Brandeisian Banking

Abstract

Banking law shapes the structure of the banking system, which in turn shapes the structure of the economy. One of the most significant ways that banking law in the United States traditionally sought to promote Brandeisian values of stability and decentralization was through a combination of carrots and sticks that enabled small banks across the country to thrive. To see this requires a richer understanding of Brandeis as someone who valued not just atomistic competition but also small business and broad flourishing. It also requires a deeper understanding of the ways different parts of banking law worked together during the heart of the twentieth century. Following the New Deal, banking law imposed significant restrictions on the ability of banks to expand in scale or scope, resulting in a proliferation of small, community-oriented banks. At the same time, banking law also limited entry, allowing banks to often operate as local monopolies or oligopolies, insuring deposits, and limiting the ability of banks to pay interest on deposits. By supporting the profitability of banks and the value of a bank charter, these guarantees and restraints made bankers less inclined to take risks that might result in their bank failing. The net result was a banking system that was both remarkably stable and remarkably diffuse. Although the same conditions cannot be readily replicated today, understanding the way banking law simultaneously promoted stability and broad economic opportunity is critical to understanding the ways that banking law has, and could again, serve Brandeisian aims