4. Conti-Brown & Vanatta - Risk, Discretion, and Bank Supervision


 

 

 

ARTICLE 

RISK, DISCRETION, AND BANK 
SUPERVISION 

Peter Conti-Brown & Sean Vanatta* 

This Article argues that an old but overlooked form of 
governmental oversight—bank supervision—sits at the center 
of two foundational tensions in the governance of the American 
economy. The first is the extent to which the financial system 
is controlled by public actors (i.e., the government) versus 
private actors (e.g., the banks). The second is the extent to 
which the contest for that control is regulated by bright-line 
rules versus by the exercise of regulatory discretion. On the first 
tension, this Article argues that supervision is the public and 
private participation in financial risk management, such that 
public actors cannot relinquish control of residual risk while 
private actors do not relinquish control of frontline risk 
management. In this sense, risk management is shared, but 
not shared equally: bank supervisors represent a government 
that has essentially guaranteed the resilience of the financial 
system through formal and informal commitments. 
Supervision is the part of the government that is created and 
evolves— however imperfectly—to manage those relationships, 
guarantees, and commitments. The second tension, between 
 

* Peter Conti-Brown is the Class of 1965 Associate Professor of Financial 
Regulation, The Wharton School of the University of Pennsylvania; 
Nonresident Fellow in Economics Studies, The Brookings Institution. Sean 
Vanatta is Senior Lecturer in Financial History and Policy, University of 
Glasgow. For important and thorough comments, we thank Dan Awrey, 
Brian Feinstein, Howell Jackson, Kate Judge, Jeremy Kress, Saule 
Omarova, Rory Van Loo, David Wishnick, David Zaring, and participants 
in the Wharton FinReg workshop. We thank too James Blume, Sophia 
Rosser, and Caroline Hackley for research assistance. This article draws 
from and expands on our forthcoming book, PRIVATE FINANCE, PUBLIC 
POWER: A HISTORY OF BANK SUPERVISION IN AMERICA (2025). 



  

130 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

rules and discretion in managing those commitments, 
represents the defining ethos of bank supervision. The process 
of supervision is not simply the verification of compliance with 
laws promulgated by Congress; rather, it is a flexible use of 
discretion within a system whose boundaries are defined by 
rules that are intentionally broad and vague. This last point is 
of profound importance in the post-Chevron era: as regulations 
receive less deference in courts, supervisory assessments will 
likely expand in importance even further. 

Using the rich history of supervision in the United States 
from the antebellum period to the present, this Article presents 
a theoretical conception of supervision as the space where 
bankers and the government engage each other in sometimes 
cooperative, sometimes contentious disputes with substantial 
influence on the direction of financial and economic policy. 
This conception of bank supervision makes important 
contributions to our understanding of issues of importance to 
banking, such as climate change finance and deposit 
insurance, but also has important implications for 
administrative law, constitutional law, and the evolution of 
state capacity in the United States in the long 20th century. 

 
Introduction: Bank Supervision and the Structure of 

American Finance ............................................... 131 
I. What Supervision Means .................................... 140 

A. A Conceptual Overview .................................... 140 
B. Epistemologies of Supervision ......................... 145 
C. Rules versus Discretion in Bank Supervision 148 
D. Supervision as Residual Risk Management ... 151 

II. Supervision’s Slow and Sudden Institutional 
Beginnings: 1789–1933 ....................................... 155 

A. Origins: 1789–1870 .......................................... 156 
B. Scandals, Crises, and Bank Supervision, 1870–

1907 ................................................................... 166 
C. Institutional Layering and the Risk 

Management Model of Bank Supervision, 1907–
1925 ................................................................... 176 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 131 

 

D. Institutional Innovation, Institutional 
Fragmentation: 1925 – 1945 ............................ 183 

III. The Rise and Reach of Supervisory Discretion: 
1945–1980 ............................................................ 192 

A. 1945-1960: Supervising Financial 
Concentration, Antitrust, and Bank Holding 
Companies ........................................................ 194 

B. Supervising Consumer Financial Protection .. 205 
C. The Expanding Portfolio: Bank Supervision and 

Antidiscrimination ........................................... 210 
IV. Modern Applications of Risk, Discretion, and 

Bank Supervision: Climate Change, Merger 
Policy, and Deposit Insurance ............................ 216 

A. Global Climate Change and Bank Supervision
 ........................................................................... 216 

B. Bank Merger Policy in the Twenty-First Century
 ........................................................................... 220 

C. Deposit Insurance and Bank Supervision ...... 222 
Conclusion ..................................................................... 223 

 
INTRODUCTION: BANK SUPERVISION AND THE 

STRUCTURE OF AMERICAN FINANCE 
 

This Article argues that two of the most important debates 
about American state capacity in general, and banking and 
finance in particular, are better understood as part of the 
same conversation. First, scholars and policymakers argue 
whether the financial system is, or should be, public or 
private.1 This debate raises the question whether scholars and 
policymakers should treat private initiative as the defining 
ethos in the provision of financial services, or whether these 
services are sufficiently essential to justify their 
 

1 See, e.g., Saule Omarova, The People’s Ledger: How to Democratize 
Money and Finance the Economy, 74 VAND. L. REV 1231 (2021); Lawrence H. 
White, The Dynamics of Competitive Coinage: Evidence from Private Mints 
in the American Gold Rushes (GMU Working Paper in Economics No. 19-
41, 2020), https://ssrn.com/abstract=3499386 [https://perma.cc/6MLK-
M7UL]. 



  

132 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

reconceptualization as a “public good” subject to associated 
regulations.2  

Second, scholars and policymakers debate whether the 
exercise of public power over the financial system should be 
based in rules, to ensure compliance with the principles of due 
process and the rule of law, or subject to supervisory 
discretion, to ensure adaptability and flexibility.3 On the one 
hand, some have argued that because a substantial majority 
of the interactions between the government and the financial 
system are not rooted in these rule-of-law traditions, 
discretionary supervision itself “sits uncomfortably with the 
responsibilities of government in a democracy.”4 On the other 
hand, enforcing a rigid rules-based approach to supervision 
may constitute what legal scholar Jeremy Kress regards as 
part of an overall “war on supervision” that the banking 
agencies allegedly waged during the Trump Administration.5 

This Article presents a view of banking and bank 
supervision that unites these debates into a single intellectual 
framework.6 Supervision is an unusual form of government 
 

2 See, e.g., Morgan Ricks, Money as Infrastructure, 2018 COLUM. BUS. L. 
REV. 757 (2018). 

3 See, e.g., Randal K. Quarles, Spontaneity and Order: Transparency, 
Accountability, and Fairness in Bank Supervision (speech before the Am. 
Bar Ass’n Banking L. Comm. Meeting, Wash. D.C., Jan. 17, 2020), 
https://www.federalreserve.gov/newsevents/speech/quarles20200117a.htm 
[https://perma.cc/NSG2-F89J]; Jeremy Kress, The War on Bank 
Supervision, YALE J. ON REG. NOTICE & COMMENT, Dec. 18 2020, 
https://www.yalejreg.com/nc/the-war-on-bank-supervision-by-jeremy-kress/ 
[https://perma.cc/3PLA-VKUR]; Daniel K. Tarullo, Bank Supervision and 
Administrative Law, 2022 COLUM. BUS. L. REV. 279 (2022). 

4 Quarles, supra note 3, at 3. 
5 Kress, supra note 3. 
6 The study of bank supervision is growing substantially. In Dec. 2020, 

the Federal Reserve, Harvard Law School, and The Wharton School hosted 
a rare joint conference on the subject and produced four literature reviews 
of bank supervision from the perspectives of law, economics, history, and 
international practice, that summarize the challenges and opportunities 
that scholars and policymakers confront in defining the field. See Julie 
Andersen Hill, Bank Supervision: A Legal Scholarship Review (Univ. of Ala. 
Legal Stud. Rsch. Paper No. 2627472, 2021), 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 133 

 

power that evolved fitfully during the nineteenth century 
before becoming more concrete after the banking panics of the 
Great Depression. We argue that bank supervision is the set 
of institutional practices that bind private and public actors 
in a constant dialogue not only about compliance with law but 
also about the line between public and private responsibility 
for the residual risk of the financial system. Importantly, the 
negotiation of that line constantly abuts the methodological 
question of how such negotiation should occur: through a 
highly structured system of ex ante rules with ex post 
enforcement and independent review or through a more 
discretionary system based on the exercise of public power over 
private actors, a system that lurks outside the usual legal 
frameworks of public law. 

The consequence of this framework for bank supervision is 
that debates about the private versus public responsibility for 
finance and whether government power should be formal and 
rules-based or informal and discretion-based are, in fact, the 
same debate. Bringing these two conversations together yields 
two important insights. First, the financial system is not a 
public utility managed by private interests, but by privately 
owned and managed by both public and private interests. Nor 
is the line between co-management starkly drawn, tilting 
fitfully toward one or another extreme at different points in 
history but never a fully private nor a fully public system. 
Second, bank supervision is always about the exercise of 
powerful discretion within a broad system of vague rules. The 
 
https://ssrn.com/abstract=3777580 [https://perma.cc/GG47-ZEFU]; Beverly 
Hirtle & Anna Kovner, Banking Supervision (Fed. Rsrv. Bank of N.Y. Staff 
Report No. 952, Rev. Dec. 2021), 
https://www.newyorkfed.org/research/staff_reports/sr952 
[https://perma.cc/7LB5-PS5H]; Sean Vanatta, Histories of Bank 
Supervision (2021), https://ssrn.com/abstract=3749116 
[https://perma.cc/QCE2-F9EC], Jonathan Fiechter & Aditya Narain, 
Enhancing Supervisory Effectiveness - Findings from IMF Assessments 
(Bank Supervision Conf., 2020), 
https://custom.cvent.com/20310C03166C4C11B1AA63B0D6300264/files/eve
nt/67aec69c628d459d8366466979e3f8 
af/5bc86be980124876a00cbc409377a771.pdf. 



  

134 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

balance between these poles is, once again, historically 
constituted, contingent, and evolutionary. 

There are important implications to these debates about 
the nature of the American state and economy. To shear the 
controversies of nuance, those on the political left tend to favor 
a financial system where money is sovereign, finance is public, 
and supervisory discretion mostly untrammeled, whereas 
those on the political right tend to favor a private system 
where money is intermediated, finance is private, and 
regulation is rules-based with minimal discretionary liberties. 
Our theoretical framework reveals that these ideological 
contests are overwrought and underspecified. This Article’s 
theory of banking insists that each of these ideas is fluid, 
vulnerable, and subject to constant redefinition. Bank 
supervision, in turn, is the institutional setup for the ongoing 
negotiation of these contested ideologies and the 
implementation of their temporary settlements. It is not a 
fixed resolution to the problems of managing financial risk 
across institutions and across the system, but a monitoring 
mechanism that evolves as exigencies shift with time. There 
can be no permanent “settlement” of these issues.7 Each 
generation settles the questions again and again, building 
institutional layer upon institutional layer.8  

The framework presented in this Article differs 
importantly from three other streams of thought on banking 
and bank supervision. The first is easiest to dismiss: the term 
“bank supervision” is often erroneously conflated as a 
synonym with the much more tractable term, “regulation.” 
This is a ubiquitous error, albeit one that recedes as scholars 
focus increasingly on supervision as a unique phenomenon. 

 
7 See Lev Menand, Why Supervise Banks? The Foundations of the 

American Monetary Settlement, 74 VAND. L. REV 951 (2021); Lev Menand, 
The Logic and Limits of the Federal Reserve Act, 40 YALE J. ON REG. 197 
(2022). 

8 See Kathleen Thelen, Historical Institutionalism in Comparative 
Politics, 2 ANNU. REV. POLITICAL SCI. 369 (1999); see generally KATHLEEN 
THELEN, HOW INSTITUTIONS EVOLVE: THE POLITICAL ECONOMY OF SKILLS IN 
GERMANY, BRITAIN, THE UNITED STATES, AND JAPAN (2004). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 135 

 

Supervision is as different from regulation as regulation is 
from legislation—they touch common ideas but are different 
methodologies, epistemologies, and institutions. 

A second erroneous conception of supervision is the one 
embraced by the U.S. Federal Reserve, which characterizes 
“regulation” as the rules, and “supervision” as the process of 
“ensur[ing] that an institution complies with those rules and 
regulations.”9 This conception is more common and harder to 
dismiss. We will devote space in Part I to assess alternatives 
to this reductionist “principal-agent” model of supervision and 
explain both why this model is wrong and why its error is 
intellectually important. In brief, the entire debate about the 
discretion that supervisors must exercise over the financial 
system is a recognition, whether implicit or explicit, that there 
is more to the supervisory apparatus than simple verification 
of legal obedience. 

We depart from a third suite of characterizations of 
supervision not as conceptual errors, per se, but as alternative 
accounts of what bank supervisors are meant to do. For 
example, legal scholars have variously characterized 
supervision as a kind of grand settlement of contentious 
monetary questions introduced in the Civil War and durable 
until the end of the twentieth century10or as a “monitoring” 
system similar to what occurs in other domains such as food, 
workplace, or environmental contexts.11  

These characterizations, and others like them, capture 
parts of the basis of bank supervision, but only parts, 
rendering them misleading in their limitations. Supervision is 
not simply about ensuring duly enacted rules are followed, nor 
is it meant to accomplish a single task, whether in monitoring 
or money creation. Supervision is instead a process through 
which important policy decisions are made, again and again, 
that exists apart from other mechanisms of legal obedience, 
 

9 See BD. OF GOVERNORS OF THE FED. RSRV. SYS., THE FEDERAL RESERVE 
SYSTEM PURPOSES AND FUNCTIONS 72 (10th ed. 2016). 

10 See Menand, Why Supervise Banks, supra note 7. 
11 See, e.g., Rory Van Loo, Regulatory Monitors: Policing Firms in the 

Compliance Era, 119 COLUM. L. REV. 369 (2019). 



  

136 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

such as corporate governance, compliance, litigation, 
enforcement, and especially regulation. In this sense, 
supervision relocates the situs of policy conflict but does not 
necessarily or frequently resolve those conflicts in any 
permanent way. 

These are the accounts our framework argues against. 
That high-level description of this Article, however, requires 
more explanation: if supervision is fundamentally and 
epistemologically distinct from other mechanisms of legal 
obedience, what is its purpose? 

We argue that bank supervision is the uneasy and 
incomplete truce between two rival systems of managing 
financial risk: (1) a completely rules-based approach to ensure 
compliance with legal rules created elsewhere and (2) the 
untrammeled, discretionary exercise of governmental power. 
Supervision is the sometimes more, sometimes less structured 
middle ground that permits government power to be flexibly 
deployed to prevent crises and mitigate their effects without 
undermining principles of due process and rule of law that 
permit society to form and build on expectations of how 
government power will be exercised. 

Again, this framework reveals something important about 
the nature of financial risk and who owns it. Bank supervision 
sits at the intersection of private and public power: it reflects 
neither the delegation of public power to private actors, nor is 
it an unlawful intrusion of public oversight over private 
prerogatives. It is, fundamentally, a kind of corporatist 
bargain of shared public and private power that allocates 
financial risk among private actors and public officials. 
Present debates about the boundaries of these lines fall, 
consciously or not, within that corporatist framework.12  

 
12 In this way, bank supervision functions within debates about 

corporatism that its critics and defenders have elaborated for decades. 
See GABRIEL KOLKO, THE TRIUMPH OF CONSERVATISM: A REINTERPRETATION 
OF AMERICAN HISTORY, 1900–1916 (1977); Oscar Molina & Martin Rhodes, 
Corporatism: The Past, Present, and Future of a Concept, 5 ANNU. REV. 
POLITICAL SCI. 305 (2002). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 137 

 

This new framework yields important lessons and insights 
to ongoing discussions, both in the historiography of the 
nineteenth and twentieth centuries and on several issues of 
relevance to twenty-first century public policy. Historically, 
the evolutionary process of institution-building in and around 
bank supervision informs several key debates about state 
capacity in the postbellum nineteenth century, the 
Progressive Era, the New Deal Era, the postwar era, the civil 
rights revolution, and late twentieth century neoliberalism. 
For instance, one area on which it sheds more light is the 
growth of the American state—an area of focus and influence 
by scholars such as Lowi, Novak, Skowronek, and Mashaw.13 
Importantly, federal bank supervision predates the Interstate 
Commerce Commission—the conventional starting point for 
bureaucratic development in the United States—by more 
than two decades, and it existed for several decades before 
that at the state level. This Article contributes to the 
understanding of the development of state capacity from the 
Progressive Era, when bank supervision unsuccessfully strove 
to manage residual risk that should have belonged most 
concretely to private banks, through to the New Deal, when 
the advent of deposit insurance made the commitment to 
managing residual risk definitive. Unlike conventional 
narratives about the development of Progressive-Era 
government oversight of commerce—whether the corporatist 
vision of Kolko,14 the technocratic arguments of Wiebe,15 or 
the interest-group vision of Sanders16—we argue that 
supervision in the Progressive Era was an experimental 
 

13 See generally THEODORE J. LOWI, THE END OF LIBERALISM: IDEOLOGY, 
POLICY, AND THE CRISIS OF PUBLIC AUTHORITY (1969); WILLIAM NOVAK, THE 
PEOPLE’S WELFARE: LAW AND REGULATION IN NINETEENTH CENTURY AMERICA 
(1996); STEPHEN SKOWRONEK, BUILDING A NEW AMERICAN STATE: THE 
EXPANSION OF NATIONAL ADMINISTRATIVE CAPACITIES, 1877–1920 (1982); 
JERRY L. MASHAW, CREATING THE ADMINISTRATIVE CONSTITUTION: THE LOST 
ONE HUNDRED YEARS OF AMERICAN ADMINISTRATIVE LAW (2012). 

14 KOLKO, supra note 12. 
15 See ROBERT H. WIEBE, THE SEARCH FOR ORDER 1877–1920 (1967). 
16 See ELIZABETH SANDERS, ROOTS OF REFORM FARMERS, WORKERS, AND 

THE AMERICAN STATE, 1877–1917 (1999). 



  

138 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

period wherein interest groups fought for primacy but 
government power failed to coalesce successfully around a 
single vision of what state capacity should be used to do. 

The New Deal Era—and the response to the Bank Holiday 
of 1933 in particular— marks the true ascension of bank 
supervision into the practice largely understood today.17 
During the holiday, Roosevelt tied his own political legitimacy 
to the technocratic work of bank examiners, and thus to bank 
supervision at large. Congress adopted that model of 
technocratic executive oversight by expanding the supervisory 
role of the Comptroller and Federal Reserve while also 
creating a new model of supervision based in deposit 
insurance. The move was not merely institutional, however; 
the practice of positioning supervision as the space where 
public and private actors vie for control through rules and the 
exercise of power became the dominant model of risk 
management. While there was some minor institutional 
innovation after the New Deal—the creation of thrift 
supervision, housing finance supervision, and supervisory 
coordination in the 1970s and 1980s—the basic institutional 
framework did not evolve much thereafter, arguably until 
2008 (after which there was substantial institutional 
evolution). Following the New Deal, supervision became the 
adjudicative space between the private-sector financial 
system and the public-sector risk managers within 
government. 

