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Gramm Leach Bliley Act

Also known as the Gramm-Leach-Bliley Financial Services Modernization Act, the Gramm-Leach-Bliley Act (GLBA) is an American act passed by the American Congress to abrogate or annul the Glass-Steagall Act and initiate competition among the insurance and security companies and the banking sector.
Facility offered by the Gramm-Leach-Bliley Act:
The GLBA permits both investment and commercial banks to merge and strengthen themselves. This allowance on the apart of the Act has led to the following significant mergers:
  • Unifications of the insurance company, Travelers Group with that of Citibank has given birth to the new company called Citigroup.

  • Important mergers occurring in the international financial sector in the middle of the 1990s include:

    • Travelers Insurance Corporation
    • Smith-Barney
    • Primerica
    • Shearson
Changes introduced by the Gramm-Leach-Bliley Act:
  • Under sound economic conditions of a country, all individuals showed tendencies to use most of their finances in investments. On the other hand, when the overall economy of the country displayed signs of decline, it was these people who immediately shifted their money from the investments and deposited them in their respective savings accounts. The GLBA made a change in the existing situation, by making people invest and save their money in the same company. This led to a uniform growth of their money under all economic conditions.

  • The GLBA led to extensive alteration of the following relaxations enjoyed under the Glass-Steagall Act:

    • Commercial banks had the flexibility of entering into different areas such as investment banking, insurance and stock brokerages, which was no longer permissible after the passage of the GLBA.

    • Small-scale mergers became a common feature in the financial services industry, like the retail banks, brokerage companies, etc., with the introduction of the Gramm-Leach-Bliley Act, which was unknown in earlier times.
Compliance to the Gramm-Leach-Bliley Act is mandatory for all financial organizations operating in the United States of America. Its primary components are:
  • Safeguard Rules
  • Pretexting Protection
  • Financial Privacy Rules
Results of violating the GLBC:
Under violation of the GLBC, a civil action may be taken by the Attorney General of the United States. The penalties for such violation are laid down in the amended version of the Financial Institution Privacy Protection Act of 2003.

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