction or elimination of government power ...
  3. Regulation G

    Regulation G is a federal banking regulation governing the disclosure ...
  4. Emergency Banking Act of 1933

    The Emergency Banking Act 0f 1933 was a bill passed to restore ...
  5. Securities Act Of 1933

    The Securities Act Of 1933 is a federal piece of legislation ...
  6. Federal Reserve Regulations

    Federal Reserve Regulations are rules put in place by the Federal ...
Related Articles
  1. Insights

    Will Trump Break Up the Big Banks? (BAC, JPM)

    Trump has called for reinstating Glass-Steagall, which could drastically reshape the industry and Wall Street's big banks. Will it happen?
  2. Insights

    Why Trump and Clinton Want to Reinstate Glass-Steagall

    Both major-party platforms call for the reinstatement of the Glass-Steagall Act. Whether the financial regulation would actually do any good is hotly debated.
  3. 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.
  4. 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 ...
  5. Insurance

    Insurance Companies Vs. Banks: Separate And Not Equal

    Insurance companies and banks are both financial intermediaries. However, they don't always face the same risks and are regulated by different authorities.
  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. Financial Advisor

    Succeeding At The Series 63 Exam

    Your career as a securities agent begins with this test. We'll show you how to score high.
  8. Personal Finance

    The Rise of the Modern Investment Bank

    Get to know a little bit about investment banks, the institutions whose actions help guide free markets.
  9. Personal Finance

    Investment banking versus commercial banking

    Read an in-depth review of the differences between a career in investment banking and a career in commercial banking, including how to decide between them.
RELATED FAQS
  1. 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 >>
  2. 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 >>
  3. How does investment banking differ from commercial banking?

    Discover how investment banking differs from commercial banking, the responsibilities of each and how the two can be combined ... Read Answer >>
  4. What are the 9 major financial institutions?

    There are nine major types of financial institutions. Understand the major types of financial institutions that exist and ... Read Answer >>
Trading Center