Although weve heard a great deal about how deregulation caused the financial crisis, specific cases of repealed legislation that would have prevented it are few and far between. The one some progressives seem to have settled on is the repeal of the Glass-Steagall Act of 1933, which separated commercial from investment banking. The repeal involved only one provision of the Act, the one preventing the same holding company from controlling both a commercial bank and an investment bank.
When we recall that stand-alone institutions, both commercial and investment, also failed during the crisis, and that all of them acquired mortgage-backed securities (which they had always been allowed to do, by the way), the Glass-Steagall repeal looks more and more like a red herring that appeals to people whose belief system requires them to find some way a Fed-fueled bubble could have been stopped had the right regulatory structure been in place.
Because Glass-Steagall was passed during the Depression, it is assumed that it was addressing a pressing need of the time. In fact, the lack of government-enforced division between commercial and investment banking had precisely zero to do with bank problems during the Great Depression. The 9,000 bank failures during the early 1930s had far more to do with the damage done by government regulation namely, the unit-banking laws that made it difficult for banks to diversify their portfolios (by limiting them to a single office and making branching illegal) than with a lack of regulation. These were small banks, not the behemoths for which Glass-Steagall would have been relevant. Canada had none of these stifling regulations, and had zero bank failures.