Banking Practice Exam

The Glass-Steagall Act is recognized as the legislation that effectively separated commercial banking, investment banking, and insurance into distinct industries. Enacted in 1933 during the Great Depression, this act aimed to provide greater financial stability and protect depositors. By prohibiting financial institutions from engaging in both commercial and investment banking activities, it sought to minimize the risk of conflicts of interest and reduce the likelihood of financial crises stemming from speculative practices.

The act's provisions were crucial at the time, as they were intended to restore public confidence in the banking system following the widespread bank failures of the 1930s. The Glass-Steagall Act maintained this separation until many of its provisions were repealed in the late 1990s, which subsequently led to a re-convergence of these sectors.

Other options represent different aspects of banking regulation but do not focus on the separation of these industries. The Bank Holding Company Act pertains to the regulation of bank holding companies, the McFadden Act aimed at allowing national banks to branch across state lines, and the Federal Reserve Act established the Federal Reserve System and its functions, but none addressed the separation between commercial banking, investment banking, and insurance in the same manner as the Glass-Steagall Act.