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The Financial Services Modernization Act of 1999

A brief summary of Gramm-Leach-Bliley

March 1, 2000

The Financial Services Modernization Act of 1999

It is certainly telling about the complexity of the Financial Services Modernization Act that the summary of its provisions, as presented by the Senate Banking Committee, comes to six single-spaced pages. This is also a clue to the reader that the following synopsis only begins to describe the entire bill. For those interested in a more complete summary, and for links to other sites related to the new law, go to Gramm-Leach-Bliley.

Out With the Old

The 1933 Glass-Steagall Act's prohibitions on affiliations between banks and securities companies are repealed, as are the prohibitions on affiliations between the banking and insurance industries under the 1956 Bank Holding Company Act.

In With the New Activities

Provisions of Gramm-Leach-Bliley:
  • Repeal the existing limitations on the ability of banks to affiliate with securities and insurance firms.

  • Create a new organizational form that allows banking organizations to carry out new powers. This new entity will be called a "financial holding company," and its nonbanking subsidiaries will be allowed to engage in financial activities such as insurance and securities underwriting.

  • Allow banks with a federal charter to engage in new financial activities but they must do so in new "financial subsidiaries." Among other restrictions, these subsidiaries can do some, but not all, of the new activities available to the holding company.

  • Creates a new system for regulating the exercise of the new powers.

Community Reinvestment Act

In 1977, the Congress enacted the Community Reinvestment Act (CRA) to encourage banks and thrifts to help meet the credit needs of their entire communities, including low- and moderate-income neighborhoods, consistent with safe and sound lending practices. While the bill clarifies that nothing in the act repeals any provision of the CRA, it does make changes in how often banks are examined for their compliance, and also creates additional disclosures relating to CRA.


The bill requires clear disclosure by all financial institutions of their privacy policy regarding the sharing of nonpublic personal information with both affiliates and third parties. The bill also requires a notice to consumers and an opportunity to "opt-out" of sharing of nonpublic personal information with nonaffiliated third parties subject to certain exceptions.

The Federal Home Loan Bank System

The Federal Home Loan Bank System provides relatively low-cost loans to local lenders. This helps fund the lenders' activities. The bill makes it easier for small banks to join the system and increases their capacity to borrow from it.

Unitary Thrift Holding Companies

The unitary thrift holding company structure permits a commercial firm to own a thrift, which are predominantly consumer lending institutions. The bill forbids regulators from approving any applications to become a unitary thrift holding company received after May 4, 1999. Moreover, the bill allows existing unitary thrift holding companies to be sold to financial companies. These provisions had the effect of preventing Wal-Mart from taking on this charter.

For more information and to follow the implementation process of Gramm-Leach-Bliley check out these sites:

Board of Governors of the Federal Reserve System
Press Releases
For updates on regulations and procedures regarding implementation of GLB.

Speeches by FRB Governors
CRA and Financial Modernization,
Governor Edward M. Gramlich, March 7, 2000
Implementing the Gramm-Leach-Bliley Act,
Governor Laurence H. Meyer, February 3, 2000

Gramm-Leach-Bliley Act Public Law 106-102 (113 Stat. 1338)
Text of Gramm-Leach-Bliley

FRB San Francisco
The Gramm-Leach-Bliley Act: A New Frontier in Financial Services

Other Provisions
There are many other provisions, some dealing with the above topics and just as many addressing other issues, such as disclosure of ATM fees, regulation of specific activities and a provision that requires plain language" from federal banking regulators in rules published after Jan. 1, 2000.