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Are Prudential Supervision and Regulation Pillars of Financial Stability? Evidence from the Great Depression

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  • Kris James Mitchener

Abstract

Drawing on the variation in financial distress across U.S. states during the Great Depression, this article suggests how bank supervision and regulation affected banking stability during the Great Depression. In response to well-organized interest groups and public concern over the bank failures of the 1920s, many U.S. states adopted supervisory and regulatory standards that undermined the stability of state banking systems in the 1930s. Those states that prohibited branch banking, had higher reserve requirements, granted their supervisors longer term lengths, or restricted the ability of supervisors to liquidate banks quickly experienced higher state bank suspension rates from 1929 to 1933.

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  • Kris James Mitchener, 2007. "Are Prudential Supervision and Regulation Pillars of Financial Stability? Evidence from the Great Depression," Journal of Law and Economics, University of Chicago Press, vol. 50(2), pages 273-302.
    • Handle: RePEc:ucp:jlawec:v:50:y:2007:p:273-302
    DOI: 10.1086/511323
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    Cited by:

    1. Kris James Mitchener & Matthew Jaremski, 2014. "The Evolution of Bank Supervision: Evidence from U.S. States," NBER Working Papers 20603, National Bureau of Economic Research, Inc.
    2. Klein, Alexander & Otsuy, Keisuke, 2013. "Efficiency, Distortions and Factor Utilization during the Interwar Period," CAGE Online Working Paper Series 147, Competitive Advantage in the Global Economy (CAGE).
    3. Raghuram G. Rajan & Rodney Ramcharan, 2016. "Constituencies and Legislation: The Fight Over the McFadden Act of 1927," Management Science, INFORMS, vol. 62(7), pages 1843-1859, July.
    4. Nicholas Crafts, 2012. "Economic History Matters," Economic History of Developing Regions, Taylor & Francis Journals, vol. 27(S1), pages 3-15.
    5. Mitchener, Kris & Richardson, Gary, 2020. "Contagion of Fear," CEPR Discussion Papers 14510, C.E.P.R. Discussion Papers.
    6. Lea Kosnik, 2010. "Balancing Environmental Protection and Energy Production in the Federal Hydropower Licensing Process," Land Economics, University of Wisconsin Press, vol. 86(3).
    7. Cristian Barra & Anna Papaccio & Nazzareno Ruggiero, 2023. "Basel accords and banking inefficiency: Evidence from the Italian local market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(4), pages 4079-4119, October.
    8. Jenter, Dirk & Aldunate, Felipe & Korteweg, Arthur & Koudijs, Peter, 2021. "Shareholder Liability and Bank Failure," CEPR Discussion Papers 16309, C.E.P.R. Discussion Papers.
    9. Eugene N. White, 2014. "Lessons from the Great American Real Estate Boom and Bust of the 1920s," NBER Chapters, in: Housing and Mortgage Markets in Historical Perspective, pages 115-158, National Bureau of Economic Research, Inc.
    10. Nicholas Crafts & Peter Fearon, 2010. "Lessons from the 1930s Great Depression," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 26(3), pages 285-317, Autumn.
    11. Sanjiv R. Das & Kris James Mitchener & Angela Vossmeyer, 2022. "Bank Regulation, Network Topology, and Systemic Risk: Evidence from the Great Depression," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 54(5), pages 1261-1312, August.
    12. Mitchener, Kris James & Richardson, Gary, 2013. "Does “skin in the game” reduce risk taking? Leverage, liability and the long-run consequences of new deal banking reforms," Explorations in Economic History, Elsevier, vol. 50(4), pages 508-525.
    13. Zach Raff, 2023. "Identifying the regulator’s objective: Does political support matter?," Public Choice, Springer, vol. 194(3), pages 277-295, March.
    14. Mitchener, Kris James, 2014. "The Evolution of Bank Supervision: Evidence from U.S. States," CAGE Online Working Paper Series 181, Competitive Advantage in the Global Economy (CAGE).
    15. Arthur Schram & Aljaž Ule, 2024. "Regulatory independence may limit electoral holdup but entrench capture," Public Choice, Springer, vol. 198(3), pages 403-425, March.
    16. Alex Klein & Keisuke Otsu, 2013. "Efficiency, Distortions and Factor Utilization during the Interwar Period," Studies in Economics 1317, School of Economics, University of Kent.
    17. G. P. Manish & Colin O’Reilly, 2019. "Banking regulation, regulatory capture and inequality," Public Choice, Springer, vol. 180(1), pages 145-164, July.

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