Besides the clarity that this account of supervision offers 
for our understanding of history, it also informs a variety of 
contemporary debates. This Article discusses three 
specifically: (1) the debates about whether and how federal 

 
17 We develop that narrative historical account in Peter Conti-Brown & 

Sean Vanatta, The Logic and Legitimacy of Bank Supervision: The Case of 
the Bank Holiday of 1933, 95 BUS. HIST. REV. 87 (2021). We are responding 
to the primary narratives of the holiday discussed in Ben S. Bernanke, 
Nonmonetary Effects of the Financial Crisis in the Propagation of the Great 
Depression, 73 AM. ECON. REV. 257 (1983) and BARRY EICHENGREEN, HALL 
OF MIRRORS: THE GREAT DEPRESSION, THE GREAT RECESSION, AND THE USES-
AND-MISUSES OF HISTORY 296 (2015). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 139 

 

supervisors should evaluate climate-related risks, (2) the 
appropriate scope and content of federal bank merger policy, 
and (3) the appropriateness of expanding deposit insurance 
coverage. A view of supervision as compliance or serving a 
monetary function cannot provide much insight into these 
questions; supervision as the adjudication between public and 
private risk management, between rules and discretion, can. 

This conception of state capacity and bank supervision also 
informs how we should think about government power in a 
world after the judicial elimination of Chevron deference.18 
Importantly, that deference was a canon of statutory 
interpretation to restrain courts from evaluating 
administrative interpretations of congressional intent19 Bank 
supervision, particularly in the ways we describe here, is 
about the use of discretionary judgment the exercise of which 
Congress has given to supervisors, mostly in secret, with few 
restrictions for over 160 years. 

In presenting these arguments, we join an increasingly 
sophisticated theoretical and historical conversation on the 
meaning of bank supervision, a very old intellectual effort that 
has received new life following the 2008 financial crisis.18	
Where we build on this literature is to present bank 
supervision as a separate field for resolving policy disputes, 
not as systematic resolution in its own right. This conceptual 
shift allows us to cast additional light on the policy maneuvers 
that would otherwise remain firmly out of sight. 
 

18 See Loper Bright Enters. v. Raimando, 603 U.S. 369 (2024). 
19 See, e.g., G. L. Bach, Bank Supervision, Monetary Policy, and 

Governmental Reorganization, 4 J. FINANCE 269 (1949); G. L. 
Bach, A Further Note on Bank Supervision and Monetary 
Policy, 5 J. FINANCE 421(1950); Julie Dickson, Too Focused on the 
Rules: The Importance of Supervisory Oversight in Financial 
Regulation, 18 CARDOZO J. INT’L & COMP. L. 623 (2010); Lev 
Menand, Too Big to Supervise: The Rise of Financial 
Conglomerates and the Decline of Discretionary Oversight in 
Banking, 103 CORNELL L. REV. 1527 (2019); Menand, Why 
Supervise Banks, supra note 7; Van Loo, supra note 11. This literature 
is usefully summarized in Hill, supra note 6; Hirtle & Kovner, supra note 6; 
and Vanatta, supra note 6. 



  

140 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

The remainder of this Article proceeds as follows: Part I 
outlines the framework of public-private supervision more 
thoroughly, including where that theory departs from other 
conceptions about regulation, discretion, and the rule of law. 
Part II explains the history of federal supervision from its 
antecedents in the antebellum era, to its tenuous founding in 
the National Banking Acts of 1863 and 1864, and through the 
New Deal, when the institutional framework for risk 
management became more concrete. Part III discusses the 
evolutionary process whereby supervision became a much 
more expansive, and much more disputed, mechanism of 
government power, with the addition of consumer financial 
protection, antidiscrimination, and community reinvestment. 
Part IV explains the implications of these ideas for 
contemporary debates about climate change, anti-trust policy, 
and deposit insurance, and explains the relevance for 
agencies’ risk management strategies in the post-Chevron 
era. 
 

I. WHAT SUPERVISION MEANS 
 

A. A Conceptual Overview 
 

In the United States, supervision is nearly as old as 
banking. State governments developed oversight regimes in 
the decades before the Civil War, and the federal government 
has played a permanent supervisory role since that conflict. 
In these early frameworks for bank supervision, the United 
States is unique. Except for Sweden (in 1909) and Japan (in 
1916), most developed nations formalized bank supervision 
only after the 1930s banking crises, sometimes well after.20  

Despite its long history in the United States and despite 
the earlier efforts cited above, supervision has not long been a 

 
20 See RICHARD S. GROSSMAN, UNSETTLED ACCOUNT: THE EVOLUTION 

OF BANKING IN THE 
INDUSTRIALIZED WORLD SINCE 1800, at 162–67, 221–22 (2010); Eiji 

Hotori & Mikael Wendschlag, The Formalization Of Banking Supervision 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 141 

 

topic for sustained scholarly engagement, partly because 
supervision and supervisors are chameleon-like. Supervision 
resembles several well-studied governance mechanisms—
such as regulation, civil and criminal litigation, self-
regulation, ethics, and norms. Indeed, it is sometimes 
confused with them. Supervision is also in the shadows, a part 
of a hidden, robust regulatory state that Brian Balogh called 
“government out of sight.”21 But supervisory invisibility is no 
curious relic of the nineteenth century. By law in the present 
day, much of what supervisors do is wrapped in a thick cloak 
of secrecy under the banner of “confidential supervisory 
information,” the publication of which can land leakers in 
jail.22  

These scholarly lacunae leave open two foundational 
questions: What is supervision? And what makes it distinct 
from other modes of governance? As noted in the Introduction, 
supervision is often mistaken for regulation, which is easy 
enough to define. To take the Federal Reserve’s 2016 
definition, its regulatory function “entails establishing the 
rules within which financial institutions must operate—in 
other words, issuing specific regulations and guidelines 
governing the formation, operations, activities, and 
acquisitions of financial institutions.”23 Supervision, the Fed 

 
In Japan And Sweden, 22 SOC. SCI. JAPAN J. 211 (2019); EIJI HOTORI, MIKAEL 
WENDSCHLAG & THIBAUD GIDDEY, FORMALIZATION OF BANKING SUPERVISION: 
19TH–20TH CENTURIES (2021); Patrice Baubeau, Eric Monnet, Angelo Riva 
& Stefano Ungaro, Flight-to-Safety and the Credit Crunch: A New History 
of the Banking Crises in France During the Great Depression, 74 ECON. HIST. 
REV. 223 (2021). 

21 BRIAN BALOGH, A GOVERNMENT OUT OF SIGHT: THE MYSTERY OF 
NATIONAL AUTHORITY IN NINETEENTH-CENTURY AMERICA (2009). 

22 See Margaret E. Tahyar, Are Bank Regulators Special?, 5 BANKING 
PERSPECTIVES 23 (2018), 
https://www.davispolk.com/sites/default/files/tch_banking_perspectives_-
_are_banking_regulators_special.pdf [https://perma.cc/734F-5Z6D]; Peter 
Conti-Brown, The Curse of Confidential Supervisory Information, 
BROOKINGS INST. (2019), https://www.brookings.edu/research/the-curse-of-
confidential-supervisory-information/ [https://perma.cc/9NHS-PX96]. 

23 BD. OF GOVERNORS, supra note 9, at 74. 



  

142 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

continues, “involves monitoring, inspecting, and examining 
financial institutions” and “seeks to ensure that an institution 
complies with those rules and regulations, and that it operates 
in a safe and sound manner.”24 On this view, if regulation 
involves rules, supervision entails the tools government 
officials use to ensure financial firms comply with the rules. 

The Federal Reserve’s 2016 definition of supervision is at 
once expansive and limited. It is expansive in that each of the 
actions ascribed to supervision—monitoring, inspecting, and 
examining—contain in them a host of subsidiary practices, 
which supervisors use to shape behavior: to guide, to suggest, 
to demand, and to compel. The definition is limited in its 
implicit claim that supervision is merely the implementation 
of law and the compliance with rules. 

The narrowness of the Fed’s 2016 definition becomes 
visible when it is placed against an earlier—and much 
longer—version, published by the Fed in 1954: 

 
As a government activity, bank supervision 
encompasses a wide variety of technical functions 
relating to the operation of banks. These concern: (1) 
the issuance and enforcement of supervisory and other 
regulations; (2) the organization and chartering of 
banks; (3) the periodic examination of banks and the 
requiring of steps by bank management to correct 
unsatisfactory or unsound conditions found through 
such examination; (4) the review and analysis of 
periodic reports of conditions and earnings and 
expenses; (5) the rendering of counsel and advice on 
bank operating problems when requested, 
particularly in the case of smaller banks; (6) the 
approval of proposed changes in the scope of corporate 
functions exercised by individual banks and of 
proposed changes in their capital structures; (7) the 
authorization of establishment of branches and of the 
exercise of trust powers; (8) the approval of bank 
mergers and consolidations; (9) the organization and 

 
24 Id. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 143 

 

regulation of bank holding companies; (10) the 
regulation of bank service corporations; and (11) the 
liquidation of banks (Board of Governors 1954, 166-
67).25  

 
The Fed in 1954 had a better sense of the functions and 

epistemologies of supervision than the Fed in 2016. Instead of 
monitoring, inspecting, and examining, which are largely 
instances of passive oversight, the Fed’s 1954 definition 
described active supervisory governance. This definition is not 
just one of examining, but requiring correction; not just 
reviewing, but analyzing; not just implementing the law, but 
rendering counsel and advice. Here, the supervisory purview 
was much wider than mere compliance. Supervisors 
assertively deployed official judgement and discretion, often 
to mold behavior according to preferences and objectives that 
were distinct from any formal rules. 

While the ubiquitous conflation of supervision with 
regulation is erroneous, the active versus passive sense of 
supervision is not so much an error as an arc. The 
transformation evident in these definitions—from an active, 
self-confident government in 1954, to a chastened, restrained 
government in 2016—maps onto consensus narratives of the 
American state, as it is activist in the wake of the New Deal, 
but retrenched following the Reagan Revolution.26 Although 
the competing definitions suggest the diminution of 
supervisory authority over this period, just the opposite 
occurred. Supervisors in the twenty-first century must tackle 
even more responsibilities—from cyber security to civil 
rights—than in 1954. The conceptual question, then, of what 
supervision is at its foundation in the face of these many 
responsibilities, still requires an answer. 
 

25 BD. OF GOVERNORS OF THE FED. RSRV. SYS., THE FEDERAL RESERVE 
SYSTEM PURPOSES & FUNCTIONS 166–67 (3rd ed. 1954). 

26 See, e.g., MARTHA DERTHICK & PAUL J. QUIRK, THE POLITICS OF 
DEREGULATION (1985); RICHARD A. HARRIS & SIDNEY M. MILKIS, THE POLITICS 
OF REGULATORY CHANGE: A TALE OF TWO AGENCIES (1989). For a general 
overview, see DAVID HARVEY, A BRIEF HISTORY OF NEOLIBERALISM (2005). 



  

144 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

Legal scholars, historians, and economists have recently 
begun to pursue this conceptual work, typically to build 
historical foundations for normative claims about how 
supervision should function in the present. Economic 
historian Eugene White, for example, views federal 
supervision as a constant tug between regimes that embrace 
strictly rules- based, market discipline—his preference—and 
those that rely more heavily on supervisory discretion.27 

Economic historians Charles Calomiris and Mark Carlson see 
the role of examiner in the late nineteenth century in a similar 
way, focusing primarily on their roles in risk management and 
information disclosures.28  

Legal scholars, meanwhile, have proposed supervision as 
more durable legal structures in a more systematic, consistent 
way. For example, Lev Menand offers a variety of taxonomic 
categories, including “Supervisors as Rule Enforcers,” 
“Discipline Facilitators,” and “Gap Fillers,” among others.29 
But the historical record often resists such stability, and the 
role Menand envisions for supervision—as part of a long-
settled institutional framework created by far-seeing 
legislators—is incompatible with history. Menand’s effort, 
consistent with a growing scholarly tradition at the 
intersection of law, economics, and history sometimes called 
“the money view,” would systematize supervision under a 
different, normative framework: supervisors are 

 
27 See Eugene White, Lessons from the History of Bank Examination and 

Supervision in the United States, 1863-2008 (Fin. Mkt. Regul. in the Wake 
of Fin. Crises: The Hist. Experience Conf., at 15, (2009)), available at 
https://ssrn.com/abstract=2101709 [https://perma.cc/SE6G-9W7Y]. 

28 See Charles W. Calomiris & Mark A. Carlson, Bank Examiners’ 
Information and Expertise and Their Role in Monitoring and Disciplining 
Banks Before and During the Panic of 1893 (Nat’l Bureau of Econ. Rsch., 
Working Paper No. 24460, 2018), 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3154244 
[https://perma.cc/R52A-AEXK]. 

29 Menand, Why Supervise Banks, supra note 7. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 145 

 

“franchisors,” guardians of the monetary franchise outsourced 
by the government to banks.30  

Menand views supervision, then, as vital to what he calls 
the American Monetary Settlement created during the Civil 
War that, in his view, reflects the most normatively desirable 
structure of finance into the twenty-first century. What this 
theory is missing is an account of what supervision has been 
in the 160 years since the Lincoln Administration. 

 
B. Epistemologies of Supervision 

 
To understand how bank supervision operates as a system, 

we begin with a typology that shows how it sits alongside its 
alternatives. The typology has two parts. First, supervision 
functions as a distinct mechanism of legal obedience—a 
means by which government or private actors seek to alter 
behavior. These mechanisms can be displayed on two axes: the 
first being a choice between public and private mechanisms, 
the second being the exercise of coercive or non-coercive 
power. In this sense, supervision represents a choice for 
policymakers—principally, but not exclusively, Congress—
distinct from other alternatives. It is a choice, as Figure 1 
indicates, which authorizes government officials to exercise 
substantial discretion about how to alter behavior. To return 
to the Fed’s 1954 definition, supervision can involve “the 
rendering of counsel and advice” (private, non-coercive), 
“requiring of steps by bank management to correct 
unsatisfactory or unsound conditions found through such 

 
30 For key works in the Money View tradition, see Hyman Minsky, The 

Financial Instability Hypothesis (Levy Econ. Inst. of Bard Coll. Working 
Paper No. 74, 1992), https://www.levyinstitute.org/pubs/wp74.pdf 
[https://perma.cc/69FF-Z2NY]; PERRY MEHRLING, THE NEW LOMBARD 
STREET: HOW THE FED BECAME THE DEALER OF LAST RESORT (2010); 
CHRISTINE DESAN, MAKING MONEY: COIN, CURRENCY, AND THE COMING OF 
CAPITALISM (2015); MORGAN RICKS, THE MONEY PROBLEM: RETHINKING 
FINANCIAL REGULATION (2016). 



  

146 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

examination” (private, coercive), or “the liquidation of banks” 
(public, coercive).31 

 
Figure 1 – Paradigms of Supervision: External 
 

 
Relatedly, the definition of supervision hinges on what 

supervisors think they are trying to accomplish, self-
conceptions that divide not only according to an external logic 
of coercion versus non-coercion and public versus private, but 
also an internal one. These self-conceptions operate within a 
framework with axes spanning punitive to collaborative and 
from retrospective to prospective, as summarized in Figure 2. 
The alternatives presented here are evident in the 1954 
definition and become even more visible when comparing it 
with its 2016 counterpart. In 1954, to take one example, the 
Fed emphasized “the rendering of counsel and advice on bank 
operating problems when requested, particularly in the case 
of smaller banks,” a statement that embraces the training and 
 

31 BD. OF GOVERNORS, supra note 25, at 167. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 147 

 

management consulting roles on the collaborative-prospective 
corner of the chart.32 Although the Fed may have been 
engaged in similar activities in 2016, it no longer held them 
as a defining feature of compliance-focused supervision. 

 
Figure 2 – Paradigms of Supervision: Internal 

 
This conception of supervision captures some of the 

descriptive and normative accounts of scholars cited above, 
without rooting that conception too much in a single point of 
time and imposing that moment on the rest of the tumultuous 
history that followed. As a policy matter, the costs and 
benefits of the Fed’s expansive view of supervision in 1954 and 
more circumscribed view in 2016 are open to debate, and 
supervision, itself, provides the context in which that debate 
unfolds. 

 

 
32 Id. 



  

148 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

C. Rules versus Discretion in Bank Supervision 
 
At its core, supervision is about options, which are 

exercised differently at different times and yield varying 
consequences. These options also highlight the central 
difference between supervision and other forms of government 
power because such options leave supervisors with the 
discretion to decide just what supervision should be. This 
discretion defines the logic of bank supervision. It also 
expands the kinds of categories that fit into the broad 
definition of supervision, cited above, as the way in which 
individual governmental actors influence the behavior of 
individual financial institutions. The competing objectives of 
law enforcement, crisis response, monetary policy, consumer 
protection, antidiscrimination, and more, are each available 
to supervisors as they encounter the banks under their watch. 
Congress sets these objectives within constraints shaped by 
historical contexts that have shifted over time. 

Placing discretion at the center of supervision means that 
the practice of supervision will line at which the Government 
shall interfere and the point at which Government discipline 
shall commence is a matter of some delicacy to determine.”33 
Or, as Randal Quarles, the former Vice Chair for Supervision 
of the Federal Reserve, put more colorfully in 2020, 
identifying the line between regulation and supervision only 
becomes clear to banking regulators and supervisors after 
“fasting and much prayer.”34  

Viewing bank supervision through the lens of discretion—
whether historically or theoretically—allows us to see where 
supervisors draw their lines and how those lines evolve over 
time.35 The exercise of supervisory discretion is, definitionally, 
a moving target, animated by different and conflicting 
 

33 ANNUAL REPORT OF THE COMPTROLLER OF THE CURRENCY 50 (1884). 
34 Randal Quarles, Dean’s Lecture (Lecture, Yale L. Sch., New Haven, 

CT, Feb. 26, 2020) (transcript used with permission and on file with the 
Columbia Business Law Review). 

35 See JERRY MASHAW, BUREAUCRATIC JUSTICE: MANAGING SOCIAL 
SECURITY DISABILITY CLAIMS (1983). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 149 

 

paradigms, experienced in different ways within different 
supervisory organizations.36 This framework also permits us 
to avoid imposing demands for paradigmatic consistency that 
the historical record cannot support; there is no enduring 
financial settlement in U.S. history, for example, that 
survives the tumult of the last 160 years. 

Supervision as discretion also explains how supervision 
became the dominant mechanism compelling legal obedience 
in the financial system, even beyond its more studied 
counterpart, regulation. Discretion permits supervisors to 
make bespoke policy through a variety of mechanisms, within 
a broad rules-based system to which it is not fully restricted. 
The options available to supervisors depicted in Figure 2 
permit them to change their roles from, say, fraud detection 
and police power, used to catch money launderers within 
financial institutions, to the development of new risk 
management techniques, used to provide training to banks 
and bankers about appropriate accounting or other standards. 

