The Evolution of Bank Supervisory Institutions: Evidence from American States

Abstract

We use a novel data set spanning 1820–1910 to assess the factors leading to the creation of formal bank supervisory institutions across American states. We show that it took more than a century for all states to create separate agencies tasked with monitoring the safety and soundness of banks. State legislatures initially pursued cheaper regulatory alternatives, such as double liability laws; however, banking distress at the state level as well as the structural shift from note-issuing to deposit-taking commercial banks and competition with national banks propelled policymakers to adopt costly and permanent supervisory institutions.

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