The Dual Banking System: A Model of Competition in Regulation

Abstract

In banking circles, the of both national and state banks and national and state agencies regulating banking is an object of almost universal veneration. When hearings are held on legislative proposals affecting banking operations and regulation, both Congressmen and witnesses from the banking industry and the banking regulatory agencies customarily include in their remarks some statement of their fidelity to the principle of the dual banking system. Typical is the comment of a representative of the National Association of Supervisors of State Banks: The dual banking system . . . is a vital national goal with roots deep in our constitutional history, and one of the very reasons why this country has achieved an economic growth unparalleled among the nations of the world.' Discordant voices have not been completely lacking. For example, in 1932 Senator Carter Glass stated, I think the curse of the banking business of this country is the dual system.2 On the whole, however, the critics have made little headway. Recently, the issue of the structure of bank regulation has been reopened by the entry into the debate of Arthur Burns, the Chairman of the Board of Governors of the Federal Reserve System.