Which of the following is a prohibition of the Glass-Steagall Act?

The Glass-Steagall Act, enacted in 1933 during the Great Depression, was designed to separate commercial banking from investment banking in the United States. This legislation aimed to reduce the risk of financial speculation that could potentially lead to bank failures and economic instability.

The correct response highlights that member banks are prohibited from affiliating with investment banks. This separation was significant because it provided a safeguard against the conflicts of interest that could arise if commercial banks were allowed to engage in investment banking activities. By preventing such affiliations, the Act aimed to ensure that the funds deposited by individuals and businesses in banks would be used primarily for lending and other activities consistent with their fiduciary role, rather than for speculative investments.

Understanding this aspect of the Glass-Steagall Act is crucial, as it shaped the regulatory framework of the banking industry for decades until certain provisions were repealed in the late 1990s. The other choices do not accurately reflect the prohibitions set by the Glass-Steagall Act. For example, derivatives trading may still be conducted by banks under certain regulations, while disclosure of transactions relates more to transparency than to the specific prohibitions of the Act. The capacity to invest in certain types of securities also does not contradict the Act's fundamental premise of