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The Sound of Five Thousand Banks Collapsing
Published by the Civitas Institute.
From 1921 to 1929, 5,711 U.S. banks went broke. That is an average of 635 failures per year, or about 12 per week for a period lasting nine years, all in a decade that elsewhere featured the 1920s boom.
——
Acting as the lender of last resort to banks by making them collateralized loans from its “Discount Window” was a principal reason for the creation of the Federal Reserve in 1913. It is still a key function, although at present, loans to banks represent only 0.06% of the Fed’s assets. Nonetheless, it is a capability that has proven very handy in the many financial crises of the Fed’s career so far.
With the passage of the Federal Reserve Act, many hoped that the new Federal Reserve Banks would make future financial crises impossible. William G. McAdoo, for example, the Secretary of the Treasury at the time—and therefore, under the original act, automatically the Chairman of the Federal Reserve Board—had this excessively optimistic prediction:
The opening of [the Fed] marks a new era…[It] will give such stability to the banking business that the extreme fluctuations in interest rates and available credits which have characterized banking in the past will be destroyed permanently.
Only one decade later, the still young Fed was facing the failure of thousands of banks, principally smaller banks across the country's agricultural regions. To be specific, from 1921 to 1929, 5,711 U.S. banks went broke. That is an average of 635 failures per year, or about 12 per week for a period lasting nine years, all in a decade that elsewhere featured the 1920s boom.
This now almost entirely forgotten banking bust, and the Federal Reserve Banks’ widespread use of the Discount Window during it, are instructively recounted and analyzed by Mark Carlson in his new book, The Young Fed—The Banking Crises of the 1920s and the Making of a Lender of Last Resort. The book reviews both colorful specific cases and the fundamental ideas involved. Calson makes it clear that the Federal Reserve Banks and Board officers were well aware of and thought carefully about the tensions and trade-offs inherent in their lender of last resort activities.
These include the systemic problem of having many banks in trouble at the same time, the problems of the moral hazard induced by central bank lending, distinguishing illiquidity from insolvency in the time pressure and uncertainty of a crisis, a banker’s first loyalty to depositors vs. the central bank’s shifting losses to depositors, and the central bank itself taking credit risk.
Thus, the book is both an interesting history and an exploration of some core concepts in banking and central banking.
Hundreds or Thousands of Banks in Trouble at the Same Time
As Carlson writes, “the disruptive effects of bank failures are particularly relevant when many banks are in trouble at the same time.” At that point, “the sudden liquidation of all assets of the troubled financial institutions would be disastrous.” Yes, all the troubled banks cannot sell their assets simultaneously when their lenders and depositors want their money back.
An old Washington friend of mine once asked, “If a good pilot can in an emergency land a jet plane in the Hudson River like Captain Sullenberger did, why can’t we handle financial crises better?” I replied, “To get the analogy right, you would have to picture landing a hundred crippled jets in the Hudson River together.”
“In the 1920s,” says Carlson, “the troubles in the banking system were also widespread… Congress leaned heavily on the Federal Reserve to support the banks.” The book suggests that the new Federal Reserve did well under the 1920s circumstances. The Fed “experienced a large number of successes when providing emergency funds to banks,” Carlson observes, but “other banks failed with discount window loans outstanding, which put the Federal Reserve in uncomfortable situations.”
Why were so many banks in trouble at the same time? The root cause was the First World War, as war was often the key factor in big financial events. As Carlson explains, the “Great War” created a huge agricultural boom in the U.S., and the boom set up the bust. Because of the war, “prices of agricultural commodities soared globally. U.S. farmers bought more land, planted more crops, and raised more livestock amid expectations that the boom would last.... A significant proportion of the expansion was financed through borrowing. … The price of farmland rose notably. … To purchase the increasingly expensive land…farmers needed to borrow.” Whether they needed to or not, many did. So did land speculators.
Then: “the collapse was as dramatic as the run-up had been. … Foreclosures [and bank failures] surged.” Across vast swaths of the country, an agricultural banking crisis descended.
Moral Hazard
In the 1920s, the Fed was fully aware that being ready to support troubled banks could induce more banking risk—the problem of “moral hazard.” This is the well-known general risk management problem in which saving people whenever they get in trouble makes them more prone to risky behavior.
Carlson writes, “The greater availability of the discount window…meant that managers and shareholders had more incentives to take liquidity risks.” He quotes the Federal Reserve Bank of Dallas in 1927: “Those extensions of credit simply serve to create further opportunities to make the same mistakes of judgement and to further prosecute the same unsound policies.”
The moral hazard dilemma of central banking, apparent 100 years ago and, indeed,100 years before that, will always be with us.
Distinguishing Illiquidity from Insolvency in the Pressure of the Crisis
In theory, lenders of last resort should address the problem of illiquidity, where the troubled bank is short of cash but the real value of its assets still exceeds the claims of its depositors and lenders. Thus, in theory, central banks should lend only to solvent borrowers. But to paraphrase Yogi Berra, in theory, illiquidity is different from insolvency, but in practice it often isn’t.
In Carlson’s more scholarly language:
A lender of last resort will often find it difficult to fully determine the extent to which the need for support is the result of insolvency versus illiquidity. …The experiences of the Federal Reserve in the 1920s highlight that in some cases it will be impossible to determine whether a bank is solvent at the time it requests funds.
In short, the lender of last resort suffered in the 1920s, and in crises, it will always suffer a “fog of financial crisis”—just like generals in Carl von Clausewitz’s celebrated “fog of war.” It is inevitably very difficult to know what is really going on and how big the losses will be.
The Banker’s First Loyalty vs. Shifting Losses to Depositors
The 1920s Fed was clear about classic banking ethics. Carlson quotes the Federal Reserve Bank of Chicago as “firmly of the opinion that the prime obligations of any bank are—first, to its depositors; second, to the stockholders; and third, to its borrowers.” Does the current Fed say anything that clear?
The Federal Reserve Bank of San Francisco agreed: “A bank’s first obligation is to its depositors. No course should be followed which jeopardizes a bank’s ability to pay its depositors according to the agreed terms. A bank’s second obligation is to its shareholders, to those who have placed their investment funds in charge of the directors and officers”; the borrowers were an also-ran.
Yet the Fed of the time knew that by acting as lender of last resort, which meant (and means today) taking all the best assets of the troubled bank as collateral to protect itself, the central bank was pushing losses to the remaining depositors. “Reserve Banks officials were aware,” Carlson writes, “that lending to support a troubled bank could end up allowing some depositors to withdraw funds while leaving the remaining depositors in a worse position.” I would change that “could end up” to “ends up.”
Carlson continues, “The depositors that did not withdraw would only be repaid from the poorer assets of the bank; that would likely mean that their losses would be worse than if the Federal Reserve had not provided a loan.”
