Introductory[ edit ] Introduction by Murray Weidenbaum and Mark Jensen Murray Weidenbaum and Mark Jensen have added their introduction to more recent editions of the text.
The Banking Act of extended that deadline to July 1, State banks were not eligible to be members of the Federal Reserve System until they became stockholders of the FDIC, and thereby became an insured institution.
Separation of commercial and investment banking[ edit ] Main article: Glass—Steagall Act Over time, the term Glass—Steagall Act came to be used most often to refer to four provisions of the Banking Act that separated commercial banking from investment banking.
Institutions were given one year to decide whether they wanted to specialize in commercial or investment banking. Regulation Q[ edit ] To decrease competition between commercial banks and discourage risky investment strategies, the Banking Act of outlawed the payment of interest on checking accounts and also placed ceilings on the amount of interest that could be paid on other deposits.
Regulation of "speculation"[ edit ] Several provisions of the Banking Act sought to restrict "speculative" uses of bank credit. Section 3 a required each Federal Reserve Bank to monitor local member bank lending and investment to ensure there was not "undue use" of bank credit for "speculative trading or carrying" of securities, commodities or real estate.
Section 7 limited the total amount of loans a member bank could make secured by stocks or bonds and permitted the Federal Reserve Board to impose tighter restrictions and to not limit the total amount of such loans that could be made by member banks in any Federal Reserve district.
Section 11 a prohibited Federal Reserve member banks from acting as agents for nonbanks in placing loans to brokers or dealers. Other provisions still in effect[ edit ] Other provisions of the Banking Act that remain in effect include 1 Sections 5 c and 27, which required state member banks to provide its district's Federal Reserve Bank and the Federal Reserve Board and national banks to provide the Comptroller of the Currency a minimum of three reports on their affiliates;  2 Section 13, which as Section 23A of the Federal Reserve Act regulated transactions between Federal Reserve member banks and their nonbank affiliates;  3 Sections 19 and 30, which established criminal penalties for misconduct by officers or directors of Federal Reserve System member banks and authorized the Federal Reserve to remove such officers or directors;  4 Section 22, which eliminated personal liability "double liability" for new shareholders of national banks;  and 5 Section 23, which gave national banks the same ability to establish branches in their "home state" as state chartered banks in that state.
Glass sought to "correct" what he considered to be the "errors" the Federal Reserve System had made in not controlling what he considered "speculative credit" during the s. The Glass bills also sought to avoid deposit insurance by providing for a "Liquidation Corporation," a federal authority to purchase assets of a closed bank based on "an approximately correct valuation of its assets.
The bills provided that such payments would be used to make immediate payments to depositors to the extent of the bank's "bona fide assets. The bill's language indicated that it was intended as a "tentative measure to serve as a guide" for a subcommittee of the Senate Committee on Banking and Currency the Glass Subcommittee chaired by Glass that was authorized to investigate the operations of the National and Federal Reserve banking systems.
Glass and Willis argued the failure of banks to follow, and of the Federal Reserve to enforce, this theory had resulted in the "excesses" that inevitably led to the Wall Street Crash of and the Great Depression. Glass condemned banks for lending to stock market "speculators" and for underwriting "risky" or "utterly worthless" securities, particularly foreign securities, that were sold to unsophisticated bank depositors and small "correspondent banks.
Glass and Willis viewed such affiliates as artificial devices to evade limits on bank activities. Large banks such as National City Bank predecessor to Citibank and Chase National Bank typically used such securities affiliates to underwrite securities.
They were, however, especially critical of bank securities activities. Willis identified bank investments in, and loans to finance purchases of, government securities during World War I as the beginning of the corruption of commercial banking that culminated in the "speculative excesses" of the s.
However, many large banks opposed deposit insurance because "they expected deposits running off from small, weak country banks to come to them. They opposed the Glass bill's permission for national banks to branch throughout their "home state" and into neighboring states as far as a mile "area of trade.
Willis and others noted that there were no significant bank failures in Canada, despite similar bad economic conditions. Canada permitted branch banking which had led to a system of large, nationwide banksbut otherwise shared the U. The House had passed a federal deposit insurance bill on May 27,that was awaiting Senate action during the "lame duck" session.
On the same day, the Senate reconvened in a special session called by President Hoover and Franklin Delano Roosevelt was inaugurated as the new President.
On March 11,Senator Glass reintroduced as S. The next day, Winthrop Aldrichthe newly named chairman and president of Chase National Bankannounced Chase would do the same and that Chase supported prohibiting banks from having securities affiliates.Definition of BERLE-MEANS THESIS: When a board of directors is placed in charge.
The owners rely on them to run things for them. Ownership and control are. What is BERLE-MEANS THESIS? When a board of directors is placed in charge. The owners rely on them to run things for them. Ownership and control are separated.
Berle and Means thesis Berle and Means () were the first who advanced the idea of a relationship between ownership and performance, noticing a trend of increased ownership diffuseness in the s. A major implication of what was later referred to as the.
Berle, moreover, was a member of the "Brain Trust" that advised Roosevelt during the presidential campaign and an occasional advisor in Washington srmvision.com But the two career paths diverged over time, with Douglas becoming a Supreme Court Justice and Berle remaining a professor.
In their classical work, The modern corporation and private property (Berle & Means, ) Berle, and Means sought to combine legal and economic perspectives in explaining the development of the “Modern Corporation”.
Their main “separation of ownership from control” thesis suggested that, in the widely-held corporation, the risk-bearing. The Modern Corporation and Private Property, by Adolf A.
Berle Jr. and Gardiner C. Means One should approach this book by Messrs. Berle and Means with these thoughts well in mind. Especially is it imperative The thesis introduced by Mr. Means is traced in its legal de-. Financial Management Shareholder wealth maximization focuses on the motives and behaviors of ﬁnancial stakeholders.
The thesis of separation of ownership and control (Berle.