Discretion gives supervisors substantial freedom, so there 
is no wonder that they prefer it. Quarles lodged a sustained 
critique of supervisory discretion: “We have a public interest 
in a confidential, tailored, rapid-acting and closely informed 
system of bank supervision. And we have a public interest in 
all governmental processes being fair, predictable, efficient, 
and accountable.”37 To “square the circle,” Quarles argues that 
we must recognize that “supervision sits uncomfortably with 
the responsibilities of government in a democracy.”38 The 
exercise of power in the United States should be defined by 
“generality, predictability, publicity, and consultation.”39 

 
36 See MICHAEL LIPSKY, STREET-LEVEL BUREAUCRACY: DILEMMAS OF THE 

INDIVIDUAL IN PUBLIC SERVICE (1980); see also Daniel E. Ho & Sam Sherman, 
Managing Street-Level Arbitrariness: The Evidence Base for Public Sector 
Quality Improvement, 13 ANN. REV. L. & SOC. SCI. 251 (2017). 

37 Randal Quarles, Spontaneity and Order: Transparency, 
Accountability, and Fairness in Bank Supervision (Am. Bar Ass’n Banking 
L. Comm. Meeting, Washington, D.C., 2020). 

38 Id. 
39 Id. 



  

150 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

Supervision looks very little like this and should, in Quarles’s 
view, conform much closer to it. 

Quarles’s focus on the rule-of-law concerns associated with 
supervision is not unique. Many commentators in the 
financial industry itself have expressed similar views, 
including the view that significant components of modern 
supervisory practice are illegal because they are insufficiently 
rooted in rulemaking, and thus in violation of the 
Administrative Procedure Act (the APA).40 

Daniel Tarullo, Quarles’s predecessor at the Fed with 
oversight of bank supervision, has offered his own scholarly 
answer to this conundrum.41 Tarullo argues that although 
general principles of administrative law do suggest much of 
supervisory action is open to rule-of-law challenges with 
uncertain results, bank supervision’s statutory bona fides are 
strong, reflecting as they do “the heterogenous nature of 
financial intermediation” and the fact that supervision is an 
“ongoing relationship between a bank and agency officials.”42 
Each of these factors suggests that traditional principles of 
administrative law and political power—the rule-of-law 
concerns that animates the supervisory critique above—are 
less applicable to bank supervision than they might appear. 

In other words, there is an existential debate afoot on what 
supervision should be. Supervision-as-discretion takes a clear 
view that does not fit neatly into this debate as it has been 
introduced. Our argument is not about the APA, but about the 
nature of bank supervision as it has evolved and adapted to 
 

40 See Greg Baer & Jeremy Newell, How Bank Supervision Lost Its Way, 
BANK POL’Y INST., May 25, 2017, https://bpi.com/how-bank-supervision-lost-
its-way/ [https://perma.cc/JNN7-YB62]; Hal Scott, Stress Tests: Restore 
Compliance with the APA, BANKING PERSPECTIVES, Sept. 3, 2017, 
https://www.bankingperspectives.com/stress-tests-restore-compliance-
with-the-apa/; Bank Capital and Liquidity Regulation: Hearing Before the 
S. Comm. on Banking, Housing, and Urban Affairs, June 7, 2016, 
https://capmktsreg.org/wp-
content/uploads/2023/03/HSS_Written_Testimony-SBC-6-7-16.pdf 
[https://perma.cc/42A9-FZTH] (written testimony of Hal S. Scott). 

41 See generally Tarullo, supra note 3. 
42 Id. at 284. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 151 

 

its status within the financial system. That evolution has 
produced a set of disparate practices that place discretion at 
the center. Efforts, then, to reduce or remove discretion within 
supervision run the risk of eliminating what is distinct about 
supervision at all. 

 
D. Supervision as Residual Risk Management 

 
Our theoretical account of supervision, then, builds on four 

sequential insights. Supervision is (1) about the relationship 
between individual actors in government and individual 
financial institutions—where the rubber hits the road of 
government and market power. It is further defined by (2) 
evolutionary processes and resistance to efforts to impose a 
single defining ethos, leaving instead supervisors—and 
Congress—to use (3) supervisory discretion to choose among 
competing conceptions of what that individual relationship 
should be. However, the most important payoff of this account 
is the fourth insight: that this system has (4) proved so 
resilient to change, and so amenable to expansion, because 
supervisory discretion functions as a risk absorber for the 
entire financial system. Bank supervision is the promise that 
the government will participate with the private sector to 
manage and take responsibility for the residual risk stemming 
from design choices inherent to the American financial 
system. Contrary to other categories of risk—national 
security after September 11, 2001, for example—financial 
crises have become viewed, to some degree, as the cost of the 
American system. Supervision, then, is not just about 
punishing wrongdoers or responding to financial panics; 
rather, it is about managing a large and ever-growing system 
of political and financial risk that we, as a society, have 
decided we want to take, using a variety of tools and strategies 
that at times converge and at times conflict. 

Supervision is, in this way, about managing the moral 
hazard in the financial system. The concept of “moral hazard” 
comes from nineteenth century insurance theory and denotes 
the concern that people or firms that take out insurance to 



  

152 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

protect themselves against specific kinds of risk will be less 
dutiful about avoiding those risks.43 Eliminating moral 
hazard is often cited as the defining problem of institutional 
design in the financial system.44 We argue, instead, that moral 
hazard is irretrievably baked into our system: banking, by its 
very nature, will always be a contest and collaboration 
between public and private actors. Therefore, that moral 
hazard is not a policy problem to solve for bank supervisors. 
Managing moral hazard is the job description.45 

To state the point differently, Congress uses regulation to 
eliminate moral hazard; it uses supervision to manage moral 
hazard. 

Recasting bank supervision as a category of political and 
financial systemic risk management allows us to answer some 
important questions about finance and the administrative 
state. First, what are the political incentives for expanding 
supervisory discretion into private markets given the 
ostensible partisan hostility to such government intrusions? 
And more fundamentally, why is public supervision used to 
manage private risk at all, rather than forcing private actors 
to manage that system themselves or rendering the system 
fully public, as some would prefer? The answer to the first 
question is that Congress sees bank supervision as an out-of-
sight solution to the vexing costs of publicly acknowledging 
that the financial system is not a fully private affair. That 
emphasis on Congress is deliberate: unlike other areas of the 
administrative state, Congress has almost uniformly focused 
on expanding supervisory prerogatives, even in the face of 
presidential pushback. Indeed, in important periods—
especially from 1977–2008 and again in 2017– 2021—the 
President and his appointees have sought to narrow the range 
of supervisory options in a process we call “de-supervision.” 
Instead, Congress, at almost every turn, has sought to expand 
 

43 See, e.g., David Rowell & Luke Connelly, A History of the Term “Moral 
Hazard”, 79 J. RISK & INS. 1051, 1069–72 (2012). 

44 See generally Arthur E. Wilmarth, Reforming Financial Regulation to 
Address the Too-Big-To-Fail Problem, 35 BROOK. J. INT'L L. 707 (2010). 

45 We thank Scott Shapiro for this pithy sentence. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 153 

 

supervisory discretion by providing more categories of power 
for supervisors to adopt. This is true even when supervisory 
scandals and financial crises cause members of Congress to 
insist that supervisors were “asleep at the switch.” One of the 
constant realities of the history of bank supervision in 
America is that Congress regularly “blames” supervisors with 
failing to exercise their discretion in ways that would prevent 
error even while they substantially expand that discretion.46 

Then, the second question: Why do we have this one-way 
ratchet, even in the face of failure? Supervision as discretion 
and risk management offers two answers. First, since the 
creation of the federal bank supervisory system in 1864, 
Congress has continued to use bank supervision as a kind of 
equity cushion to absorb risks that our system encourages. 
These risks include, of course, financial risks, such as bank 
failures and the risk of systemic failure of the financial 
system. They also include, importantly, political risks, such as 
the risk that banks will fail in scandal, that banks will violate 
the law through racial discrimination, or that banks will find 
themselves at the center of a drug cartel-funded international 
money laundering ring. These are political risks because 
Congress has passed laws that do not (and perhaps cannot) fix 
these problems once and for all. As such, Congress has 
delegated discretion to supervisors who are better suited to 
absorb the uncertainties of hard problems—be they concerns 
over financial inclusion, anti-money laundering, or other 
institutional priorities. 

While the shape of our supervisory system, and its location 
as a form of risk absorption, owes more to the idiosyncrasies 
 

46 Supervision’s role as residual risk bearer also explains another 
curiosity about the history of bank supervision. In his work on the Food & 
Drug Administration (FDA), Daniel Carpenter offers a theory of discretion 
and autonomy that is rooted in the FDA’s reputation and its ability to 
perform functions with outcome legitimacy amongst various audiences. 
These successes in turn fed the accretion of power: better performance, 
better reputation, more congressionally supported autonomy within which 
the FDA can exercise more discretion. See Daniel Carpenter, Asleep at the 
Switch (from Sen. Chris Dodd, S. Banking Comm. Hearing on America’s 
Credit Crisis, Mar. 4, 2008). 



  

154 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

of historical development than to grand design, supervision’s 
role as Congress’s risk absorber reflects an overarching 
ideology of risk central to financial markets in the United 
States. Legal rules can be over- or under- inclusive. The U.S. 
financial system is under-inclusive in that some 
impermissible activity will inevitably occur because the 
system rewards the risk-taking that private actors (and 
Congress itself) do not wish to absorb. Banking law seeks to 
allow some of the bad to permit all the good; it does not seek 
to prohibit all of the bad and thus some of the good. Given the 
inevitability that such a system will have for scandal and 
failure, bank supervisors represent the category of public 
power meant to manage that risk ahead of time and then 
absorb it when failure (of whatever variety) is realized. 

This is not to say that the system we have is the only one 
we can imagine. Scholars have suggested reforms large and 
small that would change the way we divide that line, from 
proposing the Federal Reserve as a retail bank,47 to increasing 
the role of the postal service in providing financial services,48 
to attempting to describe the U.S. financial system in 
explicitly public terms.49 But our account of supervision 
suggests some historical modesty to these efforts. The only 
consistency across two centuries of bank supervision is that 
bank supervisors are given increasing amounts of 
responsibility to use their discretion to manage private risk at 
public expense. This practice serves as the bedrock of our 
political economy and financial system, for good or ill. 

The model of supervision just described—supervision as a 
fitfully evolved (and still evolving) set of practices and 
functions that permits government actors to use discretion to 
manage residual systemic risk through individual banking 
relationships— does a better job than alternatives in 
 

47 See John Crawford, Lev Menand & Morgan Ricks, 
FedAccounts: Digital Dollars, 89 GEO. WASH. L. REV. 113 
(2020). 

48 See Mehrsa Baradaran, It’s Time for Postal Banking, 127 HARV. L. 
REV. F. 165 (2014). 

49 See Omarova, supra note 1. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 155 

 

explaining some of the enduring features of the U.S. financial 
system. Alternative models of supervision—supervision as 
passive compliance verification, supervision as ongoing 
monitoring, supervision as part of a grand nineteenth century 
monetary bargain, supervision as bureaucratic power run 
amok, to name those with which we engage most directly—
fail to integrate the financial system as it was and as it is into 
the wider experience of government, practice, and political 
economy. 
 

II. SUPERVISION’S SLOW AND SUDDEN 
INSTITUTIONAL BEGINNINGS: 1789–1933 

 
The history of bank supervision is the story of how the 

residual-risk-and-discretion model of bank supervision came 
to be. Part II narrates a period of unusual supervisory tumult 
and experimentation, through the Bank Holiday of 1933. This 
story shows why both skeptics of supervisory discretion and 
champions of supervisory power anchored in one 
epistemological framework alike misunderstand the 
institutional evolution of American finance. This history 
begins in the early days of the American Republic when 
central banking institutions began early experiments with 
supervision before leaving those issues unevenly to the states. 
It then explores a major but unstable monetary intervention 
during the Civil War: the creation of the Office of the 
Comptroller of the Currency (the OCC), an office that 
identified examination and supervision as a priority without 
defining what those practices entail. After the creation of the 
OCC and the clarification of its supervisory power in 1864, the 
postbellum and Gilded Age supervisory system grappled—
unevenly and with substantial failure—with the perception 
that the government owned the residual risk that its officials 
managed through the exercise of supervisory discretion. 
Supervision had not yet adopted the risk-and-discretion 
framework transparently, in large part because supervision 



  

156 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

lacked any plausible financial mechanism of owning that 
residual risk. 

This lacuna was filled conceptually with the creation of the 
Federal Reserve System in 1913 but did not reach its 
apotheosis until arguably the most important episode in 
supervisory history: the Bank Holiday of 1933, when the 
Roosevelt Administration gambled much of its credibility and 
legitimacy by placing substantial authority in the 
discretionary hands of supervisors to save the financial 
system. In the process, the Administration, the supervisors, 
and especially Congress institutionalized this model of bank 
supervision that has dominated the political economy ever 
since. 

 
A. Origins: 1789–1870 

 
Supervision arises from three distinct historical trends: 

one legal, one fiscal, and one monetary. Legally, supervision is 
a version of corporate “visitorial” authority that attached to 
sovereign power over chartered institutions. The visitorial 
authority evolved as a Blackstonian English common law 
concept that gave the king, as “founder of all corporations, in 
the strictest and original sense,” the authority to inspect or 
“visit[]” any civil corporation to ensure it charter provisions 
were being obeyed.50	 The fiscal authority emerged from the 
union, in early chartered banks, of private ownership and 
public functions—namely, collecting taxes, holding 
government deposits, and making payments on the 
government’s behalf. The monetary function arose, in turn, to 
assure government officials and the wider public that bank 
notes (credit instruments) that circulated as currency were 
convertible into gold and silver coin (specie money). 

These trends converged in the creation and management of 
the First and Second Banks of the United States. In the 1791 

 
50 See 1 BLACKSTONE, COMMENTARIES ON THE LAWS OF ENGLAND *455, 

*468–69; Sara Sager, Preemption Rights of National Bank Operating 
Subsidiaries: The Fight for Visitorial Power, 30 J. CORP. L. 183 (2004).  



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 157 

 

charter of the First Bank, Congress preserved for itself the 
power to “inspect such general accounts in the books of the 
bank,” largely to retain fiscal oversight.51 The First Bank’s 
visitorial authority, as previously with the Bank of England, 
was implied. The Second Bank of the United States, chartered 
in spring 1816, contained an identical inspection provision but 
also made the visitorial paradigm explicit: “a committee of 
either house of Congress” could at any time “inspect the books” 
and “examine into the proceedings of the corporation” for the 
purpose of reporting “whether the provisions of this charter 
have been . . . violated.”52 Although neither charter explicitly 
linked the monetary function to inspection, the fundamental 
purpose of both banks was to provide a stable, uniform 
circulating medium. When a Congressional committee used its 
visitorial power to inspect the Second Bank in 1818, they 
reported on two aspects: “those which related to the general 
management of the bank,” that is, its monetary functions, 
“and those which were connected with the question of a 
violation of its charter.”53 

Congress’s 1818 inquiry, and indeed much of the political 
controversy surrounding the First and Second Banks, focused 
on the quasi-public banks’ private counterparty supervision. 
Although the Constitution prohibited the States from 

 
51 MATTHEW ST. CLAIR CLARKE, LEGISLATIVE AND DOCUMENTARY HISTORY 

OF THE BANK OF THE UNITED STATES: INCLUDING THE ORIGINAL BANK OF NORTH 
AMERICA 33, 518 (1832). 

52 Id. at 593, 811. We have found evidence, however, for significant state 
legislative inspection of banks, especially as part of the chartering process. 
As one legislator observed in 1831, when bank chartering required a specific 
legislative act, “it is the duty of the Legislature to ascertain by competent 
testimony, whether the amount of business and capital in the place where 
the bank is to be established, are such, as to require the accommodation; 
and above all, whether those who ask the privilege, are men of unsuspected 
character.” HOWARD BODENHORN, STATE BANKING IN EARLY AMERICA: A NEW 
ECONOMIC HISTORY 13 (2003) (quoting Anonymous, A Defence of Country 
Banks; Being a Reply to a Pamphlet Entitled ‘An Examination of the 
Banking System of Massachusetts’ 21–22 (1831). 

53 Id. at 715. 



  

158 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

participating in the issuance of paper currency,54 by 1820 
there were 300 banks issuing currency with minimal 
standardization. In theory, these notes were freely 
redeemable in the specie coinage of the United States, a 
promise that facilitated their use as a medium of exchange. 
The biggest supervisory question in antebellum America, 
then, was between essentially private institutions; the Banks 
of the United States sought to ensure that the state-chartered 
banks they did business with could do that business well. 
Counterparty risk management thus became an important 
factor in the development of early American supervision, and 
this process essentially took place in the market. As any 
noteholder could present notes for redemption, bankers were 
encouraged to issue notes with care. The Banks of the United 
States, as the largest financial institutions, could collect, 
consolidate, and compel repayment at scale, turning the 
possibility of redemption into a promise that kept state 
bankers in line.55	

This was a decisive—and to some, monstrous—power, 
made even more powerful because the core risk management 
buffer undergirding the banking system was the private, 
personal liability of bank shareholders. Personal liability 
encouraged bankers to practice sound banking, for if they did 
not, they would be ruined.56	

The capacity of the Banks of the United States to issue 
sound notes, overseen by the federal government, and the 
Banks’ capacity to enforce soundness among state-bank 
counterparties, reflect the essence of the view that 
supervision existed to ensure the soundness of money that 

 
54 U.S. CONST. art. 1, § 8, cl. 5. 
55 See BRAY HAMMOND, BANKS AND POLITICS IN AMERICA FROM REVOLUTION 

TO THE CIVIL WAR (1957); JAMES WILLARD HURST, A LEGAL HISTORY OF MONEY 
IN THE UNITED STATES 1774–1970, at 151–72 (1973); JANE KNODELL, THE 
SECOND BANK OF THE UNITED STATES: CENTRAL BANKER IN AN ERA OF NATION-
BUILDING, 1816–1836 (2017). 

56 See Kris Mitchener & Matthew Jaremski, The Evolution of Bank 
Supervisory Institutions: Evidence from American States, 75 J. ECON. HIST. 
819, 828 (2015). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 159 

 

we call the “currency view” of bank supervision. The currency 
view has important antecedents in nineteenth-century 
currency debates, such as in the 1820s–1840s United 
Kingdom,57	 and continues to resonate today.58 Under this 
view, bank examination and supervision is not about 
exercising the sovereign’s right as the chartering authority. 
While visitorial power is certainly core to the legal justification 
for government oversight, supervision serves another critical 
function: ensuring the soundness of currency, which, for 
contemporaries meant assuring that bank notes could be 
converted into specie.59 

Andrew Jackson’s veto of the Second Bank’s recharter in 
July 1832 eliminated a centralized institution of currency 
quality control, but the currency view endured, albeit through 
metamorphosis.60 Almost immediately, the states—already 
active in creating banking institutions of various types—
stepped into the breach. The so-called free-banking era 
descended upon the United States: legislative enactments no 
longer initiated a bank charter; rather, states adopted more 
permissive chartering standards.61	 The free-banking era did 
not introduce an era free of supervision, however, but the more 
self-conscious combination of visitorial and currency 
approaches to supervision.62	 The institution of the “bank 

 
57 See Anna Schwartz, Banking School, Currency School, Free Banking 

School, in MONEY 41 (J. Eatwell et. al. eds. 1989); Charles Goodhart & 
Meinhard Jensen, Currency School Versus Banking School: An Ongoing 
Confrontation, 4 ECON. THOUGHT 20 (2015). 

