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Who Needs Glass‐Steagall? Evidence From Israel'S Bank Shares Crisis And The Great Depression

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  • ASHER A. BLASS
  • RICHARD S. GROSSMAN

Abstract

This paper compares bank share manipulation in Israel with that in the United States prior to the passage of the Glass‐Steagall Act and uses the comparison to assess the desirability of restricting the investment banking activities of commercial banks—not only in the United States and in Israel, but also in the economies in transition (EITs) of Eastern Europe. Many of the techniques of and motivations for manipulation were similar. However, because of their larger relative size, banks in Israel, were far more successful in eliminating market risk. The paper concludes that Glass‐Steagall restrictions could prove a useful policy prescription in Israel, the EITs, and elsewhere in the developing world.

Suggested Citation

  • Asher A. Blass & Richard S. Grossman, 1998. "Who Needs Glass‐Steagall? Evidence From Israel'S Bank Shares Crisis And The Great Depression," Contemporary Economic Policy, Western Economic Association International, vol. 16(2), pages 185-196, April.
    • Handle: RePEc:bla:coecpo:v:16:y:1998:i:2:p:185-196
    DOI: 10.1111/j.1465-7287.1998.tb00511.x
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    File URL: https://doi.org/10.1111/j.1465-7287.1998.tb00511.x
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    1. White, Eugene Nelson, 1986. "Before the Glass-Steagall Act: An analysis of the investment banking activities of national banks," Explorations in Economic History, Elsevier, vol. 23(1), pages 33-55, January.
    2. Kroszner, Randall S & Rajan, Raghuram G, 1994. "Is the Glass-Steagall Act Justified? A Study of the U.S. Experience with Universal Banking before 1933," American Economic Review, American Economic Association, vol. 84(4), pages 810-832, September.
    3. Grossman, Richard S., 1994. "The Shoe That Didn't Drop: Explaining Banking Stability During the Great Depression," The Journal of Economic History, Cambridge University Press, vol. 54(3), pages 654-682, September.
    4. Gande, Amar, et al, 1997. "Bank Underwriting of Debt Securities: Modern Evidence," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 1175-1202.
    5. Gregory F. Udell & Paul Wachtel, 1994. "Financial System Design for Formerly Planned Economies: Defining the Issues," Working Papers 94-27, New York University, Leonard N. Stern School of Business, Department of Economics.
    6. Bonin, John P. & Leven, Bozena, 1996. "Polish Bank Consolidation and Foreign Competition: Creating a Market-Oriented Banking Sector," Journal of Comparative Economics, Elsevier, vol. 23(1), pages 52-72, August.
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    Cited by:

    1. Sébastien Charles & Jonathan Marie, 2021. "How Israel avoided hyperinflation. The success of its 1985 stabilization plan in the light of post-Keynesian theory," Review of International Political Economy, Taylor & Francis Journals, vol. 28(3), pages 528-558, May.
    2. Jonathan Marie & Sébastien Charles, 2018. "Comment Israël a évité l’hyperinflation ? Le succès du plan de stabilisation (1985) à la lumière de la théorie post-keynésienne," Working Papers hal-01937054, HAL.

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