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Constituencies and Legislation: The Fight Over the McFadden Act of 1927


Raghuram G. Rajan


University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Rodney Ramcharan


Board of Governors of the Federal Reserve System (FRB)

March 22, 2012

Chicago Working Paper No. 64
Chicago Booth Research Paper No. 11-21

Abstract:     
The McFadden Act of 1927 was one of the most hotly contested pieces of legislation in U.S. banking history, and its influence was still felt over half a century later. The act was intended to force states to accord the same branching rights to national banks as they accorded to state banks. By uniting the interests of large state and national banks, it also had the potential to expand the number of states that allowed branching. Congressional votes for the act therefore could reflect the strength of various interests in the district for expanded banking competition. We find congressmen in districts in which landholdings were concentrated (suggesting a landed elite), and where the cost of bank credit was high and its availability limited (suggesting limited banking competition and high potential rents), were significantly more likely to oppose the act. The evidence suggests that while the law and the overall regulatory structure can shape the financial system far into the future, they themselves are likely to be shaped by well-organized elites, even in countries with benign political institutions.

Number of Pages in PDF File: 48

Keywords: Bank branching, McFadden, political economy

JEL Classification: G21, K2, N22

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Date posted: July 21, 2011 ; Last revised: March 23, 2012

Suggested Citation

Rajan, Raghuram G. and Ramcharan, Rodney, Constituencies and Legislation: The Fight Over the McFadden Act of 1927 (March 22, 2012). Chicago Working Paper No. 64; Chicago Booth Research Paper No. 11-21. Available at SSRN: http://ssrn.com/abstract=1889333 or http://dx.doi.org/10.2139/ssrn.1889333

Contact Information

Raghuram G. Rajan (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4437 (Phone)
773-702-0458 (Fax)
International Monetary Fund (IMF) ( email )
700 19th Street NW
Washington, DC 20431
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-9299 (Phone)
773-702-0458 (Fax)
Rodney Ramcharan
Board of Governors of the Federal Reserve System (FRB) ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
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