Journal Article

The political lessons of Depression-era banking reform

Charles W. Calomiris

in Oxford Review of Economic Policy

Published on behalf of The Oxford Review of Economic Policy Ltd

Volume 26, issue 3, pages 540-560
Published in print January 2010 | ISSN: 0266-903X
Published online January 2010 | e-ISSN: 1460-2121 | DOI: http://dx.doi.org/10.1093/oxrep/grq020
The political lessons of Depression-era banking reform

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  • Economic Development and Growth
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The banking legislation of the 1930s took very little time to pass, was unusually comprehensive, and unusually responsive to public opinion. Ironically, the primary motivations for the main bank regulatory reforms in the 1930s (Regulation Q, the separation of investment banking from commercial banking, and the creation of federal deposit insurance) were to preserve and enhance two of the most disastrous policies that contributed to the severity and depth of the Great Depression—unit banking and the real bills doctrine. Other regulatory changes, affecting the allocation of power between the Federal Reserve System (Fed) and the Treasury, were intended to reduce the independence of the Fed, while giving the opposite impression. Banking reforms in the 1930s had significant negative consequences for the future of US banking, and took a long time to disappear. The overarching lesson is that the aftermath of crises are moments of high risk in public policy.

Keywords: bank regulation; unit banking; real bills doctrine; branch banking; deposit insurance; Glass–Steagall; Regulation Q; N22; G20; G21; G28

Journal Article.  11404 words. 

Subjects: Economic Development and Growth ; Public Economics ; Political Economy ; Public Policy

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