Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms

Randall S. Kroszner and Philip E. Strahan

No 7582, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper provides a positive political economy analysis of the most important revision of the U.S. supervision and regulation system during the last two decades, the 1991 Federal Deposit Insurance Corporation Improvement Act (FDICIA). We analyze the impact of private interest groups as well as political-institutional factors on the voting patterns on amendments related to FDICIA and its final passage to assess the empirical importance of different types of obstacles to welfare-enhancing reforms. Rivalry of interests within the industry (large versus small banks) and between industries (banks versus insurance) as well as measures of legislator ideology and partisanship play important roles and, hence, should be taken into account in order to implement successful change. A divide and conquer' strategy with respect to the private interests appears to be effective in bringing about legislative reform. The concluding section draws tentative lessons from the political economy approaches about how to increase the likelihood of welfare-enhancing regulatory change.

JEL-codes: D72 D78 (search for similar items in EconPapers)
Date: 2000-03
New Economics Papers: this item is included in nep-cdm, nep-his, nep-ifn, nep-pbe and nep-pol
Note: ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Published as Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms , Randall S. Kroszner, Philip E. Strahan. in Prudential Supervision: What Works and What Doesn't , Mishkin. 2001

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