IDEAS home Printed from https://ideas.repec.org/p/laf/wpaper/cr1401.html
   My bibliography  Save this paper

In Search of the Banking Regulator amid U.S. Financial Reforms of the 1930s

Author

Listed:
  • Dominique Lacoue-Labarthe

    (Larefi, Université de Bordeaux)

Abstract

Some bank reforms of the 1930s in the United States may have been overvalued. The Glass-Steagall Act of 1933 actually created new endogenous risks involving potential systemic effects. Deposit insurance failed to address the main cause of banking panics, and rather strengthened inefficient unit banks, while the prohibition of interstate bank branching continued to hinder banks to diversify idiosyncratic risks. The separation of commercial and investment banking put an end to certain conflicts of interest but it created an opportunity cost by preventing universal banking from developing effectively. Finally, an untimely intervention in a duopolistic conflict made the regulator a captive figure. By contrast, major innovations covering bailout processes and prudential regulation appear to have been underestimated. The Reconstruction Finance Corporation of 1932 established the foundations of an investor of last resort, giving the Treasury the authority to recapitalize insolvent financial institutions deemed too big to fail. The newly established banking regulator, the Federal Deposit Insurance Corporation of 1933, was given a special bank-closure rule, separate from the usual bankruptcy proceedings, which opened a way towards orderly resolution of failing banks in order to protect the economy from the spread of systemic risk.

Suggested Citation

  • Dominique Lacoue-Labarthe, 2014. "In Search of the Banking Regulator amid U.S. Financial Reforms of the 1930s," Larefi Working Papers 1401, Larefi, Université Bordeaux 4.
  • Handle: RePEc:laf:wpaper:cr1401
    as

    Download full text from publisher

    File URL: http://laf.u-bordeaux4.fr/RePEc/CR_14EFI01.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    Keywords

    bank reform; United States; Regulation; Economic history;
    All these keywords.

    JEL classification:

    • N12 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - U.S.; Canada: 1913-
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • N42 - Economic History - - Government, War, Law, International Relations, and Regulation - - - U.S.; Canada: 1913-

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:laf:wpaper:cr1401. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Cyril Mesmer (email available below). General contact details of provider: https://edirc.repec.org/data/labrdfr.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.