Provisions of Glass-Steagall
The best-known provision of the Banking Act, known as Glass-Steagall, required banks to create a firewall between investment banking and commercial banking activities. Before the measure passed, banks were allowed to lend money to companies and then sell their stock, creating an inherent conflict of interest.
A U.S. Senate probe known as the Pecora Investigation found that banks were allowed to mislead investors, sell stocks short, manipulate stock prices, underwrite and sell questionable securities, and make interest-free loans to insiders and favorite clients.
While the separation of investment and commercial banking remains the best-known provision of the law, the Banking Act featured another provision that has been credited with slowing bank runs that had plagued the country: the creation of the Federal Deposit Insurance Corporation (FDIC). When it was formed, the FDIC insured deposits of as much as $2,500 for Federal Reserve System banks; the figure was last increased to $250,000 in 2008.