The Federal Reserve Bank of San Francisco wrote in the 1920s that discount window lending should not “invade the rights of depositors by inequitable preferences to Federal Reserve Banks.” But it inevitably does.
With the advent of national deposit insurance in the 1930s, depositors as claimants on the failed bank’s assets were largely replaced by the Federal Deposit Insurance Corporation. The problem then became the Fed’s shifting losses to the FDIC. This was an important debate at the time of the FDIC Improvement Act of 1991, and it remains an unavoidable dilemma if the Fed can take the best available collateral at any time.
Credit Risk for the Fed
Today, the Fed tries to avoid taking any credit risk. It now gets the U.S. Treasury to take the credit risk as junior to it in various clever designs, like the “variable interest entities” formed for the 2008 bailouts. But we learn from the book that the Federal Reserve Banks actually suffered some credit losses on their Discount Window lending in the 1920s. That meant the borrowing commercial banks failed, and then the Fed’s collateral was insufficient to repay the borrowing. The combined Fed had credit losses of $1.1 million, $1.3 million, and $1.4 million in 1923, 1924, and 1925, respectively.
One hundred years later, in the 2020s, the Fed has zero credit losses but massive losses on interest rate risk. The aggregate losses arising from its interest rate mismatch are $225 billion as of March 27, 2025, and it has a hitherto unimaginable mark to market loss of over $1 trillion. One wonders what the Federal Reserve officers of the 1920s would have thought of that!
I conclude with three vivid images from the book:
Getting Bank Directors’ Attention
Carlson observes that the Federal Reserve Banks in the 1920s sometimes required personal guarantees from the borrowing bank’s board of directors’ members for Discount Window loans. When I related this to a friend, who is a successful bank’s Chairman of the Board, he replied, “That would get the directors attention!” I’m sure it did then and would today.
Mission to Havana
In 1926, there was a bank panic in Cuba involving American banks there, and more paper currency was needed to meet withdrawals. Carlson tells us that the Federal Reserve Bank of Atlanta “scrambled to assemble the cash and ship it to Cuba. … Atlanta assembled a special three-car train with right-of-way privileges to rapidly make the journey from Atlanta through Florida all the way to Key West. The train left from Atlanta late Saturday afternoon bearing the currency [and] Atlanta staff and guards. [In] Key West, the money was transferred to the gunboat Cuba…. The gunboat reached Havana harbor at 2:00 a.m. on Monday, whereupon a military guard escorted the currency…[allowing] delivery to the banks before their 9:00 a.m. opening. …and the panic subsided. … Federal Reserve officials received significant praise from the Cuban government.”
The Fed as cattle rancher
“In addition to the losses,” Calson writes, “dealing with the collateral could sometimes cause considerable headaches.” The Federal Reserve Bank of Dallas “ended up owning a substantial amount of cattle after defaults by both banks and ranchers. … Efforts to sell them had a meaningful impact on the local market prices… there were a number of complaints from the local cattlemen’s associations.” A 1925 memo from Dallas described the “challenges of managing several hundred head of cattle acquired from failing banks in New Mexico.” This seems a good parting vision for Carlson’s insightful study of the early Federal Reserve wrestling with a systemic agricultural banking crisis.
Overall, The Young Fed is a book well worth reading for students of banking, central banking, and the evolution of financial ideas and institutions.
Letter: Double standards add insult to depositors’ losses
Published in the Financial Times.
“Oklahoma bank failure reveals double standard” (November 23), Lex rightly says, but the US deposit insurance double standard is even more egregiously unfair than the article suggests. Many of the uninsured depositors of Silicon Valley Bank were wealthy venture capital, private equity and cryptocurrency firms and barons, who would without doubt claim for themselves top financial expertise. They should have known the risks they were taking with their outsized, unsecured, uninsured deposits.
Moreover, these financial experts should have been on top of the mismanaged state of that bank in which they had so much at risk. Instead of having other people’s money taken to make them whole, they richly deserved the haircuts they would otherwise have had on the remarkably imprudent risk they voluntarily took.
I imagine these bailed-out Silicon Valley depositors deserved the losses they didn’t take far more than do the uninsured depositors in Lindsay, Oklahoma, (population 2,866) deserve the losses they are taking.
Federalist Society Event: October 2nd: How Risky Are the Banks Now? What Regulatory Reforms Make Sense?
Hosted by the Federalist Society. RSVP to attend virtually.
October 2, 2023 at 1:00 PM ET
Six months ago, we experienced bank runs and three of the four largest bank failures in U.S. history. Regulators declared there was “systemic risk” and provided bailouts for large, uninsured depositors. What is the current situation? While things seem calmer now, what are the continuing risks in the banking sector? Banks face huge mark-to-market losses on their fixed-rate assets, and serious looming problems in commercial real estate. How might banks fare in an environment of higher interest rates over an extended period, or in a recession? Reform ideas include a 1,000-page “Basel Endgame” capital regulation proposal. Which reforms make the most sense and which proposals don’t? Our expert and deeply experienced panel will take up these questions and provide their own recommendations in their signature lively manner.
PANELISTS
William M. Isaac - Chairman, Secura/Isaac Group
Keith Noreika - Executive VP & Chairman, Banking Supervision & Regulation Group, Patomak Global Partners
Lawrence J. White - Robert Kavesh Professorship in Economics, Leonard N. Stern School of Business, New York University
MODERATOR
Alex J. Pollock - Senior Fellow, Mises Institute
June 16 event: The 2023 Bank Runs and Failures: What Do They Mean Going Forward?
Hosted by the Federalist Society.
William M. Isaac - Chairman - Secura/Isaac Group
Keith Noreika - Executive VP & Chairman, Banking Supervision & Regulation Group - Patomak Global Partners
Lawrence J. White - Robert Kavesh Professorship in Economics - Leonard N. Stern School of Business, New York University
MODERATOR
Alex J. Pollock - Senior Fellow - Mises Institute
This year’s sudden collapse of First Republic, Silicon Valley, and Signature banks were the second, third, and fourth largest bank failures in US history, bringing perceived systemic risk and bailouts of wealthy depositors. In addition, the global Credit Suisse bank collapsed and commercial real estate losses threatened. Politicians, regulators, and bankers are debating why the massive regulatory expansion following the last crisis didn’t prevent the renewed failures. Some emphasize repetition of the classic financial blunder of buying long and borrowing short. Others question the 2018 reforms to the Dodd-Frank Act, or cite the monetary actions of the Federal Reserve. Various proposals include more deposit insurance, mark-to-market accounting, higher capital requirements, more stress tests, or bigger regulatory budgets.
Our expert panel discusses the issues and risks going forward, the outlook for new legislation and regulation, and what, if anything, should be done.
