Yesterday's hearing — my Dealbook on it here — was clearly all about political posturing: the Democrats are defensive about Dodd-Frank, rightly afraid that any change to it becomes a chance to repeal or gut, while the Republicans too often veer off into some free market rhetoric that really makes no sense when you are talking about financial institutions. Since when have banks been subject to the free market? Even pre-Fed they were (at least theoretically) under State oversight.
So basically neither side wanted to hear what I had to say.
But as is so often the case, Alan Sloan comes through with some clear thinking on the matter here.
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One response to “Why I Was the Skunk at the Party”
A bit of history. Before the War of 1812, anybody could avoid all banking regulation by avoiding a corporate charter. The Bank of New York did so for awhile. A lot of backwoods banks did it for a long time. Around the time of the war, many states enacted “restraining acts” that prohibited unincorporated businesses from issuing notes. These acts became progressively ineffective, as the system shifted from bank notes to bank deposits, with the balance having shifted by about the time of the Civil War.
Not that corporate charters were all that well-regulated. Before 1838 (or maybe 1836), banks were only subject to “oversight” through a quo warranto proceeding for charter violations. I recall only one quo warranto proceeding that actually worked. New York then invented the free bank and with it, bank examination.