The Political Lessons of Depression-Era Banking Reform

The banking legislation of the 1930s took very little time to pass, was unusually comprehensive, and unusually responsive to public opinion. Ironically, the primary motivations for the main bank regulatory reforms in the 1930s (Regulation Q, the separation of investment banking from commercial banking, and the creation of federal deposit insurance) were to preserve and enhance two of the most disastrous policies that contributed to the severity and depth of the Great Depression--unit banking and the real bills doctrine. Other regulatory changes, affecting the allocation of power between the Fed and the Treasury, were intended to reduce the independence of the Fed, while giving the opposite impression. Banking reforms in the 1930s had significant negative consequences for the future of U.S. banking, and took a long time to disappear. The overarching lesson is that the aftermath of crises are moments of high risk in public policy.


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Charles W. Calomiris is a visiting scholar at AEI.

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About the Author

 

Charles W.
Calomiris
  • Charles W. Calomiris is the Henry Kaufman Professor of Financial Institutions at Columbia Business School. He is also a research associate at the National Bureau of Economic Research, a member of the Shadow Financial Regulatory Committee and the Financial Economists Roundtable, and the coordinator of the Bank Performance and the Economy program at the Center for Financial Research at the Federal Deposit Insurance Corporation. Until 2007, he was the co-director of AEI's Financial Deregulation Project. His research at AEI spanned several areas, from banking and corporate finance to financial history and monetary economics. Calomiris also served on the 2000 International Financial Institution Advisory Commission. Known as the Meltzer Commission, this congressionally mandated group recommended specific reforms of the International Monetary Fund, the World Bank, the regional development banks and the World Trade Organization to the U.S. government.
  • Phone: 2128548748
    Email: ccalomiris@aei.org

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