Letter: Bagehot had much to say on the caution of bankers
Published in the Financial Times.
The run on Credit Suisse “has got every thoughtful banker and regulator in the world looking over their shoulder”, writes Robin Harding (Opinion, May 31).
Congratulations to them! They have understood the fundamental nature of the business they’re in. Walter Bagehot, the great 19th-century economist and journalist, had already explained this in Lombard Street in 1873: “A banker, dealing with the money of others, and money payable on demand, must be always, as it were, looking behind him and seeing that he has reserve enough in store if payment should be asked for.” Bagehot adds: “Adventure is the life of commerce, but caution is the life of banking.”
Alex J Pollock
Senior Fellow, Mises Institute, Auburn, AL, US
AEI May 9: Addressing the Underlying Causes of the Banking Crisis of 2023
View Alex’s address:
AEI, Auditorium
1789 Massachusetts Avenue NW
Washington, DC 20036
In June 2017, then–Federal Reserve Chairwomen Janet Yellen said that because of enhanced Dodd-Frank Act regulations, she did not believe there would be a new financial crisis in her lifetime. Unfortunately, like many Federal Reserve forecasts, this turned out too optimistic as regulators were forced to invoke emergency systemic risk powers to contain contagious bank runs. What went wrong? Was it a failure of monetary policy? Supervision? Regulation? What changes, if any, are needed?
Join AEI as a panel of experts discusses the causes of the recent banking crisis and the federal agencies’ forensic reports and policy prescriptions and shares their own views on what policies, regulations, and supervision practices need to be reformed.
Submit questions to Catriona.Fee@AEI.org.
If you are unable to attend, we welcome you to watch the event live on this page. After the event concludes, a full video will be posted within 24 hours.
Agenda
10:00 a.m.
Introduction:
Paul H. Kupiec, Senior Fellow, AEI
10:15 a.m.
Panel Discussion
Panelists:
Charles Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia University
Andrew Levin, Professor, Dartmouth College
Bill Nelson, Executive Vice President, Bank Policy Institute
Alex J. Pollock, Senior Fellow, Mises Institute
Moderator:
Paul H. Kupiec, Senior Fellow, AEI
12:00 p.m.
Q&A
12:30 p.m.
Adjournment
JPMorgan Chase, FDIC put an end to First Republic's slow bleed
Published in the American Banker:
"There's a lesson in that for all finance that what seems like a darling and a wonderful winner at one moment seems like the opposite only a little while later," said Alex Pollock, a former Treasury Department official.
…
"Obviously there's a very generalized problem of people making the most classic financial mistake, which is investing in long-term fixed-rate assets and funding them with floating-rate money," Pollock said. "They were lulled into it by the actions of the central banks — by keeping interest rates both long and short-term very low for very long periods of time, and convincing people that it was going to continue."
The Silicon Valley Bailout
Published in Law & Liberty.
In spite of the financial market losses and crashes of 2022, government agencies kept assuring us that the banking system was in good shape. Until it wasn’t. Then they were citing “systemic risk” as the reason for a bailout. Surprised again!
The Silicon Valley Bank (SVB) failed on March 10 with great fanfare, as befitted the second largest bank failure in U.S. history. It failed, it turns out, with the balance sheet mistake of borrowing very short and investing very long, a mistake so elementary as to display remarkable financial incompetence.
SVB’s failure was preceded by the collapse of Silvergate Bank, and followed by the failure of Signature Bank (the third largest bank failure), by lines of customers making withdrawals from First Republic Bank, and pressure on banks known to have large unrealized losses on their investments. As always happens in a banking crisis, the government intervened. In this case, it guaranteed the uninsured deposits at the failed banks—and presumably all banks—and created a special Federal Reserve loan facility backed by the U.S. Treasury that will lend on an under-collateralized basis to banks which have large market value losses on their bonds and mortgage-backed securities.
After SVB failed, wealthy depositors, including venture capitalists and cryptocurrency barons, presumably sophisticated financial actors, whose money was caught in the failure, immediately began begging the government for a bailout. (It is reasonable to assume that those among the begging parties who are large Silicon Valley Democratic contributors could get their calls to Washington answered.)
The SVB situation reminds us that deposits are in fact unsecured loans to the bank by another name. As everybody knows, for up to $250,000 per depositor per bank, they are guaranteed by the government. For any amount beyond that, as a lender, you are at risk, or supposed to be. If the banks fails, you become an unsecured creditor of the insolvent estate. Every big depositor in SVB knew this perfectly well. They nonetheless chose to make unsecured loans of huge amounts, in one case of $3.3 billion to one poorly managed bank. Thinking of them correctly as lenders, should sophisticated lenders who make bad loans suffer losses accordingly? Of course.
The perpetual wisdom of managing a bank was expressed by Walter Bagehot, the great financial thinker and partner in a successful private bank himself, 150 years ago. It has been re-learned to their sorrow by the banks, both failed and threatened, in recent days. Wrote Bagehot in 1873:
A banker, dealing with the money of others, and money payable on demand, must be always, as it were, looking behind him and seeing that he has reserve enough in store if payment should be asked for…. Adventure is the life of commerce, but caution… is the life of banking.
Bagehot added that what is required is “a wise apprehensiveness, and this every trained banker is taught by the habits of his trade, and the atmosphere of his life.” But the management of SVB and other failures, perhaps too caught up in a speculative environment and too focused on public relations, did not develop sufficient apprehensiveness.
Bagehot’s insight reflects the inherent logic of bank runs. Once a bank has lost its credibility and a widespread withdrawal of deposits and other credit has begun, the holder of a non-government guaranteed deposit (an unsecured loan to the bank, as we have said) is faced with a compelling logic. To hold on and keep the deposit in the now-risky bank has zero upside. The best you can ever get is your money back. But it has a huge downside: you may suffer a big loss on funds that you supposed had minimal risk, you may have even the money you do eventually get back tied up in a receivership, you will have made yourself a first class sucker, and if you are a professional short-term money manager, you may well lose your job. In sum: zero upside, huge downside. So you take the money now. Everyone else is making the same totally rational calculation, and good-bye bank.
All the desperate statements from the bank’s management, as long as they last in their jobs, that really everything is OK, will only convince you that things must be really bad—and every plea from the government to stay calm and have confidence will confirm that your fear is justified. As Bagehot also said, “Every banker knows that if he has to prove he is worthy of credit… in fact his credit is gone.” This is now being demonstrated once again.
Every bailout means taking some people’s money and giving it to others.
“Yellen dismisses bailout” began the page one headline of the Financial Times for March 13, the Monday after the Friday closure of SVB. But by the time that issue of the paper landed in my driveway, a huge bailout had been announced.
