Jan 20, 2009
Minor Correction on the History of Bank Regulation
The following misleading statement appears in a recent Marginal Revolution post by Tyler Cowen about"Itty bitty banks":"By the way the 1927 McFadden Act banned interstate branch banking." I mention this not to pick on Tyler but because the error is frequently repeated in Money and Banking texts.
In fact, it was the National Currency Act of 1864 that banned any branching whatsoever (interstate or intrastate) on the part of nationally chartered banks, except for a few grandfathered state-chartered banks who already had branches and who charter switched. The McFadden Act of 1927 was actually a relaxation of this restriction, granting nationally chartered banks the same intrastate branching authority enjoyed by state-chartered banks in whatever state they happened to reside.
I should add that none of these laws applied to state-chartered banks, who until the end of the twentieth century had never enjoyed interstate branching privileges, and whose intrastate branching was always governed by state law. Most of the state bans on branching emerged in the antebellum era, and many were part of state free-banking laws.
In fact, it was the National Currency Act of 1864 that banned any branching whatsoever (interstate or intrastate) on the part of nationally chartered banks, except for a few grandfathered state-chartered banks who already had branches and who charter switched. The McFadden Act of 1927 was actually a relaxation of this restriction, granting nationally chartered banks the same intrastate branching authority enjoyed by state-chartered banks in whatever state they happened to reside.
I should add that none of these laws applied to state-chartered banks, who until the end of the twentieth century had never enjoyed interstate branching privileges, and whose intrastate branching was always governed by state law. Most of the state bans on branching emerged in the antebellum era, and many were part of state free-banking laws.