What is the primary purpose of the Glass-Steagall Act of 1933?

The primary purpose of the Glass-Steagall Act of 1933 was to separate commercial banking from investment banking. This act was implemented in response to the financial instability and events leading up to the Great Depression, where conflicts of interest became evident as banks engaged in both commercial and investment activities. By instituting a separation between these banking functions, the Act aimed to reduce risk within the financial system, minimize speculation in the stock market by commercial banks, and restore public confidence in the banking sector.

As a result, commercial banks were prohibited from engaging in investment banking activities, ensuring that depositors' savings were not jeopardized by risky investments. This separation remained in place for several decades and was considered a cornerstone of American banking regulation until parts of it were repealed in the late 1990s, which later raised concerns about the stability of the financial system following the 2008 financial crisis. The Glass-Steagall Act represents a significant historical effort to protect the financial system and maintain the integrity of consumer deposits, which aligns with its primary purpose.