One of the major reasons cited for the subprime crisis was the emergence of highly leveraged investment banks. After the Great Depression, the Glass-Steagall Act (GSA)-1933 separated commercial banks and securities firms. At that time, `improper banking activity' or what was considered as overzealous commercial bank involvement in stock market investments was deemed as the main culprit of the financial crash. Thus, commercial banks took on too much risk with depositor's money. The GSA prohibited banks from investment banking, insurance and food management activities.

The GSA established the Federal Deposit Insurance Corporation (FDIC) in the US and included banking reforms, some of which were designed to control speculation.

Commercial banks were accused of being too speculative during the pre-depression era not only because they were investing their assets but also because they were buying new issues for resale to the public. The banks began to take huge risks in the hope of even bigger rewards. Banking itself became sloppy and its objectives had been blurred. Unsound loans were extended to companies in which the bank had invested so that the customers would be encouraged to invest in these stocks.

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