Saturday, January 05, 2013

Carter Glass Could Be Father of the Federal Reserve System and the SEC

In 2013, we note the 100th year of federal banking law (Federal Reserve Act of 1913) and the 80th year of federal securities law (Securities Act of 1933). Senator Carter Glass of Virginia (D-VA) is widely known as the father of the Federal Reserve System, but it is not so widely know that he could arguably and rightly be called the father of the SEC.

In 1913, as Chair of the House Banking Committee, Rep. Glass worked to pass the Glass-Owen Federal Reserve Act, which created the Federal Reserve System. He was appointed Secretary of the Treasury by President Wilson and later left that post to become a US Senator from Virginia. In 1933, he worked to pass the Glass-Steagall Act, separating commercial from investment banking, essentially separating the banking and securities industries. Interestingly, earlier, Senator Glass has turned down an offer from President Franklin Roosevelt to become Secretary of the Treasury again.

In 1934, the Securities Exchange Act was moving through Congress, the Administration favored retaining the FTC (named as federal securities regulator in the 1933 Act) as regulator. But Senator Carter Glass preferred a new agency solely dedicated to securities regulation. (see Crisis, Scandal and Financial Reform during the New Deal, Professor Michael Perino, St. John’s Law School, Legal Studies Research Paper Series, p. 22).
Senator Glass offered an amendment to the legislation to create the SEC. (see 431 Days, Joseph P. Kennedy and the Creation of the SEC, SEC Historical Society). Professor Perino notes that the Glass Amendment was a compromise in that SEC Commissioners would be selected by the President, with the advice and consent of the Senate, and there would be no industry representatives on the Commission as had originally been proposed.

The SEC Historical Society paper notes that the compromise turned out for the better since securities and exchange regulatory power held by the FTC would have been just one of many concerns of that agency and not the tightly focused agency that was envisioned.

An interesting note is that Carter Glass was born in Lynchburg, VA and Senator Robert Owen (D-OK), Chair of the Senate Banking Committee in 1913, and who worked with Chairman Glass to pass the Glass-Owen Federal Reserve Act, was also born in Lynchburg, VA.