Bank products and services have cycled through expansions and contractions over the past century. Before 1933, banks’ relationships with other businesses were largely unrestrained. When the Depression struck, many policymakers believed that expanded bank powers — especially bank securities activities — were directly responsible for the collapse of the banking system. Whether or not this was the case is still a matter of debate, but the result was Glass-Steagall, which severely restricted ties between banking and commerce.
Since then, state legislatures and federal regulators have gradually moved to broaden the range of permissible activities for banks. This movement has speeded up considerably over the past five or ten years, as the financial markets and customers’ needs have changed dramatically. Several states have acted over the past five years to allow new bank insurance powers, and the Comptroller of the Currency continues to allow new activities under the “incidental powers” authority. Since the late 1980s, the Fed has steadily broadened its interpretation of permissible activities under Glass-Steagall to allow limited securities and commercial paper underwriting. This liberalizing trend is likely to continue, as competition within the financial services industry blurs traditional lines between banking and other financial services.