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. Opt Out Right

    An opt out right is a consumer-protection measure allowing customers ...
  3. Commercial Bank

    A commercial bank is a type of financial institution that accepts ...
  4. Monetary Control Act

    The Monetary Control Act was a two-title bill that changed bank ...
  5. Federal Reserve Regulations

    Federal Reserve Regulations are rules put in place by the Federal ...
  6. Consumer Credit Protection Act ...

    Consumer Credit Protection Act Of 1968 is Federal legislation ...
Related Articles
  1. Investing

    What Was The Glass-Steagall Act?

    Established in 1933 and repealed in 1999, the Glass-Steagall Act had good intentions but mixed results.
  2. Insights

    Financial Regulations: Glass-Steagall to Dodd-Frank

    Here are some of the most important financial regulations that have been established.
  3. Insights

    A Brief History of U.S. Banking Regulation

    From the establishment of the First Bank of the United States to Dodd-Frank, American banking regulation has followed the path of a swinging pendulum.
  4. 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?
  5. 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.
  6. Insights

    Trump to Revive Glass-Steagall, Break Up Banks

    President Donald Trump hinted that he is looking at ways to break up giant Wall Street banks.
  7. Insights

    The SEC: A Brief History Of Regulation

    The SEC has continued to make the market a safer place by learning from and adapting to new scandals and crises.
  8. 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. Should commercial and investment banks be legally separated?

    Find out why market risk isn't created by letting commercial and investment banks merge; it results from moral hazard and ... 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 are key government regulations that affect investing in the banking sector?

    Discover how the global financial crisis of 2008 changed the face of banking in the United States and around the world by ... Read Answer >>
  5. 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