58 See Menand, Why Supervise Banks, supra note 7; Menand, Logic and 
Limits, supra note 7. 

59 Arthur J. Rolnick, Bruce D. Smith & Warren E. Weber, Establishing 
a Monetary Union in the United States, in EVOLUTION AND PROCEDURES IN 
CENTRAL BANKING 237–48 (David E. Altig & Bruce D. Smith eds., 2003). 

60 The subsequent Independent Treasury Act of 1840 also eliminated the 
fiscal justification for bank oversight by preventing the Treasury from 
depositing federal money in banks. When these provisions were eased under 
the National Banking Acts, fiscal supervision remained with the treasury, 
distinct from the work of the comptroller and successor institutions. 

61 See HAMMOND, supra note 55, at 572–604. 
62 See Mitchener & Jaremski, supra note 56, at 826. 



  

160 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

examiner”—an individual employed by the chartering 
authority to investigate banker behavior—arose roughly 
during this period. So too did other important parts of the 
supervisory footprint, including the authority by examiners to 
exercise discretion in deeming a bank safe and sound, changes 
in capital structure to expose shareholders to increased 
liability, and other such innovations.63	 States also sought 
alternatives to the private risk buffer of personal liability. 
Some developed insurance schemes with either public backing 
or mutual, private risk pooling. Others required circulating 
notes to be backed by sound assets, layering state oversight 
on top of market redemption.64 

The free-banking era must be one of the most caricatured 
periods in U.S. monetary history—known derisively for its 
“Wildcat banks.”65 One challenge of the era arose in stark relief 
during the Civil War, when the stress on an exclusively state-
based monetary system, with the varieties that such federalist 
experiments invite, met the federal government’s capacity for 
war financing. This produced a monetary crisis. The Union’s 
financial system barely lasted six months before buckling 
under fiscal and monetary pressures occasioned by 
coordination failures.66	 The Lincoln Administration, after 
experimenting with attempts to pull gold from state bank 
 

63 Id. 
64 CARTER H. GOLEMBE & CLARK WARBURTON, INSURANCE OF BANK 

OBLIGATIONS IN SIX STATES, DURING THE PERIOD 1829–1866, FED. DEPOSIT 
INS. CORP., at 12 (1958). 

65 For a comprehensive treatment of the period, see HOWARD 
BODENHORN, STATE BANKING IN EARLY AMERICA: A NEW ECONOMIC HISTORY 
(2003). For more apologetic treatment, see George Selgin, Free Banking and 
Monetary Control, 104 ECON. J. 1449, 1449–59 (1994) and LAWRENCE WHITE, 
FREE BANKING IN BRITAIN (1996). And for a nuanced examination of the 
boundaries between legitimate and illegitimate banking, see STEPHEN 
MIHM, A NATION OF COUNTERFEITERS: CAPITALISTS, CON MEN, AND THE 
MAKING OF THE UNITED STATES (2009). 

66 See BRAY HAMMOND, SOVEREIGNTY AND AN EMPTY PURSE (1970); ROGER 
LOWENSTEIN, WAYS AND MEANS: LINCOLN AND HIS CABINET AND THE 
FINANCING OF THE CIVIL WAR (2022); Lev Menand & Morgan Ricks, Federal 
Corporate Law and the Business of Banking, 88 U. CHI. L. REV. 1361, 1384–
85 (2021). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 161 

 

vaults and then issuing United States Notes unbacked by any 
redemption commitment (the [in]famous “greenbacks”) 
eventually responded with the creation, through two statutes, 
of the National Banking System.67 

The National Banking Acts of 1863 (referred to at the time 
as the National Currency Act) and 1864 (the more significant 
piece of legislation) were designed to correct a specific problem. 
Namely, the greenback, created by Congress in 1862, was too 
public in its design. Together, the laws largely entrusted the 
new national banking system to the self-interest of bank 
stockholders and market surveillance by bank counterparties 
(1863), mediated by a new system of mandated reporting 
administered by the Comptroller (1864). They embodied, in 
short, the currency view.68 

Note redemption was initially at the center of Congress’s 
supervisory design. The law detailed precisely how and where 
notes were to be redeemed and what steps the Comptroller 
could take when “such association has refused to pay its 
circulating notes as aforesaid and is in default.”69 At the same 
time, because the law required national bank notes to be 
backed by U.S. bonds held by the Treasury, Congress made it 
functionally impossible for banks to fail to redeem their 
notes.70	 Like the state systems, the National Bank Acts used 
private liability as the core risk absorber, imposing double 
liability on bank stockholders. In the case of capital 
 

67 HAMMOND, supra note 66, at 60–62, 94–105, 168–69; MARGARET G. 
MYERS, A FINANCIAL HISTORY OF THE UNITED STATES 149–53 (1970); 
ROBERT P. SHARKEY, MONEY, CLASS, AND PARTY: AN ECONOMIC STUDY OF 
CIVIL WAR & RECONSTRUCTION 22–28, 255–69 (1959); Patrick Newman, The 
Origins of the National Banking System, 22 INDEP. REV. 383 (2018); John A. 
James & David F. Weiman, The National Banking Acts and the 
Transformation of New York City Banking During the Civil War Era, 71 J. 
ECON. HIST. 338 (2011). 

68 National Bank Act, ch. 58 §§ 12, 24, 50, 12 Stat. 665, 668, 671, 679 
(1863); National Banking Act, ch. 106, §§ 12, 34, 53, 13 Stat. 99, 102–03, 
109–10, 116 (1864). 

69 National Bank Act, ch. 58 §§ 25–29, 12 Stat. 665, 672–73 (1863); 
National Banking Act, ch. 106, §§ 26, 47, 13 Stat. 99, 107, 114 (1864). 

70 See HAMMOND, supra note 55. 



  

162 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

impairment or outright failure, their personal resources could 
be called on to meet the liabilities of the bank, creating strong 
incentives for bank principals to carefully monitor their agent 
bank officers.71 

The National Bank Acts represented the first major 
institutionalization of federal bank supervision in the United 
States, going much further than the Second Bank’s more 
informal oversight mechanisms. To enforce sound bank 
behavior, the National Bank Acts mandated that national 
banks submit detailed quarterly statements of condition, 
which were then published in Washington D.C. and the bank’s 
hometown paper.72 It also created a corps of federal bank 
examiners, whose recruitment and professionalization were 
major priorities for the first Comptroller of the Currency, 
Hugh McCulloch. Congress and McCulloch, through 
legislation and its implementation, gave these examiners the 
power to inspect bank behavior and note issuance to ensure 
safety and soundness of the money and the banking 
institutions.73 This inspection power enabled examiners to 
ensure banks complied, in McCulloch’s phrase, “with the spirit 
and intention of the law.”74 To this end, the legislative and 
regulatory processes sought to maintain the negative power of 
note redemption as the ultimate check on unsound banking 
while adding some general ability to promote banking 
innovation generally. 

While bank supervision evolved substantially from this 
point of origin, three artifacts of the Civil War period remain 
important to modern bank supervisory systems. First, 
McCulloch’s role in shaping bank examination is essential 

 
71 Id. 
72 National Bank Act, ch. 58 §§ 24, 12 Stat. 665, 671 (1863); National 

Banking Act, ch. 106, §§ 34, 13 Stat. 99, 109–10 (1864). 
73 National Bank Act, ch. 58 §§ 51, 12 Stat. 665, 679–80 (1863); National 

Banking Act, ch. 106, §§ 54, 13 Stat. 99, 116 (1864); see also ROSS M. 
ROBERTSON, THE COMPTROLLER AND BANK SUPERVISION (Off. of the Comptroller 
of the Currency, 1968), 71–72. 

74 INSTRUCTIONS TO EXAM’RS OF NAT’L BANKS, S. EXEC. DOC. NO. 31, at 
12–13 (1st Sess. 1881). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 163 

 

because the law gave little clear guidance on what federal 
examiners’ responsibilities should be. Congress provided for 
examination regimes in the past, particularly for steamship 
boilers and imported medicines,75 but these earlier regimes 
were designed to be ad hoc interventions rather than a 
permanent bureaucracy. Congress continued that approach in 
the National Banking Acts. Examiners would be appointed “as 
often as shall be deemed necessary and proper” by the 
Comptroller.76 The innovation of giving supervisors discretion 
starts with that legislative delegation, with the very 
determination of when government oversight would be 
performed. 

The second development was the almost immediate 
expansion of supervisory authority beyond the focus on the 
soundness of currency. “It is a common saying among bankers, 
when speaking of governmental supervision, ‘Take care of the 
currency; make that as secure as possible, but do not interfere 
with the business of the banks,’” Comptroller Hiland R. 
Hulburd observed in 1869. “As far as practicable,” he 
continued, “business should be left free and untrammeled; but 
in this country, the business of issuing circulating notes is so 
involved with the lending of money; the ability to redeem on 
demand is so dependent on the amount of reserve kept on 
hand, and the character of the loan, that it is impossible to 
apply safeguards to the currency, without applying prudence 
and reasonable restrictions to the business of lending.”77 Put 
differently, although the National Bank Acts made bank notes 
secure by backing them with U.S. bonds, the banking system 

 
75 The steam inspection regime of 1838 looked much like the bank 

examination regime of 1864, but in the meantime, the steam examination 
regime had made major advances that were not incorporated into bank 
examination. JERRY L. MASHAW, CREATING THE ADMINISTRATIVE 
CONSTITUTION: THE LOST ONE HUNDRED YEARS OF AMERICAN ADMINISTRATIVE 
LAW 187–208 (2012); Act of July 7, 1838, ch. 191, 5 Stat. 304. 

76 National Banking Act, ch. 106, § 54, 13 Stat. 99 (1864). 
77 ANNUAL REPORT OF THE OFF. OF THE COMPTROLLER OF THE CURRENCY 

XIII–XIV (1869). 



  

164 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

was still replete with risks that could sweep away the banks. 
Supervisors needed to monitor and control those risks. 

To provide prudence and occasional restrictions, 
McCulloch, Hulburd, and their successors took the 
ambiguities of legislation and interpreted them in favor of 
permanent, wide-ranging bank oversight. These early 
Comptrollers sought a thriving experiment in national 
banking, and that necessitated a partnership, intermediated 
by bank examiners, between the Comptroller and bankers. 
The key to this intermediation experiment was the 
development of discretionary supervisory tools, including 
chartering, examination, and receivership, and the backing 
provided to them by the new OCC and the emerging federal 
administrative bureaucracy.78 

In the process of institutionalizing bank supervision, 
federal examiners were often compelled to interpret their 
broad congressional authority as attaching to more and more 
banking practices. Viewed positively, this involved guiding 
bankers toward “a straightforward, upright, legitimate 
banking business,” as McCulloch phrased it, and away from 
“splendid financiering.”79 Bankers pushed back, sometimes 
aggressively: “There is no authority in law” to do what the 
Comptroller had done, the New York magazine Financier 
objected in January 1872; “[n]o such office as bank examiner 
was ever created.” But by the time bankers started making 
this complaint, it was too late; the bank examiners would 
never depart the scene again.80 

 
78 For important works on the development of the American 

administrative state, see RICHARD BENSEL, YANKEE LEVIATHAN: THE ORIGINS 
OF CENTRAL STATE AUTHORITY IN AMERICA, 1859–77 (1990); BRIAN BALOGH, 
GOVERNMENT OUT OF SIGHT: THE MYSTERY OF NATIONAL AUTHORITY IN 
NINETEENTH- CENTURY AMERICA (2009); Jerry L. Mashaw, Federal 
Administration and Administrative Law in the Gilded Age, 119 YALE L.J. 
1365 (2010). 

79 HUGH MCCULLOCH, INSTRUCTIONS AND SUGGESTIONS OF THE 
COMPTROLLER OF THE CURRENCY IN REGARD TO THE ORGANIZATION AND 
MANAGEMENT OF NATIONAL BANKS 35 (1864). 

80 The Examination of Banks, FINANCIER, Jan. 20, 1871, at 39. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 165 

 

The third major, enduring supervisory development that 
arose during this era was the discovery that purely public 
money—the greenbacks—and purely private money—the free 
banks—could not meet the political and financial needs of all 
parties. This recognition led to one of the central, durable 
themes of bank supervision: the adjudication between public 
and private actors for the responsibility of residual risk 
management. The business of banking would be left to the 
bankers, as Hulburd explained, subject to the prudence and 
restrictions imposed by the government through ongoing 
dialogue. The National Banking System thus created a 
framework for periodic oversight; however, it did not create a 
clear identification of which aspect of the system, public or 
private, would be left in control in the event of failure. That 
clarity would require many more decades of trials and errors. 

Congress gradually liberated what had been a more rigid 
chartering process for national banks to a more permissive 
one in the 1870s. After that liberation, the motivating ethos of 
bank supervision began shifting from the currency approach 
that focused on verifying the soundness of currency issued by 
national banks to one that emphasized the business of 
banking more generally. The examination reports themselves 
marked this subtle transition. In essence, the reports were 
designed to enable examiners to perform the visitorial 
function of ensuring that banks abided by their charters, with 
specific sections set off to encourage scrutiny of whether banks 
maintained an adequate reserve or made loans in greater 
proportion to their capital than allowed by law. Reports not 
only included a recitation of the by-then standard call report, 
which recorded dividends to shareholders and other insider 
dealings, but also long sections of expansive commentary by 
examiners on all matters affecting the banks.81	 Examiners 
used the space, creating a running bureaucratic narrative 
about the life (and sometimes sickness and death) of each 
national bank. 
 

81 See Grace Ballor, Gabriela Recio & Sean H. Vanatta, Surveillance 
Archive: Using Reports in Business History, 18 MGMT. & ORG. HIST. 43, 46 
(2023). 



  

166 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

Most of these reports focused not on note issuance per se, 
but on the duty of examiners to evaluate—and sometimes 
correct or affirm—banker behavior. Examiners evaluated 
bank officers (“President:…of good means & the best financial 
standing;” “Cashier:…entirely competent for the position”). 
They looked at record keeping (“Records: in good shape;” 
“Other Books: well kept”). They evaluated bank assets (“Loans 
in good condition & closely looked after”). Examiners even 
considered the bank offices (“two story brick, good location”) 
and the quality of the safe (“the best kind of burglar proof 
doors”). What examiners lacked was the authority to compel 
changes in behavior. Short of closing a bank, they could only 
guide, nudge, and cajole.82 

By the 1870s, few of the examination reports look 
specifically at note issuance.83 Instead, the rise of a new class 
of bank customers—the rising class of depositors— 
fundamentally changed the understanding of the business of 
banking and, with it, the nature of its federal supervision. The 
currency view of bank supervision was the dominant lens at 
the legislative beginning of federal bank supervision, but it 
receded in importance in the face of these changes almost 
immediately. 

 
B. Scandals, Crises, and Bank Supervision, 1870–1907 

 
If the currency view of bank supervision was essentially 

stillborn, its successor regime was still not fully established. 
A major definitional problem remained. If bank examiners 
working for the Comptroller were a form of public risk 
managers for the private institutions, rather than simply 
monetary policymakers avant la lettre, who owned the 
 

82 Butler Ward, Examiners Report (First Nat’l Bank, Le Roy, N.Y., 
Charter No. 937) (Oct. 16, 1866) (on file with Nat’l Archives, Records of the 
Off. of the Comptroller of the Currency, Records of the Examining Division 
(Division of Reports) 1863–1927, Record Group 101.4, box 124).  

83 See generally Nat’l Archives, Records of the Off. of the Comptroller of 
the Currency, Records of the Examining Division (Division of Reports) 
1863–1927, Record Group 101.4. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 167 

 

problem when private institutions failed? The Gilded Age 
would provide limited and unsatisfying answers to this 
question. 

Scholars have focused at great length on the banking 
panics of the Gilded Age.84	Less attention has been paid to the 
banking scandals of the Gilded Age. Each scandal played a 
major role in shaping the institutions of supervision toward 
the idea that private financial failure was not merely the 
domain of private financiers. 

The first major scandal for bank supervision was the 
Callender affair, which unfolded dramatically in the early 
1870s. The protagonist, Charles Callender, had been a clerk in 
the Currency Bureau and then a National Bank Examiner, 
covering Philadelphia and later New York City. Callender 
developed a reputation for forbearance, pursuing what the 
press called a “‘nursing’ policy” of keeping “moribund 
institutions alive if possible,” even when their condition 
warranted closure.85 After three of these banks failed 
spectacularly in 1871, the public learned that supervisory 
forbearance was the least of Callender’s crimes. He was 
actively extorting the banks under his supervision. Congress 
and the press exploded in indignation. The corrupt examiner 
became a byword for the corruption of the age.86 Callender’s 
case profoundly shaped the Comptroller’s posture toward 

 
84 See OLIVER MITCHELL WENTWORTH SPRAGUE, HISTORY OF CRISES 

UNDER THE NATIONAL BANKING SYSTEM, S. DOC. NO. 61-538, at 89–90 (1910); 
ELMUS WICKER, THE BANKING PANICS OF THE GREAT DEPRESSION (2000); 
RICHARD WHITE, THE REPUBLIC FOR WHICH IT STANDS: THE UNITED STATES 
DURING RECONSTRUCTION AND THE GILDED AGE, 1865–1896 (2017). 

85 Stability of the Monetary Situation, COM. AND FIN. CHRON., Dec. 16, 
1871, at 794, https://fraser.stlouisfed.org/title/commercial-financial-
chronicle-1339/december-16-1871-528120 [https://perma.cc/24KL-GLJC].  

86 The Bank Examination Fraud, CHI. TRIB., Dec. 24, 1871, at 4; 
Callender Held to Bail, N.Y. TIMES, Dec. 21, 1871, at 2; The Case of 
Callender—Examination of the President of the Ocean Bank, N.Y. TIMES, 
Dec. 28, 1871, at 2; Trial of Ex-Bank Examiner Callender, N.Y. TIMES, May 
31, 1874, at 2. 



  

168 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

supervision in anticipation of the even more devastating 1873 
Panic.87 

Callender’s misdeeds inspired hot outrage. “A graver 
charge was never laid at a man’s door,” the Chicago Tribune 
declared. “Not alone because he was bleeding weak banks by 
blackmail, not alone because he was using his official position 
to illegally increase his income, but because he was aiming a 
direct blow at the commerce of the country by bolstering 
rotten banks.” Bolstering rotten banks allowed the rot to 
spread—building up risk in a system where private, personal 
responsibility was the only risk absorber. As such, Callender’s 
misdeeds fundamentally undermined the legitimacy of the 
nascent national banking system and its supervisory regime. 
It also led to a frank acknowledgment that supervision was, at 
least in part, a partnership between public and private 
institutions. “The best thing to do with the position,” the 
Financier wrote in 1872, “is to leave it unfilled altogether and 
let Mr. Callender’s odium remain as its memorial.” Instead, 
the Comptroller allowed the New York Clearinghouse, a 
private institution, to nominate Callender’s replacement, 
Charles A. Meigs (Clearinghouse bankers, appointed as ad hoc 
examiners, had rooted out Callender’s misdeeds in the first 
place). Private sector control over federal appointments—not 
influence, but absolute control—remained an informal 
tradition that continued well into the twentieth century.88 

 
87 Charles Callender’s Loans, N.Y. TIMES, Mar. 31, 1874, at 4; Failures 

of National Banks: Hearing Before the H. Comm. on Banking and Currency, 
42nd Cong., H. Misc. Doc. 42-153 (1872) at 5. The scandal also implicated 
or exposed Boss Tweed (a director of one of the corrupt banks) and 
Comptroller Hurlburd (under a cloud of suspicion after he accepted a 
carriage from a national banker who accused him of importuning a bribe.) 
See Jeffrey D. Broxmeyer, Political Capitalism in the Gilded Age: The 
Tammany Bank Run of 1871, 16 J. GILDED AGE & PROG. ERA 44 (2017); 
The Case of Callender, N.Y. TIMES, Dec. 28, 1871, at 2; Financial Troubles, 
N.Y. TRIB., Dec. 13, 1871, at 1; Failures of National Banks, supra, at 15, 39. 

