Congress passed the Banking Act of 1933, better known as the Glass-Steagall Act, in June 1933. The act was part of President Franklin D. Roosevelt’s New Deal. The Glass-Steagall Act had three components to reform the banking industry, which had been devastated by the Great Depression. First, the act created the Federal Deposit Insurance Corporation (FDIC), which guaranteed individual deposits up to $2,500. Second, the act increased the power of the Federal Reserve Board by giving it greater control over credit to prevent banks from speculating, or making risky investments in the stock market. Third, the act separated commercial and investment banking. Commercial banks are institutions that take deposits from and make loans to individuals and businesses. Investment banks typically deal with securities, or stock, which are traded on a stock market like the New York Stock Exchange. Following the stock market crash of 1929, many commercial banks, which had speculated in the stock market, went out of business. This meant that many Americans lost all of their savings. The separation of banking functions and the FDIC insurance helped restore confidence in the U.S. banking system.
