As the recent banking crisis in the United States has reminded us, effective supervision is an important instrument for avoiding crises and promoting financial stability. While there was a large and complex supervisory network in place, the banking and financial agencies failed to detect and prevent excessive risk-taking and even illegal activities. Although the Frank-Dodd Reform made some important changes to the supervisory structure, it is generally agreed that it did not attempted an overall reform of the system. Any such reform requires a thorough understanding of the development and issues underlying the system of supervision.
While there is a vast scholarly literature on the history of the Federal Reserve and the operation of monetary policy, there is no general history of bank supervision in the United States. This project addresses this critical gap by collecting a comprehensive data base on all aspects of the multiple federal bank regulatory agencies from 1863 to 2008. Part of the difficulty in collecting such data mirrors the difficulty that Congress experienced in managing oversight of the supervisory system. Each agency has a different structure, mission and funding. Combined with considerable independence, the result has been a lack of transparency and regulatory failure. This new data base will provide economists, political scientists and other researchers with key information to assess the development, operation and effectiveness of the American supervisory system.
The analytical part of this project is framed by five distinctive supervisory regimes that reflect five different approaches to bank supervision, yielding a natural experiment in how to manage risk-taking by financial intermediaries. The objective of this study is to examine how the incentives created by the regulatory and supervisory systems yielded specific trade-offs between efficiency and growth on the one hand and safe and sound institutions on the other.
By providing the first comprehensive statistical study of bank supervision in the United States, this project will yield some of the necessary information for theoretical and empirical economic analyses that will be needed as guidance for future reform.