88 The Examination of Banks, FINANCIER, Jan. 20, 1872; John A. James 
& David F. Weinman, The National Banking Acts and the Transformation 
of New York City Banking During the Civil War Era, 71 J. ECON. HIST. 338 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 169 

 

The Panic of 1873 accelerated this trend toward private risk 
management. In September 1873, the merchant bank Jay 
Cooke & Company failed, sparking a major financial panic.89 
As country banks called in their reserves and cash drained 
from New York, the Comptroller was powerless. The 
Comptroller’s tools—chartering, examination, forbearance, 
and liquidation—were not sufficient to manage financial panic 
because the Comptroller did not have the one thing that a 
panic needed: money. Writing the same year as the panic, the 
British economist Walter Bagehot famously wrote that panics 
are “a species of neuralgia, and according to the rules of science 
you must not starve it. The holders of the cash reserve must be 
ready not only to keep it for their own liabilities, but to 
advance it most freely for the liabilities of others.”90 This is the 
famous “lender of last resort” function, but the Comptroller 
could not perform it. There was no financial mechanism for a 
process that had been located unevenly through banks 
chartered at both the state and federal level.91 

In the absence of that public balance sheet, leadership fell 
instead to the private Clearinghouse. In response to the crisis, 
the New York Clearinghouse worked backwards from the 
Comptroller. It started with the provision of liquidity via its 
balance sheet (or at least, its bespoke payment system and the 

 
(2011); Patrick Newman, Origins of the National Banking System, 22 INDEP. 
REV. 383 (2018). 

89 The Panic of 1873 exercised a major impact on the political and 
economic landscape of the U.S., perhaps hastening the end of 
Reconstruction. See WHITE, supra note 84, at 264–73; IRWIN UNGER, THE 
GREENBACK ERA: A SOCIAL AND POLITICAL HISTORY OF AMERICAN FINANCE, 
1865–1879, at 164-65, 190-94, 213-15 (1964); Nicolas Barreyre, The Politics 
of Economic Crises: The Panic of 1873, the End of Reconstruction, and the 
Realignment of American Politics, 10 J. GILDED AGE & PROG. ERA 403 (2011). 

90 WALTER BAGEHOT, LOMBARD STREET A DESCRIPTION OF THE MONEY 
MARKET 51 (3d ed. 1873). 

91 In moments of panic, the Treasury secretary would often inject cash 
into the New York money market, either by pre-paying treasury bonds or 
increasing federal deposits in New York City banks. See MARGARET MYERS, 
A FINANCIAL HISTORY OF THE UNITED STATES 189 (1970); see SPRAGUE, supra 
note 84, at 89–90. 



  

170 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

balance sheets of its member organizations) and moved 
toward supervision only as it followed from that liquidity 
support. If the Panic of 1873 revealed how much supervision 
had become a public-private partnership, it also revealed a 
singular defect in the then-junior public partner. In 1873, the 
Clearinghouse served the lender of last resort function. As the 
crises of the Gilded Age continued, it would become clear that 
the Clearinghouse could not or would not continue it. 

This combination of scandal and crisis marked the Gilded 
Age and profoundly shaped the institutions of bank 
supervision. Just as examiners lacked the tools to combat 
panic, they also struggled to root out another persistent source 
of bank failure: fraud. Fraud detection as a supervisory calling 
was likewise rooted in the visitorial power. Examiners could 
and did detect fraud. Examiner Andrew Mygatt, The New York 
Times observed, “ha[d] brought many cashiers to the state 
prison.”92 Yet the fundamental information asymmetry 
between (dishonest) bankers and federal examiners who 
showed up annually to inspect their books was profound. The 
consequences of fraud were also asymmetric. When examiners 
failed to detect fraud, and especially when defalcations 
resulted in losses to bank depositors, such supervisory failures 
undercut the legitimacy of federal oversight. After a major 
fraud scandal in the early 1880s, observers began to recycle 
the objections to examination raised by the New York 
legislature in the 1840s; when bankers were honest, 
examiners weren’t needed, and when bankers were dishonest, 
examiners were hopelessly out of their depth. “He is a 
stranger,” the Century Magazine observed in March 1882, who 
“can know little, except by hearsay, of the character and 
habits of the bank’s officers, or of the security of its loans.”93 

In response to these twin failures—in crisis prevention and 
fraud prevention—Comptroller John Jay Knox and his 
successors began to articulate a revised vision of federal bank 
examiners’ behind-the-scenes work. Knox pushed 
 

92 Bank Examiner Mygatt, N.Y. TIMES, Mar. 7, 1886, at 7. 
93 Broken Banks and Lax Directors, CENTURY ILLUSTRATED MAG., Mar. 

26, 1882, at 770. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 171 

 

examination away from the image of courageous fraud 
detection, acknowledging in his statements to Congress that 
examiners were unlikely to catch the long cons that 
dominated the headlines. Instead, in acknowledgement of the 
asymmetries that undercut supervision, Knox sought to make 
private shareholders and their appointed directors the 
primary risk monitors and absorbers in the banking system. 
“The examiner can have but a limited knowledge of the habits 
and character of those employed in the bank,” Knox explained 
to Congress in 1881. He further elaborated: 

 
If the teller is making false entries, and daily abstracting 

the funds of the bank; if the bookkeeper is keeping false 
accounts and rendering untrue statements; if the cashier is 
placing forged paper among the bills receivable and upon the 
register book, and transmitting such paper to distant places 
where it is purported to be payable, it is not possible for an 
examiner, in a day or two, to unravel this evil work, which may 
have continued for months, and obtain a correct balance 
sheet.94 

 
If the examiner’s duty, then, was not to be a perfect fraud 

detective, it was instead “to inform himself of the condition of 
the bank, and to require that its business shall be conducted 
in conformity with law.”95 Knox wanted the banks’ directors to 
be the sole owners of residual risk, financial or otherwise, 
because “[t]he men employed by them in the banks are under 
their supervision.”96 “The directory must continuously look 
after its own servants. The examiner looks after the acts of the 
directors.”97 To accomplish this, examiners would highlight 
the “restrictions . . . intended to protect these institutions, by 
imposing upon them general rules, which experience has 
shown may be properly done by the government without its 
thereby becoming the guardian of the bank, or of the moneys of 
 

94 ANNUAL REPORT OF THE COMPTROLLER OF THE CURRENCY XXXVI (1881). 
95 Id. at XXXVI. 
96 Id. at XXXV. 
97 Id. at XXXVII. 



  

172 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

its depositors or stockholders, or being in any way responsible 
for the management of its funds.”98 The mood Knox offers—
which reflected a sympathetic banking press—was a choice for 
bank supervision in this period of institutional design.99 

It seemed, then, that the ideal of governmental actors 
standing behind private institutions and their own internal 
risk management would be the norm. It was not to be. The 
three remaining major crises of the Gilded Age—in 1884, 1893, 
and 1907—and a slew of further financial scandals created 
even more distance between the demands made to the private 
bank supervisory system and what that system could deliver 
politically. Initially, the supervisors tried to insist that theirs 
was not a residual risk-bearing responsibility. Comptroller 
Edward S. Lacy remarked in 1891, “The duties of the 
Comptroller, and in some sense the examiners, are largely 
negative . . . . The Comptroller is therefore mainly charged 
with the responsibility of indicating to bank managers what 
they shall not do.”100 

But the Clearinghouse could not assume the positive role 
it had adopted in 1873, either. Then, the Clearinghouse banks 
pooled their reserves to meet the cash demands of country 
bankers, who sought to recall their reserves from New York to 
meet nervous depositors at home.101	Demands fell heaviest on 
banks with large out-of-town balances, while responsibility for 
propping up the system fell on strong banks focused on the 
New York market. Resentment provided fertile soil for self-
interest. In future panics, the Clearinghouse rejected reserve 
pooling, while the leading banks, in economic historian O. M. 
 

98 Id. at XXXV. 
99 Id. at XXXV (1881); Bank Examinations and Bank Directors, 36 

BANKERS’ MAG. & STAT. REG. 414 (Dec. 1881); Bank Examinations, 36 
BANKERS’ MAG. & STAT. REG. 542 (Jan. 1882); Bank Examinations, 
INDEPENDENT, Jan. 12, 1882; Broken Banks, supra note 93, at 771–72; Bank 
Examinations and Bank Directors, 39 BANKERS’ MAG. & STAT. REG. 241 (Oct. 
1884); Bank Examinations, 39 BANKERS’ MAG. & STAT. REG. 483 (Jan. 1885); 
Bank Examinations Once More, 39 BANKERS’ MAG. & STAT. REG. 651 (Mar. 
1885). 

100 ANNUAL REPORT OF THE COMPTROLLER OF THE CURRENCY 27 (1891). 
101 See SPRAGUE, supra note 84. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 173 

 

W. Sprague’s measured view, did “not seem to have been 
rendering anything like that assistance which their resources 
would have permitted,” despite the federal government 
placing large cash deposits in these same banks.102	 In the 
severe crises of 1893 and 1907, this allowed the panic to 
metastasize and spread across the country. 

Another key development of the period was the 
fundamental change in the banking business model away from 
the reliance on note issuance and toward maturity 
transformation and the holding of deposits. This development 
also undermined the currency and monetary vision of the 
original national banking system, but for a very different 
reason. More bluntly, by the early 1880s it was no longer 
profitable for national banks to issue bank notes, which 
formed the foundation of the nation’s circulating currency.103	

The transition to deposit banking is arguably one of the most 
important economic and financial transitions in U.S. financial 
history. Instead of handing notes across the counter, banks 
made loans by crediting a depositor’s checking account. The 
borrower could then write checks against money within the 
bank, as deposits, rather than spending cash that circulated 
outside of it.104	 In 1867, there were roughly $1.70 in deposits 
for every dollar of circulating currency (specie, greenbacks, 
bank notes). By 1890, the ratio was five to one, at which point 
the Comptroller determined that “the deposits of a national 
bank are now its principal source of profit.”105 By 1914, there 
were more than ten dollars in deposits for every dollar in 
currency.106	 Even as debates about the form of American 

 
102 Id. at 268. 
103 See Charles Calomiris & Joseph Mason, Resolving the Puzzle of the 

Underissuance of National Bank Notes, 45 EXPL. ECON. HIST. 327 (2008); 
Matthew Jaremski & Peter Rousseau, The Dawn of an ‘Age of Deposits’ in 
the United States, 87 J. BANKING & FIN. 264 (2018). 

104 See H. G. Moulton, Commercial Banking and Capital Formation: I, 
26 J. POL. ECON. 498 (1918). 

105 ANNUAL REPORT OF THE COMPTROLLER OF THE CURRENCY 10 (1890). 
106 See JOHN JAMES, MONEY AND CAPITAL MARKETS IN POSTBELLUM 

AMERICA 22 (1978). 



  

174 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

physical currency raged—first between greenbacks and gold, 
and then between gold and silver—deposits quietly became 
the primary form of American money.107 

This new reality created some tensions in the relationship 
between bank lending, bank failure, and supervisory 
oversight. Within the note-issue paradigm, comptrollers had 
largely conceptualized bank failure as note fraud, a matter of 
particular concern for the Comptroller, whose office had the 
task of defending that currency—i.e., the notes issued by 
national banks. By the 1880s, it was clear that honest but 
incompetent lending decisions could just as easily jeopardize 
a bank. The Comptroller could not protect the currency simply 
by enforcing the rules. But federal examiners were not 
equipped to monitor or evaluate the loans of the nation’s 
banks using pure discretion either. Even if they did so, 
bankers could now look to the states for a lighter supervisory 
touch. This meant that banks that had little interest in note 
issuance but deep interest in deposit taking were now just as 
much a part of the nation’s currency system, but well outside 
the Comptroller’s reach. “The exact line at which the 
Government shall interfere and the point at which 
Government discipline shall commence,” Comptroller Henry 
Cannon wrote in 1884, “is a matter of some delicacy to 
determine.”108 

The rise of deposit banking also exposed the core 
inadequacy of the Comptroller’s effort to shift risk 
management onto private bank shareholders. With double 
liability, bank shareholders bore much of the risk of failure, 
but not all of it. As deposits became a larger share of bank 
liabilities, depositors in turn became, as a group, a larger 
holder of the residual risk. Note holders were secure but 
depositors were not. This imbalance created more momentum 
for bank runs because unsecured depositors sought to quickly 
 

107 See Bruce G. Carruthers & Sarah Babb, The Color of Money and the 
Nature of Value: Greenbacks and Gold in Postbellum America, 101 AM. J. 
SOCIO. 1556 (1996); Comptroller Knox on the Currency, WASH. POST, Aug. 
15, 1881, at 2. 

108 ANNUAL REPORT OF THE COMPTROLLER OF THE CURRENCY, at L (1884). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 175 

 

convert their deposits into secure notes at any sign of trouble. 
Political calls for new risk management philosophies, rooted 
not, or not only, in private liability, but rather in central 
banking or deposit insurance, grew louder over time. 

Several comptrollers endorsed these calls. As they waited 
for congressional action, these comptrollers also developed 
new discretionary tools to manage risk where they could. 
First, the comptroller sought to increase loan quality and bank 
liquidity through loan criticism. Over the nineteenth and into 
the twentieth century, examiners developed metrics for 
evaluating bank assets that ranged from slow (illiquid) to 
loss.109 Loan criticism enabled examiners to guide banker 
behavior, especially toward standards of liquidity in line with 
commercial banking theory (i.e., the real bills doctrine). In 
moments of panic, the comptroller also adopted forbearance. 
Instead of necessarily liquidating a bank that closed its doors 
to halt frantic depositor withdrawals, the comptroller could 
instead allow the bank to resume business (for example, after 
the arrival of a transcontinental shipment of currency).110 
While significant, these powers proved insufficient to 
overcome the moments of severe neuralgia. The punishing 
crises of 1893 and 1907, which the comptroller was virtually 
powerless to forestall without the means of converting 
deposits into notes, created momentum for reform. 

At the end of the Gilded Age, bank supervision was well 
established as a mechanism for ensuring private and public 
 

109 ANNUAL REPORT OF THE COMPTROLLER OF THE CURRENCY, 26–27 
(1891); Letter from Leo T. Crowley to Marriner S. Eccles (Feb. 9, 1938), 120 
DIARIES OF HENRY MORGENTHAU JR. 289, on file with FRASER, 
https://fraser.stlouisfed.org/archival-collection/diaries-henry-morgenthau-
jr-6880/volume-120-634692?page=296 [https://perma.cc/NCD3-F425]; 225 
Bank Suspensions: Case Histories from Examiners’ Reports (1933), 
FEDERAL RESERVE, COM. ON BRANCH, CHAIN, & GROUP BANKING 15, on file 
with FRASER, https://fraser.stlouisfed.org/title/225-bank-suspensions-797 
[https://perma.cc/7NZ9-YB85]. The Federal Reserve lists this report as circa 
1932, but the final version was completed in 1933. 

110 Charles W. Calomiris & Mark Carlson, Bank Examiners’ Information 
and Expertise and their Role in Monitoring and Disciplining Banks Before 
and During the Panic of 1893, 54 J. MONEY, CREDIT & BANKING 381 (2022). 



  

176 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

collaboration with financial management. The ability for 
bank supervisors to do more than nudge and cudgel 
bankers to protect themselves, however, was not yet a part 
of the institutional landscape. That would come, awkwardly 
and in starts, during the Progressive Era. 

 
C. Institutional Layering and the Risk Management 

Model of Bank Supervision, 1907–1925 
 
Among the many reasons the U.S. Federal Reserve System 

eventually entered the institutional landscape of American 
finance, providing the missing authority behind risk 
management and supervision backed by a plausible balance 
sheet was chief among them. “The depositing bank,” the 
Comptroller of the Currency proposed shortly after the Panic 
of 1907, “could be sure that at any time, as long as it was 
solvent, it could go to the central bank and get any amount of 
cash needed on the notes of its customers, or other good 
security.”111 

The need to unite the two functions of supervisory risk 
management and governmental balance sheet support was 
well apparent after the nineteenth century’s crippling rhythm 
of financial panics. The institutional posture of shared risk 
management via the Comptroller of the Currency was already 
reasonably well-entrenched by the early twentieth century, 
despite the objections from some bankers early on. But the 
idea of the balance sheet necessary to make good on those 
supervisory commitments was still politically toxic in many 
corners of the American polity. That anathematic quality of a 
central bank made the path from the Panic of 1907 to the 
passage of the Federal Reserve Act of 1913 a circuitous one at 
best.112	 It also meant that the final result was not, as some 
scholars have argued, a great rethink of pre-existing monetary 

 
111 ANNUAL REPORT OF THE COMPTROLLER OF THE CURRENCY 71 (1907). 
112 See ROGER LOWENSTEIN, AMERICA'S BANK: THE EPIC STRUGGLE TO 

CREATE THE FEDERAL RESERVE (2016); PETER CONTI-BROWN, THE POWER AND 
INDEPENDENCE OF THE FEDERAL RESERVE (2016). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 177 

 

frameworks so much as it was an instance of important, 
politically inflected institutional layering.113 What emerged 
from this pivotal period in the institutional development of 
bank supervision was two-fold: bank supervision would flow 
into the new creature of the U.S. Federal Reserve System, but 
it would do so according to a logic that would look quite 
different from what had come before. 

The explanations for the strange legislative path are 
manifold, reflecting the diverse coalitional interests behind 
“currency reform” that ultimately led to the System’s creation. 
The institutional interests of the Comptroller of the Currency 
are a good place to start. The obvious debilities in the national 
banking system did not lead to the Comptroller’s advocacy for 
the elimination of the national banks, but to the layering of 
more federal institutional complexity. Shortly after the Panic 
of 1907, Theodore Roosevelt appointed Lawrence O. Murray 
as Comptroller, with a charge to reform the system. “When I 
became comptroller it seemed to me that we needed three 
things,” Murray explained to Congress in 1908, “a more 
efficient law for the comptroller to work under, whereby he 
would be taken out of the category of a common scold and 
given the power to do something; better examinations of the 
banks by bank examiners; and more cooperation or direction 
by the directors.”114 Murray recognized that, although private 
shareholders backstopped the banking system through their 
personal liability, the financial and political consequences of 
failure exceed the capacity of the private risk buffer. The 
 

113 For the view that the Federal Reserve Act followed a specific 
intellectual design and logic independent of political processes, see Menand, 
Logic and Limits, supra note 7. Although the concept has enjoyed a long and 
circuitous metahistory, see Jeroen van der Heijden, Institutional Layering: 
A Review of the Use of the Concept, 31 POLITICS 9 (2011), institutional 
layering refers to the idea that “new rules are attached to existing ones, 
thereby changing the ways in which original rules structure behavior.” See 
JAMES MAHONEY & KATHLEEN THELEN, A Theory of Gradual Institutional 
Change, in EXPLAINING INSTITUTIONAL CHANGE: AMBIGUITY, AGENCY, AND 
POWER 16 (2010). 

