Document Type


Publication Date



The Gramm-Leach-Bliley Act became law on November 12, 1999, bringing to an end a twenty year effort to expand bank powers by amending the Glass-Steagall Act and the Bank Holding Company Act of 1956. Although styled as banking reform legislation, the new law will have a wide ranging impact on the financial services industry generally. A wave of merger activity will likely occur in this industry because many of the legal restrictions on bank affiliations with other financial services providers have been removed. An end result of the new legislation will be the creation of financial services conglomerates offering a combination of banking, securities, and insurance products under one roof.

The appropriate corporate structure for expanded banking activities was a key issue in the debates over the new legislation, specifically whether banks should be allowed to conduct new financial activities exclusively through a bank holding company affiliate or whether use of a bank operating subsidiary should also be permitted. Under Gramm-Leach-Bliley, the primary vehicle for new activities will be the bank holding company affiliate. Bank operating subsidiaries may also be used by national banks for a more limited range of new activities and subject to certain restrictions and conditions not applicable in the case of the holding company affiliate. The new law reflects a compromise position in the corporate structure debate. Given the polemical nature of the debate, such a compromise was probably essential to ensure passage of the legislation. Nevertheless, the compromise is not justified in drawing a distinction between the bank holding company affiliate and the bank operating subsidiary as vehicles for new activities. The author reaches this conclusion after analyzing the history of the corporate structure debate and the Gramm-Leach-Bliley compromise from a public policy perspective. She suggests further that Gramm-Leach-Bliley represents a missed opportunity to clarify what is at stake and has resulted instead in a further obfuscation of the issues.