The Gramm-Leach-Bliley Act of 1999 (GLBA)

What Is the Gramm-Leach-Bliley Act of 1999 (GLBA)?

The Gramm-Leach-Bliley Act of 1999 (GLBA) was a bi-partisan regulation under President Bill Clinton, passed by Congress on November 12, 1999. The GLBA was an endeavor to refresh and modernize the financial industry. The GLBA is most notable as the nullification of the Glass-Steagall Act of 1933, which stated that commercial banks were not permitted to offer financial services — like investments and insurance-related services — as part of normal operations.

Understanding the Gramm-Leach-Bliley Act of 1999 (GLBA)

Due to the exceptional losses incurred because of 1929's Black Tuesday and Thursday, the Glass-Steagall Act was initially made to shield bank contributors from extra exposure to risk, associated with stock market volatility. Subsequently, for a long time, commercial banks were not legally permitted to act as brokers. Since numerous regulations have been founded since the 1930s to safeguard bank investors, GLBA was made to permit these financial industry participants to offer more services.

GLBA was passed closely following commercial bank Citicorp merger with the insurance firm Travelers Group. This prompted the formation of the conglomerate Citigroup, which offered commercial banking and insurance services, yet additionally lines of business related to securities. Its brands at this stage included Citibank, Smith Barney, Primerica, and Travelers. Citicorp merger was a violation of the then-existing Glass-Steagall Act, as well as the Bank Holding Company Act of 1956.

The act is otherwise called the Gramm-Leach-Bliley Financial Services Modernization Act.

To permit the merger to happen, the U.S. Federal Reserve gave Citigroup an impermanent waiver in September 1998 — a forerunner to Congress' section of GLBA. Moving forward, other comparable mergers would be completely legal. Revoking Glass-Steagall likewise eliminated the ban of "concurrent service by any officer, director, or employee of a securities firm as an officer, director, or employee of any member bank."

The Gramm-Leach-Bliley Act and Consumer Privacy

The Gramm-Leach-Bliley Act additionally required financial institutions offering consumers loan services, financial or investment guidance, or potentially insurance, to completely clarify their information-sharing practices for their customers. Firms must permit their customers the option to "quit" on the off chance that they don't need their sensitive information shared.

While many think about critical information, for example, bank balances and account numbers, to be confidential, in reality, this data is reliably bought and sold by banks, credit card companies, and others. Gramm-Leach-Bliley required restricted privacy protections against such personal data sales, alongside pretexting (acquiring personal information through false misrepresentations).

Features

• The act was passed in late 1999 and permits banks to offer financial services recently taboo by the Glass-Steagall Act.
• Under the GLBA, every manager or service-individual is simply permitted to sell or oversee one type of financial item/instrument.
• All banks must share their information-offering practices to the customer.