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

Rodney Ramcharan

Federal Reserve Board

Raghuram G. Rajan

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

May 30, 2012

FEDS Working Paper No. 2012-61

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: 47

Keywords: Competition, banking, legislation

JEL Classification: E44, G21

working papers series

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Date posted: December 30, 2012  

Suggested Citation

Ramcharan, Rodney and Rajan, Raghuram G., Constituencies and Legislation: The Fight Over the McFadden Act of 1927 (May 30, 2012). FEDS Working Paper No. 2012-61. Available at SSRN: http://ssrn.com/abstract=2194588 or http://dx.doi.org/10.2139/ssrn.2194588

Contact Information

Rodney Ramcharan (Contact Author)
Federal Reserve Board ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
Raghuram G. Rajan
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)
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References:  39
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Footnotes:  14

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