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

Chicago Working Paper No. 64

Chicago Booth Research Paper No. 11-21

48 Pages Posted: 21 Jul 2011 Last revised: 23 Mar 2012

Raghuram G. Rajan

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

Rodney Ramcharan

University of Southern California, Marshall School of Business

Multiple version iconThere are 3 versions of this paper

Date Written: March 22, 2012

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.

Keywords: Bank branching, McFadden, political economy

JEL Classification: G21, K2, N22

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: https://ssrn.com/abstract=1889333 or http://dx.doi.org/10.2139/ssrn.1889333

Raghuram G. Rajan (Contact Author)

University of Chicago - Booth School of Business ( email )

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International Monetary Fund (IMF) ( email )

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National Bureau of Economic Research (NBER)

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Rodney Ramcharan

University of Southern California, Marshall School of Business ( email )

Los Angeles, CA 90089
United States

HOME PAGE: http://https://sites.google.com/site/rodneyramcharan/

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