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Size Matters: Commercial Banks And The Capital Markets, Charles K. Whitehead

Cornell Law Faculty Publications

The conventional story is that the Gramm-Leach-Bliley Act broke down the Glass-Steagall Act’s wall separating commercial and investment banking in 1999, increasing risky business activities by commercial banks and precipitating the 2007 financial crisis. But the conventional story is only one-half complete. What it omits is the effect of change in commercial bank regulation on financial firms other than the commercial banks. After all, it was the failure of Lehman Brothers — an investment bank, not a commercial bank — that sparked the meltdown.

This Article provides the rest of the story. The basic premise is straightforward: By 1999, the …