The Unlikely Reformer: Carter Glass and Financial Regulation by Matthew P. Fink (review)

Students of American financial history know well the Glass-Steagall Act (1933), which established a regulatory firewall between commercial and investment banking in the wake of the Great Depression. But some may not realize that its major architect—Virginia senator Carter Glass—also helped design the Federal Reserve System (Fed) and the Securities and Exchange Commission (SEC). Matthew P. Fink’s compact, well-written biography of a master politician shows how Glass’s ability to compromise helped him make his mark on American finance.

A latter-day Jeffersonian Democrat wary of Wall Street, Glass acknowledged the federal government’s role in maintaining financial stability but also favored decentralization of power. Chapter 1 traces Glass’s views to his modest upbringing in Lynchburg, Virginia, in the aftermath of the Civil War. Chapter 2 describes the turmoil Glass encountered as a newly minted congressman facing the financial crisis of 1907. Upon appointment to the House Banking Committee, “Glass steeped himself on banking issues” (p. 14). Chapter 3 offers a fascinating view of the clashing viewpoints surrounding the creation of the Fed. Fink concludes that “the technical portions” of the Federal Reserve Act of 1913 were attributable to Senator Nelson W. Aldrich, but “[t]he political aspects,” mainly “decentralization and public control,” were due to President Woodrow Wilson and Glass (pp. 54, 55).

Glass’s political acumen and financial expertise led to a brief appointment as treasury secretary, which he resigned to take a senatorial seat in 1919. During the 1920s, Glass watched helplessly as the Fed became dominated by big-city banks; he “put forth concrete proposals to slow speculation and buying on margin” (p. 70). The 1929 stock market crash led to Glass’s next major contribution—the Glass-Steagall Act of 1933. Chapters 5 and 6 deftly relate Glass’s ability to compromise—for example, he agreed to include a widely popular provision for deposit insurance in the final bill even though he personally opposed it.

As Fink notes, Glass-Steagall chose to fragment power as an alternative to instituting regulatory oversight. Sixty-six years later, Congress reversed course, repealing the key Glass-Steagall separation provision and creating instead a web of regulatory agencies. Glass’s earlier creation, the Fed, underwent a similar transformation far earlier—counter to Glass’s original vision, the Banking Act of 1935 centralized authority in the Board of Governors rather than dispersing control over regional banks. Glass did win a minor victory in keeping power away from the Fed by pushing for the establishment of a separate agency to oversee the stock market. Although he did not succeed in divorcing the Fed completely from the SEC—the Fed retains margin authority—he did mitigate consolidation of power in governing the financial sector.

Fink uses compelling anecdotes, eye-catching illustrations, and pertinent private correspondence to enliven this biography. At the same time, however, he overuses block quotations and heads each chapter with aphorisms that are sometimes spot-on and sometimes head-scratchers. Although the book underplays Glass’s probable motivation for power decentralization—his virulent hatred of African Americans—it does offer a nice account of his contributions to financial reform.