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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
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    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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    File URL: http://www.journals.uchicago.edu/cgi-bin/resolve?id=doi:10.1086/511323
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    Bibliographic Info

    Article provided by University of Chicago Press in its journal The Journal of Law and Economics.

    Volume (Year): 50 (2007)
    Issue (Month): ()
    Pages: 273-302

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    Handle: RePEc:ucp:jlawec:v:50:y:2007:p:273-302

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    Web page: http://www.journals.uchicago.edu/JLE/

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    Cited by:
    1. 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.
    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, 2011. "Constituencies and Legislation: The Fight over the McFadden Act of 1927," NBER Working Papers 17266, National Bureau of Economic Research, Inc.
    4. Alex Klein & Keisuke Otsu, 2013. "Efficiency, Distortions and Factor Utilization during the Interwar Period," Studies in Economics 1317, Department of Economics, University of Kent.
    5. Crafts, Nicholas & Fearon, Peter, 2010. "Lessons from the 1930s' Great Depression," CEPR Discussion Papers 8057, C.E.P.R. Discussion Papers.
    6. repec:cge:warwcg:146 is not listed on IDEAS
    7. repec:cge:warwcg:57 is not listed on IDEAS
    8. Crafts, Nicholas, 2011. "Economic History Matters," CAGE Online Working Paper Series 58, Competitive Advantage in the Global Economy (CAGE).
    9. Eugene N. White, 2013. "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.

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