The FT article related that “Treasury Secretary Janet Yellen…dismissed calls from some of those with money caught up in SVB to launch a full-scale bailout.” “But,” it continued, “US authorities were facing mounting calls from investors, entrepreneurs and some lawmakers to step in more forcefully to ensure all depositors were made whole.”
Of course, that “all” only meant that big depositors were to made whole, since those with claims up to the quite respectable amount of $250,000 were guaranteed already. The $250,000 obviously covered all the widows and orphans and anybody of modest means. These are the people who proponents of government deposit guarantees always argue are unsophisticated and cannot understand how a bank works, so need to be unconditionally protected. But they already were. So the actual issue was bailing out very sophisticated venture capitalists, cryptocurrency promoters, and various billionaires, all of whom were quite capable of understanding the nature and risks of banking in the SVB fashion.
Should such sophisticated lenders to banks be bailed out from their own financial mistakes?
One partner of a Silicon Valley venture capital firm wrote in this context, “I’m sure many will look upon [SVB’s] demise…and chuckle gleefully about how the technology industry just got a spanking. So be it. We are not seeking special treatment or handouts.”
But they were seeking very special treatment and a very big handout: the government giving them in immediate cash 100% of their uninsured claims on a failed bank receivership. And they got the handout. Whether one was surprised or not by this is perhaps a measure on one’s cynicism.
It is easy for cynics to imagine the calls from the wealthy uninsured depositors and their agents with the U.S. Treasury, the Federal Reserve and the White House. Naturally, internet posts were soon talking of political favors to Silicon Valley Democratic contributors.
As my colleague, Benjamin Zycher, considered the matter:
Now that the bailout of the SVB depositors at 100 percent rather than the nominal $250,000 limit has been announced, it is difficult to discern whether the primary motivation is avoidance of future bank runs… or an old-fashioned effort to reward the wealthy friends of the Democratic Party in Silicon Valley.
As Ben suggests, it is probably both.
Every bailout means taking some people’s money and giving it to others. President Biden has claimed that this bailout does not involve taxpayer money. To the contrary, it makes the U.S. Treasury, in other words the taxpayers, first in line to take losses on the under-collateralized loans the Federal Reserve will make to banks under the bailout plan. Every such bailout tends to encourage risk taking and a lack of wise apprehensiveness in the next cycle.
Meanwhile, losses to the Federal Deposit Insurance Corporation from the bailout of the SVB’s wealthy depositors will be assessed on all other banks. That still means taking money from other people to give to the big SVB depositors. So a small, sound, careful bank in, say, small town Wisconsin, will have money taken from it to give to the California venture capitalists, crypto barons, and billionaires, to cover their losses from the incompetence of the Silicon Valley Bank. That is the idea. How do you like it?
The Mystery of Banking
The bank has ten billion this year,
But the money is surely not here—
It’s been quite lent away,
Pending some future day,
So it’s only a promise , that’s clear.
Is it borrowers then with their share
Who have the bank’s money to spare?
Nope! They’ve spent it all,
To get profits next fall,
So the money is clearly not there.
One may begin wondering where
Is this something not here and not there—
There’s a ten billion list,
But does money exist?
Such thoughts only lead to despair.
Alex J. Pollock, c. 1970
Financial pain in the behemoth assets
Published in The Australian:
“Are banks too big to fail? Of course they are, as much as ever and probably even more so,” says Alex Pollock, who was deputy director of financial research at the US Treasury until February.
...
The US Federal Reserve banks have become the biggest player in the commercial banking system. “They are now huge home lenders; their $US2.2 trillion of mortgage loans is bigger on an inflation-adjusted basis than the entire savings and loans industry before its collapse in the 1980s,” Pollock says.
Governments and regulators quite like a big, concentrated financial system, which explains why little real reform was achieved in the wake of the financial crisis. What did happen was a huge increase in complexity that benefits large incumbents and regulators themselves. Regulators can “manage the system” more easily and treasurers can enjoy lower interest rates. And activist central banks can ensure governments enjoy much lower borrowing costs than otherwise.
“Banking everywhere has been, is and will be a deal between bankers and politicians,” Pollock says.
Government policies reshape the banking industry: Changes, consequences, and policy issues
Hosted by the American Enterprise Institute.
On April 12, AEI’s Paul H. Kupiec hosted a panel discussion on recent changes in the banking industry and their consequences for the wider economy. He reviewed how the industry has consolidated, is lending less to the private sector, and is relying more on federal guarantees.
Richard E. Sylla of New York University summarized the history of the banking industry. Aside from a 50-year period of stability, US banking has trended toward a system characterized by a few large banks with extensive branch systems, branch systems that are now in decline themselves.
Charles Calomiris of Columbia University summarized more recent trends in the banking industry as a “three-legged stool”: extreme consolidation, extreme dependency on government support, and reliance on real estate lending. Alex J. Pollock of the R Street Institute added that the greater “banking credit system” is increasingly influenced by the Federal Reserve and government-sponsored enterprises.
Bert Ely of Ely & Company enumerated the industry risks. Depository institutions are intermediating deposits into government debt. Low interest rates have also squeezed bank margins and reduced the cushion to absorb losses that may arise from the pandemic.
— John Kearns
Event Description
The federal government response to the 2008 financial crisis, including new laws, prudential regulations, and Federal Reserve monetary policies, has left a lasting impact on the banking industry. Not only has the number of independent depository institutions almost halved since 2000, but the industry has also become much more concentrated in a few large “systemically important” institutions. Moreover, the characteristics of the largest banks have changed dramatically according to incentives established by heightened prudential regulatory requirements and the Federal Reserve’s long-lived zero interest rate environment.
Join AEI as a panel of banking experts discusses postcrisis changes in the banking industry and their consequences for the wider economy.
Event Materials
Paul H. Kupiec: “20 years of banking history in 67 charts and tables”
Richard Sylla: “From exceptional to normal: Changes in the structure of US banking since 1920”
Alex J. Pollock, Hashim Hamandi, and Ruth Leung: “Banking credit system, 1970–2020”
Charles W. Calomiris: “Introduction: Assessing banking regulation during the Obama era”
Agenda
10:00 AM
Introduction and opening remarks:
Paul H. Kupiec, Resident Scholar, AEI
10:15 AM
Panel discussion
Panelists:
Charles Calomiris, Henry Kaufman Professor of Financial Institutions, Columbia University
Bert Ely, Principal, Ely & Company
Alex J. Pollock, Distinguished Senior Fellow, R Street Institute
Richard E. Sylla, Professor Emeritus of Economics, New York University
Moderator:
Paul H. Kupiec, Resident Scholar, AEI
11:30 AM
Q&A
12:00 PM
Adjournment
What Drove Five Decades of Big Changes in Banking?
