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Independent Regulators and Financial Stability: Evidence from Gubernatorial Campaigns and a Progressive Era Policy Experiment

Author

Listed:
  • Marco Del Angel
  • Gary Richardson

Abstract

Regulatory independence forms a foundation for modern financial systems. To illuminate the value of this ubiquitous institution, we examine a Progressive Era policy experiment in which hitherto independent regulators came under gubernatorial supervision. After this change, failure rates declined during gubernatorial election campaigns for banks under gubernatorial jurisdiction. Declines did not occur during campaigns for other officials or for nationally chartered banks. Declines in bank resolutions during campaigns reduced business bankruptcies. We corroborate these claims with new data and novel IV regressions. Our results indicate that political subservience of financial regulators links electoral and economic cycles.

Suggested Citation

  • Marco Del Angel & Gary Richardson, 2022. "Independent Regulators and Financial Stability: Evidence from Gubernatorial Campaigns and a Progressive Era Policy Experiment," NBER Working Papers 29938, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29938
    Note: DAE EFG ME POL
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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • H1 - Public Economics - - Structure and Scope of Government
    • H7 - Public Economics - - State and Local Government; Intergovernmental Relations
    • K2 - Law and Economics - - Regulation and Business Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations
    • N2 - Economic History - - Financial Markets and Institutions

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