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Theories of Bank Regulation

In: Regulation and Instability in U.S. Commercial Banking

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  • Jill M. Hendrickson

    (University of St Thomas)

Abstract

Bank regulation in the United States has evolved since the first commercial bank was chartered in 1781. This evolution has largely been in response to bank crises. In other words, there has been no master plan for the regulation of commercial banks but, rather, a trial and error approach. In response to a crisis or instability, regulation has been established. If, down the road, the regulation is not working, it may be revised, replaced, or removed. Our commercial bank history, as this book demonstrates, is rife with examples of regulators responding to crisis with new or revised regulation. Figure 2.1 offers a timeline of the primary regulation and institutions in U.S. bank history and also highlights all of the bank crises throughout the history. From this illustration, it is easy to see the historical pattern of crisis followed by regulation. In order to properly evaluate the evolution of regulation, it is important to first understand the economic theory of regulation in general and then the theories of bank regulation more specifically. This chapter is designed to introduce the theoretical underpinnings of bank regulation so that we may critically analyze the evolution of commercial banking and commercial bank regulation in the chapters to follow.

Suggested Citation

  • Jill M. Hendrickson, 2011. "Theories of Bank Regulation," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Regulation and Instability in U.S. Commercial Banking, chapter 2, pages 10-20, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-0-230-29513-1_2
    DOI: 10.1057/9780230295131_2
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    Cited by:

    1. Kornilia Vikelidou & Athanasios Tagkalakis, 2023. "European Banking Union: state of play and proposals for the way forward," SN Business & Economics, Springer, vol. 3(8), pages 1-11, August.

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