Government Structures in the U.S.A. and the Sovereign States of the Former U.S.S.R: Power Allocation among Central, Regional, and Local Governments

By James E. Hickey Jr.; Alexej Ugrinsky | Go to book overview

It may be that Congress' rejection of the proposed repeal of McFadden indicates an acceptance of the act as to the dual banking system; but the fact that a lengthy debate occurred suggests continued congressional fascination with curtailing states' rights and that the balance between federal and state regulation of banking may in the future swing further against the states. Indeed, in his State of the Union address on January 28, 1992, President Bush once again called for passage of legislation to reform the banking system. 57


CONCLUSION

The dual regulatory system has endured in the United States for a considerable period of time. Its record of innovation is clear and, accordingly, the system recommends itself to a federation, or confederation of states, considering how to regulate banking. It is therefore unfortunate that recent events demonstrate that federal authorities in the United States have diminished, and have sought to diminish further, the ability of states to continue to serve as "laboratories for change" in banking regulation.


NOTES
1.
For instance, on October 5, 1991, the Soviet Union signed an agreement with the International Monetary Fund (IMF) by which it will receive, inter alia, advice on setting up a Western-style banking system. See The New York Times, October 6, 1991 at A12.
2.
The existence of the dual banking system is largely the product of a historical accident. Prior to 1863, regulation of banks was essentially left to the states. While the federal government had chartered two banks, all other bank charters, and the attendant regulatory framework accompanying chartering, were exclusively the domain of the several states. Arthur Wilmarth Jr., "The Expansion of State Bank Powers, the Federal Response, and the Case for Preserving the Dual Banking System," 58 Fordham Law Review1133, 1153 ( 1990). The minimal federal overview of the banking industry was a product of the early republic's distrust of concentrated power, both political and financial.
In 1863 Congress legislated a system of national banks providing for federal chartering and regulation of bank members of the system. When instituted, the intent was not to provide an alternative system of regulation to the state system, but to provide a reliable system of currency to replace the system of notes then issued by state banks, and to establish an easily accessible market for federal bonds then being issued to finance the Civil War. Henry N. Butler and Jonathan R. Macey, "The Myth of Competition in the Dual Banking System," 73 Cornell Law Review677, 681 ( 1988). It was anticipated by Congress that state banks would quickly convert to national charters and that, as a result, the dual system would soon be phased out. When this did not occur, Congress enacted a prohibitive tax on state bank-issued notes, so as to compel

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