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Are Prudential Supervision and Regulation Pillars of Financial Stability? Evidence from the Great Depression

  • Kris James Mitchener
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    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.nber.org/papers/w12074.pdf
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    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12074.

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    Date of creation: Mar 2006
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    Publication status: published as Mitchener, Kris James. "Are Prudential Supervision and Regulation Pillars of Financial Stability? Evidence from the Great Depression." The Journal of Law and Economics 50 (May 2007).
    Handle: RePEc:nbr:nberwo:12074
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