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Answered Question
M$3
January 11, 2009 11:07 PM
How did the Financial Modernization Act of 1999 affect banks handling of credits and debits?
Does anyone know how this act changed the way banks handled debits and credits. As I remember it prior to this act banks followed GAAP whereby they applied credits before debits. Some personal history - I had direct deposit before and after passage. Prior to this acts passage my bank would credit my paycheck's direct deposit then process checks that came in that night. After this act my bank started to process the checks first so that I they could charge overdraft fees then process my direct deposit literally hours later - maximizing overdraft fees. Does anyone know specifcally what provision of this act ( aka the Gramm-Leach-Bliley Act ) that allowed this ? Thank you
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| January 12, 2009 12:35 AM |
GLB has been linked to some problems, but this does not appear to be one of them.
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January 14, 2009 04:28 PM
I think this might answer some of your questions: The Gramm-Leach-Bliley Act mandates that all financial institutions establish appropriate security standards to protect customer data from internal and external threats and unauthorized access occurring through online systems and networks. This level of security is mandatory to ensure companies maintain data integrity and privacy standards for employees and customers that have provided personal information.
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In case anyone is interested, GLB has been linked to the current subprime fiasco. The Gramm-Leach-Bliley Act had the significant effect of repealing Glass-Steagal protections. Orginally, the Great Depression prompted calls for social protections to be placed in the financial sector. Deposit-taking banks (like your local Bank of America) were severely restricted in the types of things they could invest in.
When Glass-Steagal was repealed, banks started taking advantage of the publi-- I mean, their newfound freedom and started vertically integrating and experimenting with new "financial innovations" such as subprime MBO's (mortgage-backed obligations). They also managed to find a nifty and relatively new form of insurance to supposedly cover the system.
This article
http://64.233.169.104/search?q=cache:FjylzMl7QNsJ:goliath.ecnext.com/coms2/gi_0199-6336082/The-vertical-integration-strategy-as.html&hl=en&ct=clnk&cd=1&gl=us
describes how Lehman/Bear Stearns/Countrywide/Wachovia/WaMu jumped into the new game allowed by the GLB act, and we all know how their story ended.
As these private companies integrated, you can see with this graph how they even managed to turn the agency-enterprises like Fannie and Freddie into minority players in their industry.
There are a lot of contributing factors, but it's my opinion that the repeal of Glass-Steagal was a linch-pin. Once banks could take the public money in checking accounts, and then use it for supposedly fool-proof Wall Street gambles, the problems gained the overwhelming power to infect many aspects of the economy.
http://www.mcclatchydc.com/251/story/53802.html
http://64.233.169.104/search?q=cache:FjylzMl7QNsJ:goliath.ecnext.com/coms2/gi_0199-6336082/The-vertical-integration-strategy-as.html&hl=en&ct=clnk&cd=1&gl=us
http://www.ustreas.gov/press/releases/hp565.htm
http://64.233.169.104/search?q=cache:Asll_gf090AJ:www.hudson.org/files/documents/Westley.ppt&hl=en&ct=clnk&cd=8&gl=us
http://www.mbaa.org/NewsandMedia/PressCenter/58758.htm
http://64.233.169.104/search?q=cache:CWNoHR-bhA0J:www.indiana.edu/%7Eecondept/conference/JRC_2008/Rosen%2520-%2520IU%2520-%2520credit%2520crisis%2520distribution%2520%2804%252018%252008%29.ppt&hl=en&ct=clnk&cd=8&gl=us
http://en.wikipedia.org/wiki/Gramm-Leach-Bliley_Act