Working Paper: NBER ID: w20603
Authors: Kris James Mitchener; Matthew Jaremski
Abstract: We use a novel data set spanning 1820-1910 to examine the origins of bank supervision and assess factors leading to the creation of formal bank supervision across U.S. states. We show that it took more than a century for the widespread adoption of independent supervisory institutions tasked with maintaining the safety and soundness of banks. State legislatures initially pursued cheaper regulatory alternatives, such as double liability laws; however, banking distress at the state level as well as the structural shift from note-issuing to deposit-taking commercial banks and competition with national banks propelled policymakers to adopt costly and permanent supervisory institutions.
Keywords: bank supervision; banking crises; state banking departments; financial regulation
JEL Codes: E44; G28; N11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| banking failures (F65) | establishment of formal supervisory institutions (G28) |
| significant banking panics (F65) | establishment of banking departments (G28) |
| banking distress (F65) | legislative action to install supervision (G28) |
| introduction of National Banking Act (N11) | shift in priorities towards maintaining safety and soundness of banks (G28) |
| shift from note issuance to deposit-taking (G21) | installation of more costly supervisory institutions (G28) |
| presence of national banks (N11) | establishment of state banking departments (G28) |