Published by the Office of the Comptroller of the Currency.
A new post authored by Alex J. Pollock, Hashim Hamandi, and Ruth Leung (2021) on the Office of Financial Research (OFR) website helps answer that question, and it focuses specifically on the changes in U.S. banking that occurred from 1970 to 2020. The analysis includes chartered state and national banks, other depository institutions, and some specialized banking intermediaries, such as the 12 Federal Reserve Banks, and what the authors label the government mortgage complex, which consists of Fannie Mae, Freddie Mac, and Ginnie Mae. It also considers subgroups of banks—in particular, the ten largest commercial banking enterprises.
…
Much of this is well known. What is less understood is how the expansion in the generosity of deposit insurance has fueled real estate lending by deposit-financed intermediaries. A typical U.S. bank today has about three-quarters of its lending devoted to real estate loans of some kind. As observed by Pollock (2019), “We still use the term ‘commercial banks,’ but a more accurate title for their current business would be ‘real estate banks.’” This is a far cry from the prohibition on real estate lending for national banks prior to 1913. How does increased deposit insurance generosity affect banks’ mortgage lending?
…
Alex J. Pollock (2019), “Bigger, Fewer, Riskier: The Evolution of U.S. Banking since 1950,” The American Interest , February 25.
Alex J. Pollock. Hashim Hamandi, Ruth Leung (2021). “Fifty-Year Changes in the Banking Credit System, 1970-2020.” Post, Office of Financial Research.
Banking Credit System, 1970-2020
Published by the Office of Financial Research, U.S. Department of Treasury.
BY Alex J. Pollock, Hashim Hamandi, Ruth Leung, OFR*
This essay puts the depository institutions industry into broad historical perspective, looking at the fifty year changes from 1970 to 2020.
For this analysis, we aggregate the Banking Credit System, defined as the government-chartered depositories and their principal chartered support entities. We define the relevant components as:
The largest ten bank holding companies (BHCs)
All other insured depository institutions
The Government Mortgage Complex (Fannie Mae + Freddie Mac + Ginnie Mae)
The Federal Reserve Banks.
As the following five tables demonstrate, the changes in this system and its components over this period with respect to asset size, relative size, share, size relative to nominal GDP, and long-term growth rates are dramatic.
As shown in Tables 1 and 2, there has been dramatic expansion in the scale of the institutions involved. Table 1 measures this in nominal dollars. Table 2 adjusts these numbers for inflation, using constant 2020 dollars. The increase in size in both nominal and real terms is remarkable.
Over the same period, the number of insured depositories has dropped dramatically: from over 19,800 in 1970 to about 5,000 in 2020—a reduction of 75% since one co-author (Alex Pollock) was a bank management trainee.
Meanwhile, the huge residential mortgage sector has become dominated by the Government Mortgage Complex, which was in 1970 relatively small, almost a rounding error, but has grown very big indeed. In nominal terms, it is now almost 260 times as big as it was in 1970, compared to the depository institutions asset growth of 28 times.
Table 1.
(1)Our goal is to understand the banking sector. If we expanded to non-bank companies, the size and growth would be even larger. Some of these companies’ activity is reflected in the Government Mortgage Complex, where they have a dominant share of mortgage servicing, and also in auto loans, credit cards and other consumer lending.
(2)1971
Of course, a lot of the growth when expressed in nominal dollars represents the endemic inflation of the post-1970 monetary regime. Table 2 shows the system’s still remarkable growth after adjusting for inflation.
Table 2.
(1)Values for 1970 are expressed in constant 2020 dollars using CPI values for June 2020 and December 1970.
Equally remarkable is the shift in the composition of the system, as shown in Table 3.
The ten largest BHCs in 1970 together equaled only 16% of the Banking Credit System, equal to about one-quarter of the aggregate size of all the other insured depositories. By 2020, the top ten have become 34% of the total system and have 1.3 times the assets of all the rest of the banks put together. Alternately stated, over these decades the consolidation of the historically highly fragmented American banking business has proceeded very far.
The big winners of share of the system over 50 years are the largest ten banks, the Government Mortgage Complex, and the Fed. The big losers of share are all the other depository institutions.
Table 3.
(1)Totals may not sum exactly due to rounding.
As shown in Table 4, the Banking Credit System over 50 years grew enormously relative to the economy as a whole—from 89% to 182% of GDP.
Table 4.
(1)Totals may not sum exactly due to rounding.
The assets of the biggest ten banks grew much faster than the other banks, increasing from 14% to 62% of GDP. All the other banks put together, now numbering about 5,000, fell from 63% to 47% of GDP.
The Government Mortgage Complex hugely inflated from 3% of GDP to 40%, by far the biggest change.
Table 5 shows the 50-year compound average rates of growth, both nominal and real, for the Banking Credit System, and GDP growth rates as a baseline comparison.
Table 5.
The Banking Credit System as a whole grew substantially faster than GDP over 50 years.
The Federal Reserve, now by far the biggest bank of all, grew much faster than GDP.
The Government Mortgage Complex grew fastest of all by far, at 11.8% per year in nominal terms, almost double the 6.1% for nominal GDP.
In Sum
Over the last 50 years, the Banking Credit System grew vastly bigger relative to the economy, much more consolidated, and much more dependent on both the government mortgage complex and the government’s central bank, greatly increasing its dependence on explicit and implicit government guarantees. This history exemplifies the maxim of Charles Calomiris and Stephen Haber (1) that every banking system is a deal between the bankers and the politicians.
(1)Fragile by Design (2014)
*Views and opinions expressed are those of the authors and do not necessarily represent official positions or policy of the OFR or Treasury. All the data used in this paper are from public sources, including the Board of Governors of the Federal Reserve System, Congressional Budget Office, Federal Deposit Insurance Corp., Department of Housing and Urban Development, Office of Federal Housing Enterprise Oversight and U.S. Bureau of Labor Statistics.
In Memoriam: George Kaufman, PhD
Published in Loyola University Chicago.
At a retirement dinner held following the conference, banking leader Alex J. Pollock gave a speech about Kaufman and his contributions to the field entitled “57 Years of Banking Changes and Ideas.” He ended his remarks: “Let us raise our glasses to George Kaufman and 57 years of achievement, acute insights, scholarly contributions, policy guidance and professional leadership, all accompanied by a lively wit. To George!” Read Pollock’s entire speech→
Comment Letter To OCC, Board of Governors of the Federal Reserve System, and FDIC
Published by the R Street Institute.
