McFadden Act

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The McFadden Act is a United States federal law that reformed the U.S. banking system. [1] The Act liberalized branch banking rules, forcing states to give the same branching rights to national banks and state banks. [2] [1] The bill, based on the recommendations made by former Comptroller of the Currency Henry May Dawes, was signed into law by President Calvin Coolidge on February 25, 1927. [3]

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It is named after Louis Thomas McFadden, member of the United States House of Representatives and Chairman of the United States House Committee on Banking and Currency. [3]

The bill was first introduced in Congress by McFadden on February 11, 1924. [3]

The Act sought to give national banks competitive equality with state-chartered banks by letting national banks branch to the extent permitted by state law. [4] The McFadden Act specifically prohibited interstate branching by allowing each national bank to branch only within the state in which it is situated. Under a grandfather clause, three major banks were allowed to continue conducting interstate banking (Northwestern National Bank, First Bank Stock Corporation, and First Western Bank).

An amendment to the McFadden Act extended the Federal Reserve's charter in perpetuity. [5]

Although the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 [6] repealed this provision of the McFadden Act, it specified that state law continues to control intrastate branching, or branching within a state's borders, for both state and national banks.

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References

  1. 1 2 Rajan, Raghuram G.; Ramcharan, Rodney (2016). "Constituencies and Legislation: The Fight Over the McFadden Act of 1927". Management Science. 62 (7): 1843–1859. ISSN   0025-1909.
  2. "McFadden Act of 1927 | Federal Reserve History". www.federalreservehistory.org. Retrieved 2025-02-16.
  3. 1 2 3 Preston, H. H. (1927). "The McFadden Banking Act". The American Economic Review. 17 (2): 201–218. ISSN   0002-8282.
  4. "McFadden Banking Act". Encyclopedia.com. Retrieved June 12, 2022. McFADDEN BANKING ACT of 25 February 1927 permitted national banks to operate home-city branch offices in cities where state banks had similar privileges.
  5. Allen, Danielle; Benkler, Yochai; Downey, Leah; Henderson, Rebecca; Simons, Josh (2022-04-29). A Political Economy of Justice. University of Chicago Press. ISBN   978-0-226-81844-3.
  6. Lemonade or Lemon? Riegel-Neal Act of 1994