Independent Regulators and Financial Stability: Evidence from Gubernatorial Campaigns and a Progressive Era Policy Experiment

Marco Del Angel and Gary Richardson

No 29938, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Regulatory independence forms a foundation for modern financial systems. To illuminate the value of this ubiquitous institution, we examine a Progressive Era policy experiment in which hitherto independent regulators came under gubernatorial supervision. After this change, failure rates declined during gubernatorial election campaigns for banks under gubernatorial jurisdiction. Declines did not occur during campaigns for other officials or for nationally chartered banks. Declines in bank resolutions during campaigns reduced business bankruptcies. We corroborate these claims with new data and novel IV regressions. Our results indicate that political subservience of financial regulators links electoral and economic cycles.

JEL-codes: G01 G21 G33 H1 H7 K2 L51 N1 N2 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-ban, nep-fdg, nep-his and nep-reg
Note: DAE EFG ME POL
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