Via e-mail to:
Office of the Comptroller of the Currency
Board of Governors of the Federal Reserve System
Federal Deposit Insurance Corporation
Re.: Comments on the Proposed Joint Rule on “Regulatory Capital Treatment for Investments in Certain Unsecured Debt Instruments of Global Systemically Important U.S. Bank Holding Companies, Certain Intermediate Holding Companies, and Global Systemically Important Foreign Banking Organizations”
OCC: Docket ID OCC-2018-0019; RIN 1557-AE38
Board: Docket No. R-1655; RIN 7100-AF43
FDIC: RIN 3064-AE79
Dear Sirs and Mesdames:
Thank you for the opportunity to comment on this proposed joint rule.
In my view, the logic of the proposal is impeccable. Because it is, it should be applied to another, parallel situation, as discussed below. The proposal’s objective, “to reduce interconnectedness and contagion risk among banks by discouraging banking organizations from investing in the regulatory capital of another financial institution,” makes sense, but might be improved by adding, “or if such investments are made, to ensure that they are adequately capitalized.”
I believe another rule with exactly the same logic and exactly the same objective is required to address a key vulnerability of the U.S. banking system. That is to apply the logic of the proposed rule to any investments made by U.S. banks in the equity securities of Fannie Mae and Freddie Mac, two of the very largest and most systemically risky of American financial institutions. As you know, hundreds of American banks took steep losses on their investments in the preferred stock of Fannie and Freddie when those institutions collapsed, and such investments caused a number of banks to fail. That banks were able to make these investments on a highly leveraged basis was, in my judgment, a serious regulatory, as well as management, mistake. On top of this, U.S. regulations allowed banks to own Fannie and Freddie securities without limit.
Banks were thus encouraged by regulation to invest in the equity of Fannie and Freddie on a hyper-leveraged basis, using insured deposits to fund the equity securities. Hundreds of banks owned about $8 billion of Fannie and Freddie’s preferred stock. For this disastrous investment, national banks had a risk-based capital requirement of a mere 1.6%, since changed to a still inadequate 8%. In other words, they owned Fannie and Freddie preferred stock on margin, with 98.4%, later 92%, debt. (With due respect, your broker’s margin desk wouldn’t letyou do that.)
In short, the banking system was used to double leverage Fannie and Freddie, just as the investments in TLAC debt addressed by the proposal would otherwise double-leverage big banks. To analogously correct the systemic risk, when banks own Fannie and Freddie equities, they should have a dollar-for-dollar capital requirement, so that it really would be equity from a consolidated system point of view.
I respectfully recommend, true to the principle and the logic of the proposed joint rule, that any investments by a bank in the preferred or common stock of Fannie and Freddie should be deducted from its Tier 1 regulatory capital. I believe this should apply to banks of all sizes.
These are my personal views. It would be a pleasure to provide any further information or comments which might be helpful.
Thank you for your consideration.
Respectfully,
Alex J. Pollock
Do you believe central bank assurances?
Published by the R Street Institute.
To reassure savers worried about the safety of their deposits, the Reserve Bank of India (India’s central bank) recently announced it “would like to assure the general public that Indian banking is safe and stable and there is no need to panic.”
The problem is that when government officials issue such assurances, do you believe them?
Governments confronted by the risk of a banking crisis have to say the same thing regardless how severe the risk really is. They must say that the system is safe and you should not panic, because they are afraid that, by sharing any doubts, they would themselves set off the panic they fear. Therefore, their statements of assurance have no informational substance.
“When it becomes serious, you have to lie,” Jean-Claude Juncker, then head of the eurozone finance ministers, with admirable candor said of the European financial crisis of the 2000s.
“We have no plans to insert money into either of those two institutions,” Treasury Secretary Henry Paulson said of Fannie Mae and Freddie Mac in the summer of 2008. One month later, he began inserting into both of them what became $187 billion of bailout money.
Governments and banks in stressed situations are up against Walter Bagehot’s insight into the fragility of credit. “Every banker knows that if he has to prove he is worthy of credit,” Bagehot wrote in 1873, “in fact his credit is gone.” I imagine that will always be true.
The term “credit” comes from credo = “I believe.” In a threatened crisis, you suddenly realize that you have not much ground, if any, for believing in a bank’s soundness or believing the government’s assurances that things are fine.
Echoes of the US savings and loan industry’s collapse
Published in the Financial Times.
Metro Bank has the problem so pointedly observed by the great Walter Bagehot in 1873: “Every banker knows that if he has to prove he is worthy of credit . . . in fact his credit is gone.”
Your editorial “Metro panic shows need for proactive regulation” (May 14) says “Metro’s loan book . . . is fully covered by customer deposits.” Of course, customer deposits are not inherently stable — they are inherently unstable. Their stability, as you suggest, is solely due to the guarantee provided by the government.
This fact, so humbling for bankers, has powerful effects, most strikingly shown by the collapse of the US savings and loan industry in the 1980s. Savings institutions that were irredeemably insolvent were nonetheless able to keep their deposits because they were guaranteed by a government deposit insurance fund. However, this fund, the Federal Savings and Loan Insurance Corporation, was publicly admitted to be itself broke! But the depositors correctly believed that behind it all the time was the US Treasury, as in fact it was. This allowed many insolvent S&Ls to keep funding disastrous speculations, which made the ultimate cost to the Treasury far bigger.
Bigger, Fewer, Riskier: The Evolution of U.S. Banking Since 1950
Published in The American Interest.
The total assets of JPMorgan Chase, the biggest U.S. bank, are now about $2.6 trillion. The total assets of the entire American commercial banking system in 1950 were $167 billion. In nominal dollar terms, Morgan by itself is more than 15 times as big as all the banks in the country together were in 1950, when Harry Truman was President and the United States was enjoying an economic boom after the cataclysms of the Depression and the Second World War. The fourth largest bank today, Wells Fargo, with $1.9 trillion in assets, is 11 times as big as the whole banking system was then.
Of course, there has been a vast price inflation and depreciation of the dollar over that time, so that a dollar today is worth about what a dime was in 1950. Adjusting the 1950s number for total banking assets to 2018 dollars brings it to $1.7 trillion. Thus in inflation-adjusted terms Morgan alone is still about 1.5 times as big—and Wells Fargo 1.1 times as big—as the whole banking system in the 1950s. Are these banks “too big to fail”? Of course they are. But so were the biggest banks in 1950.
On average over the past seven decades, banking assets and loans have grown more rapidly than the U.S. economy. In 1950, total banking assets were 56 percent of a GDP of $300 billion. Now at about $16.5 trillion, they are more than 80 percent of a GDP topping $20 trillion. Total bank loans relative to GDP grew even faster than banking assets did, from 18 percent of GDP in 1950 to 45 percent today.
Thus banking both in absolute terms and relative to the economy has gotten much bigger over the decades, but there are many fewer banks than there used to be.
