Disclosure and Monitoring Regulation in the Commercial Banking Industry: Lessons from the National Banking Era

• In Event: Financial Reporting of Banks

Abstract

I investigate the motives and implications of disclosure and monitoring regulation for the commercial banking industry by exploiting the temporal and spatial variation in their implementation in the US State economies of the late nineteenth and early twentieth century. I predict and find that the requirement to publish reports of condition significantly lowers the failure rate of state banks and fosters financial development in the state. I do not find significant results for the introduction of mandatory bank supervision by public examiners. Overall, these results are consistent with the hypothesis that disclosure regulation have a positive impact on financial stability and development due to their positive effect on the safety and trustworthiness of the banking system. Analyzing the 1888 Illinois and Michigan referenda on the implementation of disclosure and monitoring provisions for the state banking industry, I find that counties where certain incumbent groups are particularly strong were less likely to vote favorably for the enactment of the laws. This suggests that these incumbent groups expected these laws to promote financial development and fought against their passage to protect their rents.

Author

• Joao Granja, The University of Chicago