after world war i, the pittman act of 1918 authorized the melting of millions of previously minted silver dollars(primarily morgan dollars). however, the act also required silver to be purchased in order to manufacture new silver coins to replace the melted ones. in 1924, the official price of gold was changed to $35/ozt. by the gold reserve act. in the wake of the 1929 stock market crash and the subsequent great depression, congress was concerned that commercial banking operations and the payments system were incurring losses from volatile equity markets. an important motivation for the act was the desire to restrict the use of bank credit for speculation and to direct bank credit into what glass and others thought to be more productive uses, such as industry, commerce, and agriculture. in response to these concerns, the main provisions of the banking act of 1933 effectively separated commercial banking from investment banking. senator glass was the driving force behind this provision. basically, commercial banks, which took in deposits and made loans, were no longer allowed to underwrite or deal in securities, while investment banks, which underwrote and dealt in securities, were no longer allowed to have close connections to commercial banks, such as overlapping directorships or common ownership. following the passage of the act, institutions were given a year to decide whether they would specialize in commercial or investment banking. only 10 percent of commercial banks total income could stem from securities; however, an exception allowed commercial banks to underwrite government-issued bonds. the separation of commercial and investment banking was not controversial in 1933. there was a broad belief that separation would lead to a healthier financial system.
United States