“Ours is a country predominantly of independent local banks,” approvingly said Thomas McCabe, then Chairman of the Federal Reserve, in a commencement address in 1950. As McCabe observed, banking was then mostly a local business. There were at that point 13,446 commercial banks. The U.S. population was 153 million. Now there are 4,774 commercial banks for a population of 329 million. So as the American population has more than doubled, the number of commercial banks dropped by 64 percent.
In 1950, there were also 5,992 savings and loan institutions. Today there are 703, so the total of insured depositories fell from 19,438 in 1950 to 5,477 today, or by 72 percent. The previous multitude of banks was the result of unique American politics in which agrarian interests protected small, local institutions. The reduced numbers have moved closer to what a market outcome would ordain. We can expect the consolidation to continue.
As to risk, in the entire decade of the 1950s, there were a mere 28 commercial bank failures—only 0.2 percent of the average number of banks. But banking got a lot riskier as time went on, particularly in the financially disastrous 1980s. In that decade, 1,127 commercial banks failed—40 times the failure rate of the 1950s. Maybe the bankers hadn’t gotten smarter, although they certainly employed more MBAs. State and Federal regulators didn’t appear any smarter either.
In addition to the bank failures, 909 savings and loans failed in the 1980s, bringing the total depository failures for the decade to 2,036—about four per week over ten years. Tough times! When the savings and loan industry collapsed, its government deposit insurer, the Federal Savings and Loan Insurance Corporation, also went broke, triggering a $150 billion taxpayer bailout.
The 1990s were not as bad as the 1980s, but 442 commercial banks (16 times as many as in the 1950s) and 483 savings and loans failed, for a total of 925.
The Federal Reserve optimistically announced that the 21st century heralded a new, stable era—“The Great Moderation.” Soon after that, however, came financial crisis and panic, showing once again that bankers and regulators have not gotten smarter, despite the addition of many PhDs in mathematics and science to the ranks of the MBAs in the finance industry. Ben Bernanke, then Chairman of the Federal Reserve, judged in 2006 that “banking organizations of all sizes have made substantial strides over the past two decades in their ability to measure and manage risks.” That was just before the 2007-09 financial crisis. Apparently they hadn’t made such big strides after all.
Since 2000, 573 depository institutions have failed, of which 486 have been commercial banks. There would have been more failures without the government’s emergency TARP investments in banks, improvised government guarantees, and other forms of bailouts. These include the bailouts of the insolvent Fannie Mae and Freddie Mac, much of whose debt was held by banks, as was encouraged by regulation.
Should we want a banking system with no failures, as was virtually the case in the 1950s? Of course not. As the distinguished economist Alan Meltzer put it, “Capitalism without failure is like religion without sin.” Economic growth requires risk-taking and hence the failures that go with it. But we don’t want too much systemic risk, or for the banking system to collapse from time to time. Since 1950, the United States has experienced both extremes. No one knows how to achieve the golden mean.
We can see how much American banking has changed in the course of one lifetime. But one thing did not change: the tight connection between banking and the government. As banking scholar Charles Calomiris has convincingly summed it up, all banking systems are a deal between the politicians and the bankers.
Of course, the details of the deal shift over the decades. Congress frequently legislates about banking (as detailed further below). One watershed banking enactment was the Federal Reserve Act of 1913, which created the U.S. central bank, the proper role of which was still being debated in 1950. At the time of its origin, it was thought that the Federal Reserve would end financial crises and panics: obviously it didn’t and relative to this hope the act was a failure. But the act was a definite success at creating what it called an “elastic currency”—the ability of the Federal Reserve to create more money and allow banks to expand. This ability in its original form was subject to the gold standard, which meant keeping dollars freely convertible to gold. We today can hardly imagine then-prevailing idea that you could go to your bank any time and turn in your paper dollars for gold coins minted by the United States at a fixed parity rate. This idea was only a memory by 1950, but under the 1944 Bretton-Woods agreement, the U.S. government was still promising to foreign governments that they could redeem dollars for gold.
In 1971, after various dollar crises, the government reneged on this commitment, which was the last vestige of the gold standard. With that, the dollar became far more elastic than the authors of the Federal Reserve Act could ever have imagined. The Federal Reserve became able to expand the currency and the credit base of banking by as much as it wanted. It could either print up more paper dollars, or more directly, simply credit the deposit accounts banks have with it to expand the supply of money. This can be done without limit except for the Federal Reserve’s own judgment and the extent of political controversy it is willing to endure.
Since 1950, an essential banking system development is that the Federal Reserve has grown ever more prominent, more prestigious and more powerful. Whether a republic should trust such immense money power to the judgment (which is actually the guessing) of its central bank is a fundamental political question to which the answer is uncertain.
But it is certain that the banking system, including the central bank as a key component, is highly useful to governments, especially to finance wars. A well-developed banking system that can lend large sums of money to the government is a key military advantage. This is a classic element in banking. The deal between politicians and bankers that created the Bank of England in 1694 was that the new bank would lend the government money to finance King William’s wars, in exchange for monopoly currency issuing privileges. U.S. national banks were created in 1863 to finance the Union armies in the Civil War; they bought government bonds and in exchange got to issue a national currency. The Federal Reserve first established its importance by lending money for the purchase of government bonds to finance American participation in the First World War. The young Fed “proved in war conditions an extremely useful innovation,” as a 1948 study of American banking observed.
The banks of 1950 were stuffed with Treasury securities as a result of their having helped finance the Second World War. At that time, the Federal Reserve was buying as many Treasury bonds it took to keep the interest rate on long bonds at 2.5 percent, to keep down the interest cost to the government. This was also meant to keep the market price of the banking system’s huge bond portfolio steady.
At that point, the banks in total owned more Treasury securities than they had in loans. Treasuries were 37 percent of their total assets—an unimaginably high proportion now. Total loans were only 31 percent of assets—now unimaginably low. These proportions made the balance sheet of the banking system very safe. In remarkable contrast, banks today have merely 3 percent of their assets in Treasury securities (see graph 3).
In the banking system of 1950, reflecting the experience of the 1930s, the government was intent on protecting the banks by reducing competition for and among them. Arthur Burns, who was Chairman of the Federal Reserve 1970-78, looked back from 1988 in The Ongoing Revolution in American Banking to explain the 1950s banking regime:
The legislation suppressed competition not only among banks but also between banks and other financial institutions. The ability of banks to compete with one another geographically was limited by rules on chartering and branching. No new bank could set up business without acquiring a national or state charter, and the authorities were disinclined to grant a charter if existing banks would suffer. . . . The ability of banks to compete with one another for demand deposits was limited by a prohibition against payment of interest on such deposits. . . . Banks could offer interest on time and savings deposits . . . but the amount they could pay was limited by a regulation known as Reg Q. . . . Competition between banks and other financial institutions was limited by restrictions on the kind of services each could offer.
