TY  - JOUR
AU  - Kroszner, Randall S
AU  - Strahan, Philip E
TI  - Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7582
PY  - 2000
Y2  - March 2000
DO  - 10.3386/w7582
UR  - http://www.nber.org/papers/w7582
L1  - http://www.nber.org/papers/w7582.pdf
N1  - Author contact info:
Randall S. Kroszner
University of Chicago
Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-8779
E-Mail: Randall.Kroszner@chicagobooth.edu

Philip Strahan
Carroll School of Management
324B Fulton Hall
Boston College
Chestnut Hill, MA  02467
Tel: 617/552-6430
E-Mail: philip.strahan@bc.edu
M1  - published as Randall S. Kroszner, Philip E. Strahan. "Obstacles to Optimal Policy: The Interplay of Politics and Economics in Shaping Bank Supervision and Regulation Reforms," in Frederic S. Mishkin, editor, "Prudential Supervision: What Works and What Doesn't" University of Chicago Press (2001)

AB  - 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.
ER  -