“…Meanwhile, just a few years before the S&L crisis culminated in a massive U.S. taxpayer bailout, the deregulators, undeterred, had set their sight on a far bigger prize, the elimination of barriers between investment banks and commercial banks, as represented by the Glass-Steagall act, which was put in place as a response to the stock market crash of 1929 and the ensuing Great Depression.
In the spring of 1987, the Federal Reserve Board votes 3-2 in favor of easing regulations under Glass-Steagall Act, overriding the opposition of Chairman Paul Volcker. Thomas Theobald, then vice chairman of Citicorp, argues that three “outside checks” on corporate misbehavior had emerged since 1933: “a very effective” SEC; knowledgeable investors, and “very sophisticated” rating agencies. Volcker is unconvinced, and expresses his fear that lenders will recklessly lower loan standards in pursuit of lucrative securities offerings and market bad loans to the public. For many critics, it boiled down to the issue of two different cultures – a culture of risk which was the securities business, and a culture of protection of deposits which was the culture of banking.