In short, the government restricted competitive entry and limited price and product competition. The design was to promote safety by effectively having a banking cartel, with the government as the cartel manager.
This cartel idea was removed step by step in succeeding decades. The Regulation Q price controls, a big political deal in their day, proved a painful problem in the severe “credit crunches” of 1966 and 1969. They were obviously outdated by the time interest rates went into double digits in the 1970s and 1980s, and were belatedly removed. As the 1960s became the 1970s, U.S. banking had become more competitive, innovative, international and interesting, but also riskier. Banking scholars could discuss “the heightened entrepreneurial spirit of the banking industry” in 1975. Of course, there cannot be a competitive market without failures, in banking as in everything else, and we have observed the failures of the 1980s, 1990s and 2000s. But the tight link between banking and the government continued.
By the 1950s, banks had become accustomed to depending on having a lot of their funding guaranteed by the government in the form of deposit insurance. Although many banks had originally opposed the idea as promoting weak and unsound banking, they became and remain today absolutely hooked on it. It has come to seem part of the natural financial order.
But government guarantees of deposits, as is known to all financial economists, tend to make banks riskier, although it simultaneously protects them against bank runs. This combination of effects is because their depositor creditors no longer have to worry about the soundness of the bank itself. Consequently, unsound banking ventures can still attract plenty of funding: This is called “moral hazard,” and its importance in every financial crisis of recent decades can hardly be overstated. To try to control the risk to itself generated by moral hazard, the government must regulate more and more—but its attempt to control risk in this fashion has often failed.
Nonetheless, the extent of deposit insurance has been increased over time. The year 1950 saw a doubling in the amount of deposit insurance per depositor from $5,000 to $10,000. Since then, it has grown 25 times larger in nominal terms, to $250,000, and three times bigger in real terms. These increases are shown below.
As Arthur Burns observed, banks were formerly forbidden to pay interest on demand deposits (checking accounts). In 1950, these deposits comprised the great majority of the banks’ funding—75 percent of the total liabilities of the banking system. That meant that by law 75 percent of the funding had zero interest cost. I well remember as a bank trainee in 1970 having an old banker explain to me: “Remember that banks succeed or fail according to this one number—demand deposits.”
Those days are gone. Demand deposits now are only 11 percent of bank liabilities, and banks can pay interest on them. The graph below shows the historical decline of demand deposits in bank balance sheets.
One of the riskiest classes of credit are real estate loans, which are central to most banking crises. In 1950, real estate loans were only 26 percent of the total loans of the banks. But since then, having accelerated in the 1980s, they have grown to be the predominant form of bank credit, reaching 57 percent of all loans in 2006, just before the real estate collapse. They are now 47 percent of all bank loans, and in the majority of banks, those under $10 billion in total assets, are 72 percent of loans.
We still use the term “commercial banks,” but a more accurate title for their current business would be “real estate banks.”
We may consider together the trends of reduction in the lowest-risk assets, the decline of demand deposit funding, and the shift to riskier real estate credit by combining graphs 3, 4 and 5 into graph 6. The balance sheet of the banking system from 1950 to now has utterly changed.
During these seven interesting banking decades, Congress has been busy legislating away. This is natural: As long as the close connection of the government and banks continues, so will their dynamic interaction through politics, and so will congressional attempts to direct or improve the banking system, or to fix it after the busts that recur in spite of repeated attempted fixes.
Below is a list of the remarkable amount banking legislation since 1950. The mind boggles at the vast volume of congressional hearings, lobbyist meetings, and political speeches all this legislation entailed.
Federal Deposit Insurance Act of 1950
Bank Holding Company Act of 1956
Bank Merger Act of 1960
Bank Merger Act of 1966
Bank Holding Company Act Amendments of 1966
Interest Rate Adjustment Act (1966)
Financial Institutions Supervisory Act of 1966
Fair Housing Act (1968)
Truth in Lending Act of 1968
Emergency Home Finance Act of 1970
Fair Credit Reporting Act (1970)
Bank Holding Company Act Amendments of 1970
Equal Credit Opportunity Act (1974)
Real Estate Settlement Procedures Act of 1974
Home Mortgage Disclosure Act of 1975
Fair Debt Collection Practices Act (1977)
Community Reinvestment Act (1977)
Federal Reserve Reform Act of 1977
International Banking Act of 1978
Financial Institutions Regulatory and Interest Rate Control Act of 1978
Depository Institutions Deregulation and Monetary Control Act of 1980
Garn-St Germain Depository Institutions Act of 1982
Competitive Equality Banking Act of 1987
Financial Institutions Reform, Recovery, and Enforcement Act of 1989
Federal Deposit Insurance Corporation Improvement Act of 1991
Housing and Community Development Act of 1992
Riegle Community Development and Regulatory Improvement Act of 1994
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
Economic Growth and Regulatory Paperwork Reduction Act of 1996
Gramm-Leach-Bliley Act of 1999
International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001
Sarbanes-Oxley Act of 2002
Check Clearing for the 21st Century Act (2003)
Fair and Accurate Credit Transactions Act of 2003
Federal Deposit Insurance Reform Act of 2005
Financial Services Regulatory Relief Act of 2006
Housing and Economic Recovery Act of 2008
Emergency Economic Stabilization Act of 2008
Helping Families Save Their Homes Act of 2009
Credit CARD Act of 2009
Dodd-Frank Wall Street Reform and Consumer Protection Act (2010)
an Act to instruct the Inspector General of the Federal Deposit Insurance Corporation to study the impact of insured depository institution failures (2012)
Reverse Mortgage Stabilization Act of 2013
Money Remittances Improvement Act of 2014
Credit Union Share Insurance Fund Parity Act (2014)
an act to enhance the ability of community financial institutions to foster economic growth and serve their communities, boost small businesses, increase individual savings, and for other purposes (2014)
American Savings Promotion Act (2014)
FAST Act (this cut Federal Reserve dividends to large banks) (2015)
Economic Growth, Regulatory Relief and Consumer Protection Act (2018)
In conclusion, we may consider three different perspectives on long-term banking change.
In the 1980s an old employee was retiring after 45 years with the Bank of America, so the story goes. The chairman of the bank came to make appropriate remarks at the retirement party, and thinking of all the financial developments during those years, asked this long-serving employee, “What is the biggest change you have seen in your 45 years with the bank?” His reply: “Air conditioning.” Arthur Burns summed up 1950s banking in this way: “This was a simple system, operating in a simple financial world.” But that is not how it seemed at the time, or at any time. As William McChesney Martin, Chairman of the Federal Reserve 1951-70, said in a 1951 speech to the American Bankers Association: “We are all painfully aware today of the manifold and overpowering complexities of our modern life.”
That feeling characterizes all the years from then to now.