114 Hearings Before the Nat’l Monetary Comm’n, 60th Cong. 78 (1908) 
(statement of Lawrence O. Murray, Comptroller of the Currency). 



  

178 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

residual rested with the public. Murray sought more power to 
manage that risk. 

The time between the Panic of 1907 and the passage of the 
Federal Reserve Act coincided with a significant expansion of 
the supervisory function under Murray’s leadership, including 
the implementation of more rigorous professionalization 
standards for bank supervisors, the expansion of counterparty 
supervision of nonbank (and non-national banks), and the 
substantial reorganization of the entire examination force.115 
In the final Federal Reserve Act, Murray and others succeeded 
in preserving the Comptroller and the national banking 
system, and with them a discretionary supervision rooted in 
the visitorial power. They also further professionalized the 
examination corps by placing them on salaries rather than the 
fee-for-examination model that had existed for the previous 
fifty years.116	 Both these achievements entrenched bank 
supervision in a risk management posture, placing a 
professional corps of bank examiners ever-present in the halls 
of private financial institutions rather than permitting the 
quasi-public central bank to function in the currency view of 
counterparty supervision that existed elsewhere. 

While the Federal Reserve System that emerged from the 
legislative process was modeled in some ways on central 
banks elsewhere in the world, the unique institutional 
layering on top of the American system introduced 
opportunities for institutional fragmentation and 
institutional innovation alike.117 The fragmentation occurred 
through the addition of more supervisory engagement by the 
Federal Reserve. Congress granted the Fed the authority to 

 
115 Controller Warns Bank Examiners, N.Y. TIMES, Sept. 22, 1908; Nat. 

Bank Examiner at Large, WALL ST. J., Jan. 11, 1909; To Inform Bank 
Examiners, WALL ST. J., May 18, 1910; Comptroller’s Credit Bureau, WALL 
ST. J., Sept. 28, 1910; Shakeup of Bank Examiners, CHI. DAILY TRIB., Sept. 
8, 1910. 

116 See NICHOLAS R. PARRILLO, AGAINST THE PROFIT MOTIVE: THE SALARY 
REVOLUTION IN AMERICAN GOVERNMENT, 1780–1940 (2013). 

117 J. LAWRENCE BROZ, THE INTERNATIONAL ORIGINS OF THE FEDERAL 
RESERVE (1997). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 179 

 

examine banks through the Comptroller itself, through state 
examiners and through examiners appointed by the Fed.118 
Yet, while the Fed could in theory examine through these 
existing institutions, its supervisory objectives ran in 
different directions from the very beginning, as dictated by its 
core risk management tool—namely, its balance sheet (or, 
more precisely, the balance sheets of the individual federal 
reserve banks). In 1918, the Board laid out a simple 
examination philosophy: “The primary object of Federal 
Reserve examinations will be to obtain more detailed 
information as to credits.”119 This was not, then, visitorial 
power derived from the sovereign chartering authority; 
rather, it was a form of private risk management, aimed at 
protecting the balance sheets of the reserve banks from credit 
risk, rather than policing bank compliance with chartering 
provisions. Nevertheless, Congress empowered the Fed not 
only to examine bank assets when presented for rediscount, 
but also to use the visitorial power of examination to 
proactively monitor bank behavior long before the Fed pulled 
private risk onto its quasi-public balance sheet. 

Thus, after the founding of the Federal Reserve System, 
the state of bank supervision consisted as follows. The 
Comptroller of the Currency’s corps of bank examiners, now 
mostly independent of the Clearinghouses, was professional, 
salaried, and managing themselves in the space between the 
public and private financial system. States throughout the 
country had largely adopted the Comptroller’s model of open 
chartering and bank examination.120	 This was a coordinated 
 

118 Federal Reserve Act of 1913, 12 U.S.C. § 481. 
119 Letter from Warren P. G. Harding, Fed. Reserve Governor, to Carter 

Glass, Fed. Reserve Chairman, regarding the Department of Examination, 
No. X-1327, 9 MIMEOGRAPH LETTERS AND STATEMENTS OF THE BOARD 143 
(Dec. 23, 1918), on file with FRASER, https://fraser.stlouisfed.org/archival-
collection/mimeograph-letters-statements-board- 4957/letter-governor-re-
department-examination-federal-reserve-banks-512234 
[https://perma.cc/AQ6L-CMCS]. 

120 See GEORGE BARNETT, NAT’L MONETARY COMM’N, STATE BANKS AND 
TRUST COMPANIES SINCE THE PASSAGE OF THE NATIONAL-BANK ACT, 61st 
Cong., S. DOC. NO. 61-659 (1911). 



  

180 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

effort: in 1902, the states founded the National Association of 
Supervisors of State Banks, an organization designed to 
coordinate state bank supervisory efforts against the threat of 
national bank dominance.121 With the advent of the Federal 
Reserve System, these two communities of examiners, state 
and federal, were joined by a third wedged between them.122 
The Fed’s examiners, at this early stage, relied on the 
examination efforts of both state and national bank examiners 
and introduced their own corps as well. 

Things did not go smoothly with that division of labor. One 
node of conflict centered on when and how the Federal Reserve 
Board and the Federal Reserve Banks should have access to 
the detailed information about individual banks’ businesses 
collected through the Comptroller’s examination reports. Most 
of the directors of the Federal Reserve Banks were themselves 
bankers, or close associates of bankers. Indeed, Congress 
designed these curious institutions to allow member banks to 
fill two-thirds of the board seats. Even the other third, filled 
by the Federal Reserve Board, had to include two of three 
members with “tested banking experience.”123 The Federal 
Reserve System was built by politicians, largely for the benefit 
and with the close participation of bankers.124	 This proximity 
created a problem for bank supervision, given the sensitive 

 
121 Nat’l Ass’n of Supervisors of State Banks, Proceedings of the Fourth 

Annual Convention of the National Association of Supervisors of State 
Banks, at iv (Madison, Wis.: Democrat Printing Co. 1905). This organization 
is now the Conference of State Bank Supervisors. 

122 Before the founding of the Federal Reserve, city clearinghouses also 
undertook supervision of member banks. Like formal government oversight, 
these practices evolved from an ad hoc system performed by bankers to a 
formal system enacted by salaried, independent examiners. The Chicago 
Clearinghouse was the first to hire a dedicated examiner in 1907, and it was 
soon followed by others. See JAMES G. CANNON, NAT’L MONETARY COMM’N, 
CLEARING-HOUSES 137, 61st Cong., S. DOC. NO. 61-491 (1910). 

123 The original provisions were in Section 4 of the Federal Reserve Act. 
This provision is among the most amended of the Federal Reserve Act, but 
the bankers still retain much of their influence. 

124 See LAURENCE BROZ, THE INTERNATIONAL ORIGINS OF THE FEDERAL 
RESERVE SYSTEM (2009); KOLKO, supra note 12. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 181 

 

information contained in examination reports that would be 
provided to Fed directors and written about these directors’ 
competitors. Members of the Federal Reserve Board, tasked 
ambiguously with supervision over supervision, were 
immediately keyed into this dynamic. “[U]nder no 
circumstances should any information contained in the Bank 
Examiner’s reports be open for the inspection of the directors 
of any Federal Reserve Bank,” an early member of the Federal 
Reserve Board wrote to the Comptroller of the Currency in 
December 1914.125 The Comptroller went one step further, 
suggesting that the Federal Reserve Act allowed but did not 
require the Comptroller to share reports with the Board.126 

In a broader sense, the goal of the tripartite structure was 
to promote coordination and cooperation across three risk 
management systems (state, comptroller, and federal). In 
practice, however, institutional competition encouraged risk 
avoidance and risk shifting. Already in the dual chartering 
system, the comptroller and state supervisors worked to 
entice strong banks into their oversight regimes while 

 
125 Letter from Warren P. G. Harding, Fed. Reserve Governor, to the 

Chairmen of all Fed. Reserve Banks, on the Right of Directors of Federal 
Reserve Banks and Branches to Examine Reports of Examination of 
Member Banks (Feb. 2, 1922), No. X-3318, 16 MIMEOGRAPHED LETTERS AND 
STATEMENTS OF THE BOARD 119 (quoting a letter from Preston Delano to the 
Comptroller of the Currency (Dec. 22, 1914)), on file with FRASER, 
https://fraser.stlouisfed.org/archival-collection/mimeograph-letters-
statements-board-4957/letter-governor-re-right-directors-federal-reserve-
banks-branches-examine-reports-examination-member-banks-511603/ 
[https://perma.cc/8B7W-RZWF]. 

126 Meeting Minutes (Oct. 15, 1915), 2 MINUTES OF THE BOARD OF 
GOVERNORS OF THE FEDERAL RESERVE SYSTEM 862, 865–66, 
https://fraser.stlouisfed.org/title/minutes-board-governors-federal-reserve-
system-821/meeting-minutes-october-15-1915-28714 
[https://perma.cc/6DJW-N53M]; Charles S. Hamlin, Diary Entry Regarding 
His Report on Fed. Reserve Authority over the Comptroller (Oct. 21, 1915) 
(on file with Libr. of Cong., Charles S. Hamlin Papers, Correspondence, 
1869–1955, Box 356, Vol. 3 (Jan. 17, 1915–Aug. 30, 1916), at 122), 
https://www.loc.gov/resource/mss24661b.35617/?sp=40&st=image 
[https://perma.cc/UFX4-U352]. 



  

182 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

expelling weak banks into rival systems.127	 The Fed added a 
new outlet for risk shifting. 

The Fed examiners also developed their own modes of risk 
management, focused on “modernizing” the lending practices 
of member banks. Because the Reserve Banks’ risk 
management operated through their balance sheets, Reserve 
Banks (and the board, as their supervisor), took a keen 
interest in the quality of loans that they would rediscount. 
Under the rubric of “acceptability”—that is, mandating to 
member banks what assets would be acceptable for 
rediscount—Reserve Banks required increasingly thorough 
documentation from member banks, including credit files and 
balance sheets for borrowers.128 The Reserve Banks even 
developed industry-specific forms to account for idiosyncratic 
land tenure and credit practices. In one case, the San 
Francisco and Atlanta banks developed forms for citrus 
growers, which pressed cost accounting into the Florida 
swamp by imposing new supervision requirements on member 
banks.129 To protect its balance sheets—or the collective 
balance sheets of the Reserve Banks—the Fed sought to 
compel more robust risk management within the private 
banks. 

U.S. finance thrived throughout the 1910s and 1920s. At 
the time, some attributed this to the genius of the Federal 
Reserve System, a refrain that grew in enthusiasm as the 
1920s advanced, including when Congress debated whether to 
 

127 See HAMMOND, SOVEREIGNTY AND AN EMPTY PURSE, supra note 66, at 
349–50. 

128 See e.g., Letter from Walter Eddy to C. C. Henking Noting the 
Impracticability of Uniform Financial Statements (Dec. 12, 1923) (on file 
with Nat’l Archives, Records of the Fed. Rsrv. Sys., Rec. Grp. 82, Box 1348, 
Folder 3), https://fraser.stlouisfed.org/archival/1344/item/540583 
[https://perma.cc/PU6U-R7LC]. 

129 V. K. Bowman, Assistant Cashier, Fed. Rsrv. Bank of Atlanta, Citrus 
& Truck Industry in 6th Fed. Rsrv. District: Memorandum to Oscar Newton 
(July 18, 1927) (on file with Nat’l Archives, Records of the Fed. Rsrv. Sys., 
Rec. Grp. 82, Box 1348, Folder 4), https://fraser.stlouisfed.org/archival- 
collection/records-federal-reserve-system-1344/eligibility-paper-financial-
statements-1927-1941-540584 [https://perma.cc/NC8Z-UJ7W]. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 183 

 

extend the Federal Reserve’s congressional charter in 
perpetuity in 1927.130 There was a hollowness to this 
enthusiasm and to its causal attributions. The Great War had 
devastated rival international financial centers, leaving the 
United States as the victor by default. A rising availability of 
opportunities, at home and abroad, for banks meant that 
examiners’ willingness and even ability to identify with 
confidence risk factors that might end in crisis were checked 
by market enthusiasm and inexperience. 

At the end of this burst of legislative creation, then, stood 
the U.S. Federal Reserve System, with a supervisory corps 
that looked much like its alternatives housed in the 
Comptroller and state bank regulators, but with an ethos that 
was fundamentally different. The Fed’s balance sheet put 
public and private money on the hook for managing residual 
risk. But the purpose was to protect that balance sheet, not to 
defend itself in an evermore heated competition for bank 
charters. The legacy of this ethos and this chartering 
competition within the tripartite bank supervisory landscape 
would find its nadir in the devastating banking panics of the 
1930s. 

 
D. Institutional Innovation, Institutional 

Fragmentation: 1925 – 1945 
 
Crisis, of course, came as it always does—slowly, then 

suddenly. Initially, banks failed primarily in the rural 
agricultural regions of the Midwest and Southeast. 
Suspensions came constantly, in waves. In 1925, banks failed 
at a rate of 52 a month, a number that reached 55 a month by 
1929. Most of these failures were small institutions; sixty 
percent had a capital stock of $25,000 or less; four-fifths were 
in towns of fewer than 2,500 inhabitants. The vast majority of 

 
130 See e.g., Frank A. Vanderlip, Should the Federal Reserve Banks be 

Rechartered Now, BANKERS’ MAG., May 1926, at 677; Andrew Mellon, Why 
the Reserve Bank Charters Should be Renewed Now, BANKERS’ MAG., Jun. 
1926, at 805. 



  

184 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

these were neither national banks nor members of the Federal 
Reserve System.131 By 1930, the pace of failure quickened, 
revealing profound inadequacies within the supervisory 
toolkit and prevailing modes of risk management.132 In the 
decades prior, states and the federal government had ceased 
using chartering as a site of supervisory discretion. Moreover, 
the continued upsurge in bank deposits meant that depositors 
bore an ever-larger quotient of financial risk in relation to 
bank shareholders, whose liability was capped. This 
imbalance likely encouraged entrepreneurs to found far more 
banks than necessary. 

Despite the creation of a federal balance sheet to promote 
financial stability, the deployment of that balance sheet for 
residual risk management was not yet the modus operandi. 
Supervision remained rooted in a postbellum ethos of mostly 
toothless discretion; supervisors could scold bankers for their 
decisions but had little else they could do besides send them 
into receivership—something that bankers, politicians, and 
even supervisors themselves were often loathe to do. With so 
many banks already in existence, the primary reform options 
centered on different ways of diversifying bank assets (that is 
to say, encouraging private risk management), either through 
branch banking (diversifying exposure to rural and urban 
loans) and asset liberalization (enabling banks to buy bonds, 
engage in long term lending, and more). The McFadden Act 

 
131 EUGENE N. WHITE, THE REGULATION AND REFORM OF THE AMERICAN 

BANKING SYSTEM, 1900–1929, at 126–87, esp. 132 (1983); WICKER, supra 
note 84, at 5–6; Gary Richardson, Categories and Causes of Bank Distress 
During the Great Depression, 1929–1933: The Illiquidity Versus Insolvency 
Debate Revisited, 44 EXPL. IN ECON. HIST. 588 (2007). 

132 OFF. OF THE COMPTROLLER OF THE CURRENCY, DOC. NO. 3032, ANNUAL 
REPORT OF THE COMPTROLLER OF THE CURRENCY 2–3 (1930); OFF. OF THE 
COMPTROLLER OF THE CURRENCY, DOC. NO. 3046, ANNUAL REPORT OF THE 
COMPTROLLER OF THE CURRENCY 2 (1931); Eugene N. White, ‘To Establish a 
More Effective Supervision of Banking’: How the Birth of the Fed Altered 
Bank Supervision, in A RETURN TO JEKYLL ISLAND: THE ORIGINS, HISTORY, 
AND FUTURE OF THE FEDERAL RESERVE 46 (Michael D. Bordo & William 
Roberds eds., 2013). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 185 

 

took steps toward branching and asset liberalization, with 
mixed results.133 

In essence, as the crisis deepened after the stock market 
crash in 1929, supervisors were in a bind. They took the view 
that bankers still owned the risk in the financial system, but 
they also understood that those risks were asymmetric, falling 
narrowly on bank depositors and more broadly on the 
communities served by small banks. As such, although 
supervisors understood the dire condition of the banks, they 
would not take responsibility for closing them. The political 
consequences were too dire. Throughout the banking crises of 
the 1930s, supervisors practiced forbearance, trying to instill 
public confidence by keeping the banks open. When the need 
for assertive rescue action became unavoidable, Hoover looked 
to private risk management, organizing the National Credit 
Corporation to take on risk that the Federal Reserve Banks 
would not. As the pace of failure accelerated in 1931-1932, so 
too did the deterioration of Herbert Hoover’s political 
prospects. After Franklin Roosevelt’s landslide in 1932, 
things got worse, starting in the Upper Midwest and soon 
spreading to the rest of the country. Within hours of 
Roosevelt’s inauguration in 1933, the entire national financial 
system was shut down in a government-ordered “holiday.”134 

This episode is simultaneously one of the most important 
in U.S. political history and one of the most misunderstood.135 

 
133 See H. H. Preston, The McFadden Banking Act, 17 AM. ECON. REV 

201 (1927). 
134 We develop the arguments below at more length in Conti-Brown & 

Vanatta, supra note 17. 
135 Franklin D. Roosevelt, Fireside Chat on Banking (Mar. 12, 1933), 

https://www.presidency.ucsb.edu/documents/fireside-chat-banking 
[https://perma.cc/8ED3-GGQS]. This is one of the most well-documented 
periods in the history of the New Deal, including with important 
recollections. See Frances Awalt, Recollections of the Banking Crisis in 1933, 
43 BUS. HIST. REV. 368 (1969); RAYMOND MOLEY, AFTER SEVEN YEARS (1939); 
Charles A. Beard & George E. Smith, The Old Deal and the New, 51 ECON. 
J. 484 (1941); ARTHUR SCHLESINGER, THE AGE OF ROOSEVELT: THE COMING OF 
THE NEW DEAL 6 (1959); William Silber, Why Did FDR’s Bank Holiday 
Succeed?, 15 ECON. POL’Y REV., 19-30 (2009); Bernanke, supra note 17. 



  

186 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

The essence of what made the holiday successful was 
Roosevelt’s forceful shift of financial risk management from 
private bankers onto the public. He did so first by staking his 
administration on the reopening. This required the 
coordination of previously competing supervisory regimes, 
especially the Comptroller and the Federal Reserve. Together, 
in frantic day and night meetings, these agencies pooled their 
collective information to determine which banks could 
plausibly reopen, and which needed to be kept shut. 
Ultimately, Roosevelt and the supervisory agencies secured 
credibility by closing weak banks, effectively guaranteeing the 
health of banks that reopened.136 

The bank holiday proved a turning point for the 
institutionalization of bank supervision. As a technical 
matter, the work of identifying which banks the government, 
through the examiners, would permit to remain open, would 
be required to fail, and would have to navigate risk 
management as an intermediate step before one of those 
alternatives, placed bank supervision as the residual bearer 
of financial risk within the financial system. It also enshrined 
the inevitability of supervisory discretion in reaching those 
determinations of life, death, and reform for individual banks. 
The currency view of supervision—on life support since the 
1870s—was now dead. The rise of bank supervision as the co-
owner, alongside the banks, of the residual risks that banking 
activities created, was the new order of the day. 

