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During the 1999’s The Financia Services Modernization Act of 1999 was enacted. What did this law...

During the 1999’s The Financia Services Modernization Act of 1999 was enacted. What did this law do? What were some of the consequences for the US banking system?

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Financial Services Modernization Act of 1999

The Financia Services Modernization Act of 1999 was enacted for reforming the Financial Industry.It's also known as Gramm-Leach-Bililey Act,1999.The main target of this act was to bring all the financial sectors ( like Commercial Banks,Insurance Companies,Brokerage Firms ) and their operations under a single unbrella.Prior to this Act, there were too many restrictions on affiliations between banks and securities companiesand insurance compnies.The competition between financial sectors was enhanced by enacting this act.Few of it's Objectives are discussed below:

a) Many Federal & State Legal barriers were removed to bring the transparency in affiliations between Banks,Insurace Companies & other Financial Sectors.

b) Created a new Finnacial Holding Company which allows banking organizations to carry out new powers.

c) Banking ,Securities & Insurance Regulators were formed for regulating Banking activities,Securities activities & Insurance activities respectively.The Federal Reserve Board was formed to act as a single supervisior for the holding companies.

d) Bank Holding companies were permitted to qualify as FHC or Financial Holding Company to be negaged in providing expnaded activities like Underwritting,Merchant Banking, Insurance underwritting and operating investment companies.

e) It established a co-ordination between Federal Reserve Board and the Secretary of the treasury to approve new financial activities for the holding companies and national bank financial subsidiaries.

Some of the consequences for the US banking system

1) Banking sectors are now too closer to universal system common in European and Asian countries .

2)The new system will increase the competition,transaparency which would be resulting in better service at minimum cost.

3)Banks can now offer variabe services which they were not used to for different federal & state legislative limitations.

4)All-in-one banking eliminates the difference between commercal banks ,investment banks & insurance companies as bnaks now has expanded their activities widely into areas previously off-limits.

5) There benifits for nationwide banking and branching. First national banks immediately would be allowed to branch into any state that currently allows interstate banking . Second, each state would decide whether to grant interstate branching authority to its state-chartered banks, but could not limit the ability of an out-of-state bank to branch inside its borders to the same extent its own banks can branch, unless it currently prohibits interstate banking absolutely. Third, in three years, FSHCs or DHCs could acquire banks in any state, including those states that currently prohibit interstate banking .


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