Final answer:
The arguments for rejoining investment and retail banks were increased competitiveness and consumer convenience but these resulted in increased risks, contributing to the 2008 Financial Crisis.
Step-by-step explanation:
The two main arguments for rejoining investment banks and retail deposit-taking banks that led to the passing of the Gramm-Leach-Bliley Act were centered on increasing competitiveness and offering consumers a full range of financial services. Proponents of the act believed that separating commercial banking, investment banking, and insurance was no longer necessary for ensuring the stability of the financial system, as evidenced by the utility of regulatory bodies such as the Federal Deposit Insurance Corporation (FDIC) and the Securities and Exchange Commission (SEC).
Firstly, the argument for competitiveness held that allowing banks to diversify their services would enable them to compete more effectively with foreign banks, which were not subject to such stringent regulations. This would theoretically lead to stronger financial institutions capable of competing globally. Secondly, the argument for consumer convenience suggested that consumers would benefit from being able to obtain a variety of services from a single financial institution, simplifying their financial transactions and potentially reducing costs.
Despite the potential benefits, critics argued that such deregulation could lead to increased risk-taking and conflicts of interest, ultimately contributing to financial instability. The 2008 Financial Crisis would later highlight the validity of these concerns, leading to the introduction of new regulatory reforms like the Dodd-Frank Act to address systemic risks.