How Restoring Glass-Steagall Act Will Affect Online Lending

Online lending is the new, more efficient way of lending and banking. It has fewer restrictions, it’s more practical, it looks attractive, and it’s far easier than old-fashioned lending. Online lending is affected by laws, though.

Here’s the latest news from the world of finance: the Glass-Steagall Act is about to be put back into action, with the back of influential personalities support it.

The Glass-Steagall Act

The Glass-Steagall Act was created to fix the Great Depression because the Great Depression was caused by people who were borrowing too much money. The Glass-Steagall Act limited the amount of money that can be lent, and the people who were allowed to borrow money. The law fixed the Great Depression. The Glass-Steagall Act was repealed in 1990.

The financial crisis of 2008 caused certain people to say that the Glass-Steagall act should be brought back, though. It will prevent the financial crisis of 2008 from repeating and will help the rich people of the United States to stay rich.

What Happened

Based on the result of the Glass-Steagall act on US economy during the 1980’s, though, this law will potentially hurt online lenders. During the years that the Glass-Steagall Act was in effect, banks were unable to keep up with banks in other countries because banks in other countries did not have this restriction. Some local banks, in their desperation to keep up with foreign competitors, ventured into unknown systems. Fewer investors trusted US-based banks because of this. Other banks lost business and shut down altogether. The Glass-Steagall Act was repealed in 1990 because of this economic dilemma.

What to Expect

For online lenders today, there are two things to expect when the Glass-Steagall Act goes into effect again: fewer investors, and fewer borrowers. As you change your work algorithms to follow the new law, the investors will be less interested in investing through your business. As fewer borrowers are allowed by the law to borrow, and as the ones who are allowed find out there’s less money to be borrowed, your borrowers will go away and find other ways. Restoring the Glass-Steagall Act has a high possibility of hugely affecting online lending.

The Bright Side

Some business analysts argue, though, that the problems we were facing during the Great Depression and the 1980s were different from the problems we are facing now. There is a small number of people who believe that the Glass-Steagall Act will be not as bad for online lenders as we think. For one, it might start a whole new avenue of funding and creative lending which has never been done before. Also, it will help reduce long term volatility in the debt markets. 

Conclusion

The only words of warning to keep in mind are: Be prepared. You have two options. Choose a different field of work, or stay where you are. If you are staying, add new features to your online lending business to bear with the shock that the Glass-Steagall act can possibly bring. On the other hand, you can choose to maintain the same routines and observe how things change. The only thing that we have is time. We can wait and observe how the Glass-Steagall Act will affect our work once it is restored.

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