IDEAS home Printed from
   My bibliography  Save this article

Quis Custodiet Ipsos Custodes?


  • Howard Bodenhorn

    (Lafayette College)


In the wake of the S&L debacle, the LDC crisis and other systemic banking shocks, several recent proposals have called for regulatory reforms that emphasize the development of market incentives for both bankers and regulators. This article suggests that market-based reform may be feasible and desirable. In the absence of effective regulatory bodies, early nineteenth-century Americans relied on two specialized players in the financial market--banknote reporters and banknote brokers--for bank monitoring and information provision. Historical evidence provided by these banknote reporters suggests that reporters and brokers efficiently priced bank default risks. Brokers typically downgraded the debt issues of a troubled banks two years prior to its failure. In other cases, brokers often downgraded a bank's debt, forcing the bank to shape up and causing neither the particular bank's failure nor a widespread bank run. Finally, a formal test based on the so-called market model supports the contention that markets can effectively monitor financial institutions.

Suggested Citation

  • Howard Bodenhorn, 1998. "Quis Custodiet Ipsos Custodes?," Eastern Economic Journal, Eastern Economic Association, vol. 24(1), pages 7-24, Winter.
  • Handle: RePEc:eej:eeconj:v:24:y:1998:i:1:p:7-24

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Michael Grossman & Frank J. Chaloupka & Henry Saffer & Adit Laixuthai, 1993. "Effects of Alcohol Price Policy on Youth," NBER Working Papers 4385, National Bureau of Economic Research, Inc.
    2. Chaloupka, Frank J & Saffer, Henry & Grossman, Michael, 1993. "Alcohol-Control Policies and Motor-Vehicle Fatalities," The Journal of Legal Studies, University of Chicago Press, vol. 22(1), pages 161-186, January.
    3. Henry Saffer & Michael Grossman, 1986. "Beer Taxes, the Legal Drinking Age, and Youth Motor Vehicle Fatalities," NBER Working Papers 1914, National Bureau of Economic Research, Inc.
    4. John DiNardo & Thomas Lemieux, 1992. "Alcohol, Marijuana, and American Youth: The Unintended Effects of Government Regulation," NBER Working Papers 4212, National Bureau of Economic Research, Inc.
    5. Coate, Douglas & Grossman, Michael, 1988. "Effects of Alcoholic Beverage Prices and Legal Drinking Ages on Youth Alcohol Use," Journal of Law and Economics, University of Chicago Press, vol. 31(1), pages 145-171, April.
    6. repec:aph:ajpbhl:1984:74:7:668-672_1 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Olivier Brossard & Hicham Chetioui, 2003. "Histoire longue : la naissance de la réglementation prudentielle, 1800-1945," Revue d'Économie Financière, Programme National Persée, vol. 73(4), pages 13-37.
    2. Bodenhorn, Howard, 2008. "Free banking and bank entry in nineteenth-century New York," Financial History Review, Cambridge University Press, vol. 15(02), pages 175-201, October.
    3. Jeremy Atack & Matthew S. Jaremski & Peter L. Rousseau, 2014. "Did Railroads Make Antebellum U.S. Banks More Sound?," NBER Chapters,in: Enterprising America: Businesses, Banks, and Credit Markets in Historical Perspective, pages 149-178 National Bureau of Economic Research, Inc.

    More about this item


    Bank; Banking; Financial Markets; S&L;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913


    Access and download statistics


    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:eej:eeconj:v:24:y:1998:i:1:p:7-24. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Victor Matheson, College of the Holy Cross). General contact details of provider: .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.