Bank supervision contributed to and benefited from an 
important kind of political legitimacy that it lacked prior to the 
holiday. Before Roosevelt’s inauguration, supervision by itself 
could not forestall bank runs. After his inauguration, FDR—
however wide his mandate—also lacked the ability to will 

 
136 Francis G. Awalt, Personal Account of F. G. Awalt, Mar. 1933 (on file 

with Herbert Hoover Presidential Library, Francis G. Awalt Papers box 1, 
folder 11); Emanuel Goldenweiser, contemporaneous notes (Mar. 3, 1933) 
(on file with Herbert Hoover Presidential Library, Francis G. Awalt Papers, 
box 1, folder 11); Ogden Mills to William Wooden (Mar. 4, 1933) (on file with 
Herbert Hoover Presidential Library, Francis G. Awalt Papers, box 1, folder 
7). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 187 

 

away the crisis. Instead, bank supervision became legitimate 
in the holiday and, in the process, legitimated a new 
president, creating a mutually constitutive process of law, 
society, and bank examination.137 Even the bankers 
recognized it as such. “Only by prompt and favorable 
[intervention by bank supervisors] can the depositors of Paige 
Trust Company and the people in the communities served by 
this bank realize the full benefits of the ‘New Deal,’” a group of 
shuttered North Carolina banks urged the Comptroller of the 
Currency in September 1933.138 Associating the work of bank 
examination with the political moment was intentional, for 
whatever hostilities bankers felt toward their examiners or 
Roosevelt’s political revolution before the crisis, they knew 
how pivotal examination and FDR’s New Deal were, together, 
to their recovery. 

The bank holiday gave new wind to FDR’s mandate and 
with it the rest of the New Deal. In subsequent legislation, 
Congress solidified the shift of residual risk from the private 
sector to the government in several profound ways. First, in the 
Emergency Banking Act of 1933, Congress gave the 
Reconstruction Finance Corporation the authority to buy 
preferred stock in banks.139 Through this program, which 
enabled the government to recapitalize thousands of weak 
banks, the government literally owned the residual risk of 
bank failure. Later, with the passage of the Banking Act of 
1933, congress created a more enduring commitment. First, it 
created the Federal Deposit Insurance Corporation (the 
FDIC) to shift (some) depositor risk onto the government.140 
 

137 The idea that “law” and “society” are mutually constitutive is one of 
the bedrock contributions of both the law and society movement and the 
critical legal history subset of it. See Robert Gordon, Critical Legal Histories, 
36 STAN. L. REV. 57 (1983). 

138 KCR to Comptroller of the Currency (Sept. 7, 1933) (on file with Nat’l 
Archives, Records of the Off. of the Comptroller of the Currency, Rec. Grp. 
101, Records Relating to the Banking Holiday, Box 1, folder DC-AA-1933). 

139 Emergency Banking Act of 1933, Pub. L. 73-1, 48 Stat. 1, Title II. 
140 Banking Act of 1933, Pub. L. 73-66 § 8 (amendments to the Federal 

Reserve Act § 12B(bd)) (1933); ANNUAL REPORT OF THE FEDERAL DEPOSIT 
INSURANCE CORPORATION (1934), 8. 



  

188 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

Second, it eliminated double liability for national bank 
shareholders, finally rejecting shareholder liability as a 
functional risk management framework.141	Collectively, these 
moves signaled that the government, not private 
shareholders, stood as the final backstop of the banking 
system. 

Though visible in hindsight, this transformation took time 
to develop. Many in Congress and most in the administration 
did not support deposit insurance, while the original design 
also mandated that insured banks eventually join the Federal 
Reserve system. Instead, the result of the New Deal banking 
reforms was a three-layered supervisory structure, with each 
layer operating according to a different risk management 
logic. The chartering authorities—the comptroller and the 
states—remained committed to visitorial oversight. The 
Federal Reserve, in turn, managed risk through its balance 
sheet, powers that became more centralized and coordinated 
after the 1935 Banking Act. Finally, the FDIC linked the state 
and federal systems, supervising in defense of its insurance 
fund.142 

The creation of the Federal Reserve System gave hints of 
the public-private partnership at the center of bank 
supervision, a growing realization from the Gilded Age that, 
for political reasons, neither politicians nor bankers could 
transparently embrace. The creation of the FDIC constituted 
this very embrace. Bank supervision would never be the same. 

During the New Deal and almost perpetually thereafter, 
reformers have sought to consolidate these overlapping 
institutions. Their resistance to consolidation can cynically be 
chalked up to institutional competition, which certainly has 
played a role. It is also significant that these institutions are 
each rooted in a different risk management framework, such 
that their supervisory role is an outgrowth of their approach 
to managing residual risk. In the Progressive Era, these 
 

141 See Jonathan R. Macey & Geoffrey P. Miller, Double Liability of Bank 
Shareholders: History and Implications, 27 WAKE FOREST L. REV. 31, 32 
(1992). 

142 Banking Act of 1933 § 8(y). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 189 

 

frameworks emerged as substitutes: central banking or 
deposit insurance. Yet after the New Deal, they were 
reconceptualized—again, gradually—as compliments: central 
banking and deposit insurance. 

In the New Deal era, the FDIC was first among equals, 
which led to significant changes in how supervision occurred. 
Federal supervisors reconfigured how they evaluated bank 
assets, discarding frameworks developed under the real bills 
doctrine, while retaining the role of examiners in criticizing 
bank assets. Supervisors also discarded liquidity and market 
prices as meaningful metrics of bank wellbeing. With the 
FDIC ready to assume the assets and liabilities of a failed 
bank, the core criterion for determining bank solvency was the 
“intrinsic value” of bank assets, a measure entirely in the 
realm of supervisory discretion.143 As they reformulated their 
approach to evaluating bank balance sheets, supervisors also 
placed increasing emphasis on systematically evaluating 
bank management. Competent bankers could be trusted to 
manage more risk; incompetent bankers would require more 
government oversight. Finally, although deposit insurance 
provided only limited protection ($2,500), the FDIC developed 
tools that would enable it to shield all depositors. Through 
purchase and assumption transactions, the FDIC would 

 
143 Leo T. Crowley, Memorandum on the Classification of Loans (c. 

Sept. 1934) (on file with Nat’l Archives, Rec. Grp. 34, Records of the Fed. 
Deposit Ins. Corp., Off. of the Chairman of the Bd. of Directors, Letters and 
Memorandums of Leo T. Crowley); Leo T. Crowley, Report of the Meeting 
(Sept. 10, 1934) (on file with Nat’l Archives, Rec. Grp. 34, Records of the 
Fed. Deposit Ins. Corp., Off. of the Chairman of the Bd. of Directors, Letters 
and Memorandums of Leo T. Crowley, box 2, folder Examining Division: 
Hopkins, R. L.); R. L. Hopkins Memorandum to Leo T. Crowley, Necessity 
for Continued Examination of Banks in the Manner Now Adopted (Apr. 27, 
1935) (on file with Nat’l Archives, Rec. Grp. 34, Records of the Fed. Deposit 
Ins. Corp., Off. of the Chairman of the Bd. of Directors, Letters and 
Memorandums of Leo T. Crowley, box 2, folder Examining Division: 
Hopkins, R. L.). 



  

190 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

merge a failed bank with a healthy bank, while pulling the 
toxic assets onto itself.144 

These internal changes were paired with significant 
external changes. Most importantly, during the New Deal, the 
federal government not only assumed responsibility for the 
banking system, but for the economy as a whole. Although 
Roosevelt wanted more engaged supervision, strict oversight 
was anathema to his purposes because it limited bank lending. 
In a broader sense, the ideology of commercial banking, rooted 
in the currency school and the real bills doctrine, was out of 
step with the industrial economy. Firms needed long term 
capital, not short-term loans. To revive economic growth, the 
Roosevelt administration created new categories of safe assets 
for bankers to invest in, including Federal Housing 
Administration insured mortgages. Some officials, like 
Marriner Eccles, wanted to go further, reconceptualizing 
supervision as a tool for countercyclical policy. Yet such an 
aggressive use of public power to shape bank balance sheets 
pushed beyond what most officials were willing to do. All 
recognized that the balance between public and private had 
shifted significantly during the New Deal, but the ideology of 
free enterprise and individual risk-taking, while restrained, 
remained deeply entrenched. 

 
* * * 

The first seventy years of federal bank supervision were 
tumultuous and uncertain, with the supervisory framework 
developing alongside the scandals and crises of the Gilded Age, 
the advent of the Federal Reserve System, and the 
institutionalization of federal deposit insurance. Through this 
process, the major questions of what supervision should be had 
all been posed and some had been answered. Supervision was 
no longer strictly a mechanism for enforcing the nation’s 
monetary system—those days passed almost immediately 

 
144 Michael B. Burgee, Purchase and Assumption Transactions under 

the Federal Deposit Insurance Act, 14 FORUM 1146 (1979). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 191 

 

after the Civil War.145 It became instead about managing the 
boundary between the private and public aspects of the 
American financial system. The scandals and crises of the 
Gilded Age pushed the comptroller into the position of 
guaranteeing sound banking, a position it sometimes sought 
and sometimes resented. But the alternatives—that the 
banks would manage their own risk without placing outsized 
burdens on the public system, or that coalitions of banks 
through clearinghouses would do the same—proved incapable 
of providing the stability that the economic and especially 
political systems required. 

The creation of the Federal Reserve System was meant to 
answer this problem by providing quasi-governmental 
support to the financial system that the national banking 
system could not quite do. The mechanism was, again, 
primarily monetary—the furnishing of an elastic currency 
using banking methods to accomplish that task. But it was 
also in large part supervisory. The Federal Reserve Banks, 
supervised by the Federal Reserve Board, would conduct their 
banking affairs consistent with these statutory mandates, and 
the Reserve Banks in turn would use their banking business to 
supervise the member banks that participated in that system. 
This, though, was a particular kind of supervision, aimed at 
shielding the Reserve Banks from excessive credit risk, on the 
one hand, and at convincing member banks to improve their 
risk management strategies, on the other. 

The Federal Reserve System was heralded in its first 
fifteen years for supervisory successes that it largely did not 
 

145 This is not at all to say that supervisors were not always deeply 
concerned with money creation and the functioning of the payments system. 
The real bills doctrine, which undergirded supervisory evaluation of bank 
assets, provided an intellectual framework for squaring the currency view 
with the fact that banks could create deposit liabilities (i.e., those liabilities 
should only pair against short-term, self-liquidating loans, ensuring the 
deposits thus created would disappear in due course). See Judge Glock, The 
“Riefler-Keynes” Doctrine and Federal Reserve Policy in the Great 
Depression, 51 H. POL. ECON. 297 (2019). Likewise, supervisory forbearance 
provided a tool for maintaining payments availability in times of acute—
but likely temporary—crisis.  



  

192 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

deserve. The Great War had fundamentally altered the 
allocation of financial power in the world such that the United 
States emerged as the financial center by default. The banking 
crises of the early 1930s, culminating in the Bank Holiday of 
1933, exposed profound fissures in the system. The 
recognition that bank supervisors held responsibility for the 
residual risk of the system, in the public mind at least, was 
not sufficient to protect the system from cataclysmic failure. 
Roosevelt’s use of bank examiners as the central technocratic 
force in making good on the promises of the holiday, followed 
by the institutionalization of deposit insurance and the 
multiplication of bank supervisory structures, answered the 
question once and for all: banks would be supervised to ensure 
proper risk management, but in the event of failure, a mélange 
of bank supervisory structures would guarantee that the 
worst of the banking panics of the 1930s would not be 
repeated. 
 

III. THE RISE AND REACH OF SUPERVISORY 
DISCRETION: 1945–1980 

 
What remained for the second half of bank supervision’s 

history? Disputes about the boundary between public and 
private remained constant and sometimes quite hot, 
especially during the postwar period of financial tranquility in 
the United States. But the major trends in the second half of 
the history of supervision are three-fold. First, government 
actors, often pushed by private actors through a political 
economic process, fought over intragovernmental ownership 
of residual systemic risk. Sometimes, this resulted in turf 
warfare to ensure continued participation in managing 
systemic risk; other times, it was a game of hot potato as one 
set of supervisory actors sought to push ownership to others. 

Second, the period from the New Deal through the 1980s 
consisted of a virtually one-way congressional ratchet 
whereby Congress gave more and more authority to bank 
supervisors, spread throughout the federal government. This 
included an increased role in existing areas of law that had 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 193 

 

previously skipped banking supervisors—namely, antitrust 
enforcement and merger review—and it included new areas of 
federal law entirely— namely, antidiscrimination and 
consumer financial protection. In response to crises, scandals, 
or nothing obvious at all, Congress also pushed forward with 
expanding the reach of supervision. This expansion of tasks 
and responsibilities meant that supervisors retained even 
more discretion, not only in reaching conclusions about core 
supervisory decisions—solvency, for example, or capital 
adequacy—but about prioritization. Supervisors can and did 
put some activities higher on the list of priorities than others, 
exercising a kind of prosecutorial discretion that left some 
policy areas underenforced and others over-enforced. 

Third, despite the clear institutionalization of the 
government’s support for, and even ownership of, residual risk 
in the system, the line between public and private ownership 
shifted constantly, and sometimes bitterly, as ideological 
trends through the end of the twentieth century pushed bank 
supervisors to a conception of banking as a fully private affair, 
with supervision as the belt to the private-sector suspenders 
of risk management. The promise of deposit insurance had 
been that it would not need to be used, nor would the other 
institutionalized forms of residual risk management (such as 
the Fed’s lender of last resort functions). In their place, 
private actors would be allowed to allocate risk throughout the 
system to parties most willing and able to bear it. 

This theory of bank supervision eventually failed. In fact, 
it never succeeded. Throughout the heyday of its dominance—
the 1990s and 2000s—the world was not free from financial 
instability, and, although this was a period of profound de-
supervision, bank supervisors still owned the ultimate 
responsibility for a system that breaks down. 

The financial crisis of 2008 changed this presumption. 
Afterwards, Congress institutionalized further the role of 
supervisors as the manager of residual risk through the Dodd-
Frank Act’s twin mechanisms of (1) substantially expanding 
the concept of systemic risk management and (2) creating an 
orderly liquidation authority to sidestep the traditional legal 
systems of restructuring insolvent institutions (such as 



  

194 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

bankruptcy or FDIC liquidation). This embrace of the long-
assumed and long-practiced residual risk management was 
controversial: a “big wet kiss to Wall Street,” in then 
presidential candidate Mitt Romney’s evocative description. 
But despite that clarity, after the election of Donald Trump in 
2016, the United States entered into another period of de-
supervision wherein supervision was pushed to a more 
regularized, regulation-like system. The pandemic of 2020 
brought with it another extraordinary intervention into 
financial markets of all types and sizes, placing the 
supervisory commitment and the monetary commitment of 
the U.S. government in the same position: to guarantee 
stability through management of residual systemic risk. 

This Section tells the history of the push and pull of these 
unique responsibilities and political pressures. 

 
A. 1945-1960: Supervising Financial Concentration, 

Antitrust, and Bank Holding Companies 
 
The nineteenth century conception of bank supervision 

depended for the most part on a limited model of banking: a 
single bank as a single unit, controlled by a single executive 
team and a board of directors. But by the early twentieth 
century, this conception— although protected by numerous 
state and federal laws—was a decreasingly accurate 
description of the state of the U.S. financial system. The rise 
of branch banking and what would become the bank holding 
company—also called chain and group banking, although 
there are important differences between and among these 
categories—put pressure on the old model.146 It also put 
pressure on what it meant to “supervise” these new 
institutions within the framework solidified in the post New 
Deal era. 

Although U.S. policymakers embraced three risk 
management buffers—personal liability, central banking, and 
 

146 See Eugene White, The Political Economy of Banking Regulation, 
1864–1933, 42 J. ECON. HIST. 33–40 (1982). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 195 

 

deposit insurance—after the decline of the Second Bank of the 
United States in the 1830s, they rejected a fourth: size. 
Beginning in the nineteenth century and building momentum 
into the twentieth, some bank reformers argued that enabling 
banks to grow via branching or other structures would allow 
for greater asset diversification and safety for depositors.147 
They pointed to examples abroad, including Canada and the 
British clearing banks, as clear examples where branching 
and stability seemed to go hand in hand. In the twentieth 
century, some states began to authorize branching, creating 
yet another vector of competition between state and federal 
systems. In the McFadden and 1933 Banking Acts, Congress 
gradually liberalized branching rules so that national banks 
could build branches in line with state-chartered banks.148 

Supervising branched banks was difficult. Should 
examiners treat each branch as a unit bank or rely on the 
central management systems of the head office to shape their 
work? Supervising holding companies was more difficult still, 
in part because only some parts of the company were subject 
to examination, e.g., subsidiary national banks.149 Yet, 
holding companies could incorporate state banks, trust 
companies, and non-financial businesses, all of which 
remained outside the oversight of federal supervisors. In the 
run up to the Great Depression, holding companies often hid 
risks and fueled speculation. Size could diversify and defuse 
risk, but it could also concentrate it.150 

 
147 See, e.g., Comptroller Pole, Group Banking, 129 COM. AND FIN. CHRON. 

70 (Dec. 21, 1929). 
148 McFadden Act, Pub. L. 639, 69th Cong. H.R. 2; Banking Act of 1933, 

Pub. L. 66, 73rd Congress., H.R. 5661. 
149 G. T. Cartinhour, Federal Regulation of Group Banking, 4 J. BUS. U. 

CHI. 127 (1931). 
150 Two prominent examples are Caldwell & Co. and the Michigan 

holding companies the Detroit Bankers Company and the Guardian Group, 
all of which failed spectacularly during the Great Depression. See Awalt, 
supra note 135; DARWYN H. LUMLEY, BREAKING THE BANKS IN MOTOR CITY: 
THE AUTO INDUSTRY, THE 1933 DETROIT BANKING CRISIS AND THE START OF 
THE NEW DEAL (2009); JOHN BERRY MCFERRIN, CALDWELL & COMPANY (1939); 



  

196 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

Congress and bank supervisors knew this and attempted 
to create a system that would protect smaller banks from 
competition and the threat of larger bank collections. These 
laws, from 1913 to 1933, were focused mostly on how the 
governance of these holding companies must operate, and 
with what kinds of transparency. There was precious little 
clarity on what the supervision of the holding company—and 
not just the chartered bank within the holding company—
should be. 

The bank holding company—briefly, a company that 
controls a bank, although these three terms were and are 
somewhat difficult to define—exists today as a relic of some of 
these restrictions, mostly abolished in 1994. The bank holding 
company is also mostly an American phenomenon, a response 
to legal constraints closely wedded to U.S. history, politics, 
and law.151 The serious supervisory challenges arose in 
tandem; given the legal fiction of the corporation, how does a 
supervisor get a good sense of the ways that corporate families 
function in and around banking? How do supervisors ensure 
that risks—idiosyncratic and systemic alike—are 
appropriate? How does one understand the interconnections 
within a bank holding company and beyond, to the broader 
system? Do holding companies facilitate financial 
concentration in ways that contravene the spirit and letter of 
antitrust law? And especially relevant to the twentieth 
century until 1994, how do supervisors verify that holding 
companies are honoring legal limits on interstate banking, 
both state and federal? 

