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    Big Banks And Glass-Steagall Act

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    Are banks too big? Should banks be too big to fail? Should big banks be broken up? Should the Glass-Steagall Act be restored to separate commercial and investment banking operations? Can the U.S. economy function successfully without big banks?

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    Solution Preview

    Are banks too big? This is a very subjective question with neither a right or wrong answer. But recent history has shown that the size of several of these banks has lead to questionable business practices which have had a potentially disastrous effect on the economy, as well as having contributed to asking such a question --- ultimately it becomes a matter of trust more than one of economics.

    The economics of banking are quite simple --- we deposit money into savings accounts, and are paid interest for these deposits. Banks then take this as "inventory", and use it to loan money to those requiring funds at a higher margin, thus creating a surplus of funds known as cash flow to the bank. Any size bank ...

    Solution Summary

    The banking industry has taken a significant tumble financially based upon questionable business practices, especially in the area of granting loans. This discussion reviews the banking industry in general, and the potential for future changes within the industry --- including regulating size and offerings of banks.