In 1935, Marriner Eccles, the Utah banker whose calls for 
substantial fiscal intervention catapulted him to national 
attention during the transition between the Hoover and 
Roosevelt administrations, was nominated to the newly 
created position of Chairman of the Federal Reserve System. 
 
see also Stock Exchange Practices: Hearings Before the S. Comm. on Banking 
and Currency, 73d Cong. pt. 10, 12 (1934). 

151 See Margaret Tahyar & Saule Omarova, That Which We Call a Bank: 
Revisiting the History of Bank Holding Company Regulations in the United 
States, 31 R. BANKING & FIN. L. 114–16 (2012). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 197 

 

Eccles quickly zeroed in on the supervisory threat of holding 
companies, a world he knew very well. Eccles’s banking 
empire in the Mountain West, First Security Corporation, was 
one of the first multi-bank holding companies in the United 
States.152 One of the first, perhaps, but not the largest by the 
late 1930s. That honor belonged to A.P. Giannini’s 
Transamerica, a holding company that controlled the 
California-based Bank of America (formerly the Bank of 
Italy), as well as banks in New York, Washington, Oregon, 
Nevada, and Arizona. Transamerica aspired, in Giannini’s 
words, to become a financial services “department store,” an 
institution that could meet any customer’s financial needs, no 
matter the customer or need. To meet this goal, Giannini 
acquired a variety of disparate financial actors, ranging from 
mortgage originators, insurance companies, and investment 
brokerages. For good measure, Transamerica also owned a 
salmon cannery, an oil and gas prospecting company, and a 
metal forging business. “This company,” James Bonbright and 
Gardiner Means wrote in their 1932 treatise on holding 
companies, “has an intercorporate structure so ramified as 
almost to pass beyond the bounds of comprehension.”153 

By the late 1940s, Transamerica presented, according to 
the Fed, what today we would call a systemic risk to the 
financial system. Eccles had initially been sympathetic to the 
Giannini banking interests.154 But their relationship soured 
 

152 See MARRINER S. ECCLES, BECKONING FRONTIERS: PUBLIC AND 
PERSONAL RECOLLECTIONS 41–50 (1951). 

153 See JAMES C. BONBRIGHT & GARDINER C. MEANS, THE HOLDING 
COMPANY: ITS PUBLIC 

SIGNIFICANCE AND ITS REGULATION 333 (1932); see also Branch, Chain, 
and Group Banking: Hearings Before the H. Comm. on Banking and 
Currency, 71st Cong. 1545 (1930) (statement of A. P. Giannini); 
Transamerica--The Bankholding Company Problem, 1 STAN. L. REV. 658 
(1949); Bank Holding Bill: Hearings Before a Subcommittee of the S. Comm. 
on Banking and Currency, 81st Cong. 193-094 (1950) (statement of W. L. 
Andrews, Vice President and Treasurer, TransAmerica Corp.). 

154 Eccles was no friend to small banks. Writing to 
Roosevelt in November 1936, he railed against their continued 
existence: “It is still possible for persons who have no 



  

198 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

due in part to the problem of supervising the Giannini 
empire.155 By 1942, Transamerica threatened to monopolize, 

 
competence in banking to open so-called banks,” the Fed 
Chairman complained, which “are in reality nothing more 
than pawn shops.” These “mushroom miscalled banks” he 
continued, accounted for “the greatest holocaust of bank 
failures” causing “the greatest losses and misery among their 
depositors and” bringing “a large share of discredit down upon 
the heads of bankers generally.” Worse, “through their 
various associations groups of these so-called independent 
bankers have been the most implacable foes of this 
Administration.” Nevertheless, Eccles came to recognize that 
monopoly power on the other side of the market could also 
fundamentally undermine the national banking structure. 
Memorandum from Marriner Eccles to Franklin Roosevelt 
(Nov. 12, 1936) (on file with Univ. of Utah, Marriner S. Eccles 
Papers, box 5, folder 6), https://fraser.stlouisfed.org/archival-
collection/marriner-s-eccles-papers-1343/memorandum-
president-468480 [https://perma.cc/VSY8-H9M5].  

155 The conflicts between Giannini and the supervisory 
authorities at the state and federal level ran over decades. For 
the roots of this specific conflict, see Leo Crowley, Notes 
Concerning the Bank of America National Trust and Savings 
Association (Oct. 22, 1937), 354 MORGENTHAU DIARIES, 
https://fraser.stlouisfed.org/archival-collection/diaries-henry-
morgenthau-jr-6880/volume-354-634932 
[https://perma.cc/XVT5-VBS9]; Statement of the Reserve 
Board Relating to Certain Views Expressed at the Conference 
in the Office of the Secretary of the Treasury on Jan. 21, 1941 
(Mar. 14, 1941) (on file with Univ. of Utah, Marriner S. Eccles 
Papers, box 17, folder 5), https://fraser.stlouisfed.org/archival-
collection/marriner-s-eccles-papers-1343/statement-reserve-
board-relating-certain-views-expressed-conference-office-
secretary-treasury-january-21-1941-466321 
[https://perma.cc/AL5K-SYBG]; Letter from A.P. Giannini to 
Marriner Ecceles (Aug. 17, 1942) (on file with Univ. of Utah, 
Marriner S. Eccles Papers, box 19, folder 5), 
https://fraser.stlouisfed.org/archival-collection/marriner-s-
eccles-papers-1343/group-1-transamerica-correspondence-
459761 [https://perma.cc/UY84-C482]. For supervisory 
conflict in general, see MARQUIS JAMES & BESSIE R. JAMES, 
BIOGRAPHY OF A BANK: THE STORY OF BANK OF AMERICA 
(1954). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 199 

 

as Eccles recalled, “a good part of the banking business of the 
Western seaboard.”156 Other banking supervisors agreed (and, 
given the sheer variety of financial institutions within the 
Transamerica family, each supervisor’s sign-off was 
necessary). The Fed, the Comptroller, and the FDIC thus 
ordered Transamerica to stop its acquisition spree.157 

Giannini ignored them and for good legal reason. The 
novelty of his enterprise was such that there was no clear legal 
authority to supervise holding companies at all. While the 
institutionalization of residual risk management was well 
established by 1947, the primary legal tools of supervision 
remained chartering, examination, and liquidation—of 
individual banks. The Fed sought something very different in 
this order. The Banking Act of 1935, which Giannini 
supported, authorized the Fed to enforce the Clayton Act’s 
provisions where they applied to banks. The Fed argued that 
Transamerica’s position in western banking markets in five 
states constituted a monopoly in violation of the antitrust 
laws. In 1953, the U.S. Court of Appeals for the Third Circuit 
overturned the Fed’s legal theory, essentially on purely 
antitrust grounds. In essence, the Fed was defeated in its 
effort to limit the concentration of financial power nationally 
by the then widespread belief that the proper geographic scope 
of banking was the community.158 

The Transamerica decision, although mostly forgotten 
today, played a key role in spurring a series of laws that would 
make the Fed’s action in that case legally airtight, including 
the Bank Holding Company Act of 1956 (and its substantial 
 

156 See ECCLES, supra note 152, at 443. 
157 Letter from Chester Morrill to Transamerica 

Corporation (Feb. 12, 1942) (on file with Univ. of Utah, 
Marriner S. Eccles Papers, box 19, folder 4), 
https://fraser.stlouisfed.org/archival-collection/marriner-s-
eccles-papers-1343/letter-transamerica-corporation-459762 
[https://perma.cc/T6L9-VC2F]. 

158 Law Dep’t, Fed. Rsrv. Sys., Clayton Act Proceeding: 
Transamerica Corporation, FED. RSRV. BULL. 368 (Apr. 1952); 
Transamerica Corp. v. Bd. of Governors of Fed. Rsrv. Sys., 206 
F.2d 163, 169 (3d Cir. 1953). 



  

200 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

amendments in 1970) and the Bank Merger Act of 1960 (and 
its substantial amendments in 1966). The Acts approached 
the same problem (financial concentration) from two different 
directions. The Bank Holding Company Act and its 
amendments were designed to subject bank holding 
companies to similar supervisory requirements as banks, 
despite the lack of a bank charter at the level of the holding 
company. The twin aims of holding company legislation were 
to prevent the expansion of holding companies such as 
Transamerica within gaps of the supervisory system and to 
force these holding companies to divest from nonbanking 
assets. The point was to shore up the New Deal commitment 
to separating traditional commercial banking activities from 
other areas of commerce—no more salmon fisheries for 
Transamerica.159 

The Bank Merger Act came a few years later, in part as a 
recognition of what the Bank Holding Company Act failed to 
accomplish, but also (and more importantly) as a recognition 
that growing concentration in financial services presented a 
different kind of problem than other areas of antitrust law. 
The banking panics of the 1930s had made the banking-
antitrust nexus clear, but in the opposite direction of the 
antimonopoly Progressive Era impulses. Rather than fearing 
 

159 Benjamin J. Klebaner, The Bank Holding Company Act of 1956, 24 
S. ECON. J. 314 (1958). The 1956 Bank Holding Company Act targeted 
Transamerica specifically and multi-bank holding companies generally. It 
carved out a loophole for “one-bank” holding companies later exploited by 
the First National City Bank and other firms in the late 1960s. Congress 
then enacted the Bank Holding Company Act of 1970 to close this loophole, 
giving the Federal Reserve supervisory authority over these firms as well. 
Michigan Law Review, Implementation of the Bank Holding Company Act 
Amendments of 1970: The Scope of Banking Activities, 71 MICH. L. REV. 1170 
(1973); TREAS. DEP’T, SUMMARY OF THE BACKGROUND OF DEVELOPMENT OF 
THE ONE-BANK HOLDING COMPANY PROBLEM AND A GENERAL OUTLINE OF THE 
PRINCIPLE POINTS TO BE INCLUDED IN A LEGISLATIVE RESOLUTION OF THIS 
PROBLEM (1969); Memorandum for the President discussing the 
establishment of the Presidential Comm’n on Fin. Structure and Regul. (Jan 
19. 1970) (on file with Richard M. Nixon Presidential Library, President’s 
Commission on Financial Structure and Regulation, FG 267, Box 1), 
https://catalog.archives.gov/id/255220770 [https://perma.cc/225S-HF6S]. 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 201 

 

financial concentration, the New Deal bank supervisors 
wanted to use the strong to absorb the weak to avoid the 
costliness of a disorderly resolution. Eccles, in a letter to 
Franklin Roosevelt, defended this anti-antitrust view as 
getting rid of the “mushrooms miscalled banks” that seemed 
to flourish in dank corners of the mismanaged financial 
ecosystem.160 

The 1940s brought global cataclysm to nearly every aspect 
of life throughout the world, in some form or another. An 
exception was the American banking system. Through the end 
of the war and into the 1950s, bank failures faded in memory, 
leading legislators and supervisors to assume that the 
institutionalization of residual risk management had solved 
most of the problems that the long nineteenth century had 
posed. Yet the pre-New Deal regulatory structure, which 
favored small banking, layered over by New Deal limits on 
price and product line competition, significantly constrained 
the profitability of commercial banking in the 1940s and 
1950s. Declining profitability—the “profits squeeze”—led to a 
quest for scale among the nation’s largest banks, one 
encouraged by the continued growth and expanding financial 
demands of the nation’s large corporations.161 The 1955 
merger of Chase National Bank and the Manhattan Company 
headlined a merger boom in the mid-1950s.162 

At the time of the merger, bank-related antitrust law was 
confused, at best. The New Deal bank merger ethos—that 
bigger banks were better in the face of financial instability—
 

160 Memorandum from Marriner Eccles, supra note 154. 
161 See AM. BANKERS ASS’N, THE COMMERCIAL BANKING INDUSTRY: A 

MONOGRAPH PREPARED FOR THE COMMISSION ON MONEY AND CREDIT, 76–81 
(1962); DAVID ROCKEFELLER, MEMOIRS 197 (2003). To understand how the 
profits squeeze prefigured the later problem of disintermediation, see 
GERALD F. DAVIS, MANAGED BY THE MARKETS: HOW FINANCE RESHAPED, 112–
15 (2009). 

162 See JOHN DONALD WILSON, THE CHASE: THE CHASE MANHATTAN BANK, 
N.A., 1945–1985, at 43– 

73 (1986); Paul Heffernan, Merger Confirms New Banking Era, N.Y. 
TIMES, Jan. 16, 1955, at F1; Celler Plans Inquiry, N.Y. TIMES, Jan. 15, 1955, 
at 21. 



  

202 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

had yielded to the pre-New Deal Brandeisian impulses to 
protect small business enterprise. This created an incoherence 
to what, if anything, bank antitrust policy should be. Federal 
law had mostly ceded ground to the states, and the states did 
not have a good theory of what should motivate merger 
evaluations for banks. Figure 3 illustrates the confusion. 

 
Figure 3. Policy Preferences Motivating Merger 

Evaluations  

 
Figure 3 canvasses state laws to determine what factors 

bank (or competition) authorities would take into 
consideration when determining whether a bank merger 
should go forward. Competition, the primary motivating 
factor in antitrust, was an afterthought as the major concern 
for only Georgia and Nevada. The most important factors were 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 203 

 

essentially the public interest (especially when combined with 
the public necessity).163 

The mélange of state-law concerns motivated Congress to 
act with respect to all banks that touched the federal banking 
apparatus—which, by 1960, was all banks everywhere. The 
resulting Bank Merger Act of 1960 contained several major 
provisions that extended discretionary bank supervision via 
antitrust. First, the law rationalized the merger approval 
process through the three federal banking regulators: the 
comptroller if the merged bank continued with a national 
charter, the Fed if the resulting bank were a state member 
bank, and the FDIC if the resulting bank were a state 
nonmember bank. Second, there would be no public hearing 
for banks to challenge the supervisory determination on 
mergers, nor for merger opponents to air their views. A notice 
of the intention to merge, published in the newspaper, with 
supervisory approval was the outcome instead.164 Third, 
building on the existing complexity of state merger policy, the 
BMA determined the relevant factors that banking agencies 
would consider. These not only included the “effect of the 
transaction on competition,” but also “the financial history 
and condition of each of the banks involved, . . . the general 
character of its management, the convenience and needs of 
the community to be served,” among several other factors. 
Congress offered no hint as to how such factors would play off 
each other. Bank supervisors were granted substantial 
discretion in reaching their decisions, guided by these broad, 
and sometimes contradictory, factors. 

Finally, Congress expected, “in the interest of uniform 
standards,” the agencies to work together and with the 
Department of Justice (the DOJ) by requiring each agency and 
the DOJ to comment on every merger before any one of the 
 

163 Hearings on S. 1062, Regulation of Bank Mergers Before the S. 
Comm. on Banking and Currency, 86th Cong. 183 (1959). Our thanks to 
Andrew Baker for his help recreating this chart. 

164 Bank Merger Act of 1960, Pub. L. No. 86-463, May 13, 1960. For the 
debate that led to the defeat of public hearings, see 105 CONG. REC. 8125, 
8143–44 (1959) (statement of J. William Fulbright). 



  

204 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

other agencies (absent a showing of emergency). These 
opinions were advisory; only the relevant banking agency 
could approve or prohibit a given merger, depending on its 
charter and membership in the Federal Reserve System. But 
each agency was to inform the others of their respective views. 

Almost as soon as it began, the 1960 Act invited the various 
parties to struggle for dominance. The biggest fight was 
between the comptroller of the currency, which sought to 
approve mergers that would increase its own regulatory 
footprint, against the DOJ that sought a more aggressive role 
in passing on the legality of proposed mergers. In four 
instances, the DOJ disagreed with the comptroller on the 
mergers, prompting the comptroller to approve the mergers 
formally and the Attorney General to sue in federal court. The 
courts sided with the DOJ, leading to two major 
determinations by the Supreme Court that the DOJ would 
reign supreme in bank antitrust policy.165 

After these major reversals in Court, Congress took notice 
and launched a legislative process that contemporaries would 
regard “as bizarre as that of any statute ever passed.”166 It 
began when the lead author of the Bank Merger Act of 1960, 
Willis Robertson (Democratic Senator of Virginia) declared 
the Supreme Court’s interpretations of the statutory text 
“erroneous” and in need of clarification so that the Court 
would recognize bank mergers as belonging to a different 
tradition than antitrust. Through twists and turns, intraparty 
fights and betrayals, Congress enacted the Bank Merger Act 
Amendments of 1966 to clarify the predominance of bank 
supervision in antitrust review. The new framework, which 
has lasted mostly unchanged in the half century since its 
passage, gives supervisors the first cut on evaluating bank 
mergers against a variety of factors, with the DOJ having one 

 
165 The two principal cases were United States v. First Nat’l Bank & Tr. 

Co. of Lexington, 376 U.S. 665, 679 (1964) and United States v. Phila. Nat’l 
Bank, 374 U.S. 321, 350 (1963). 

166 David T. Searls & Harry M. Reasoner, The Bank Merger Act of 1966: 
Its Strange and Fruitless Odyssey, 25 BUS. L. 133, 139 (1969). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 205 

 

month to review approved deals for any potential antitrust 
violation. 

The Court’s jurisprudential shift away from antitrust 
enforcement in the 1980s was the last major change that left 
bank mergers almost exclusively in the hands of bank 
regulators. This shift tracks the rest of the approach to the 
problem of bigness and concentration that Congress took in 
banking. The conclusion: leave this to supervisors to 
understand, manage, and navigate. There are very few hard 
legal standards that the supervisors must abide. The fate of 
financial concentration for banking was not for courts and 
lawyers and not even for legislators and regulators. It was 
primarily the domain of bank supervisors. 

 
B. Supervising Consumer Financial Protection 

 
Although a major component of New Deal legislation and 

regulation was attention to the “consumer,” the story of 
consumer financial legislation as part of the supervisory 
apparatus of banking does not begin in earnest until 1968 
with the passage of the Truth-in- Lending Act (TILA).167 The 
law owed its genesis and ultimate enactment to the 
entrepreneurial energy of Illinois Senator and former 
University of Chicago economist Paul H. Douglas.168 Prior to 
TILA, consumer credit regulation was primarily a state, not 

 
167 See ELLIS WAYNE HAWLEY, THE NEW DEAL AND THE PROBLEM OF 

MONOPOLY: STUDYING ECONOMIC AMBIVALENCE (1995); MEG JACOBS, 
POCKETBOOK POLITICS: ECONOMIC CITIZENSHIP IN TWENTIETH-CENTURY 
AMERICA (2005). 

168 See Edward Rubin, Legislative Methodology: Some Lessons from the 
Truth-in-Lending Act, 80 GEO. L.J. 233, 234 (1991) (arguing that the act 
demonstrates Congress’s inability to craft regulatory legislation); see also 
Anne Fleming, The Long History of ‘Truth in Lending, 30 J. POL’Y HIST. 236, 
236–37 (2018); Christopher Peterson, Truth, Understanding, and High-Cost 
Consumer Credit: The Historical Context of the Truth in Lending Act, 22 FLA. 
L. REV. 808, 877 (2003); SEAN VANATTA, PLASTIC CAPITALISM: BANKS, CREDIT 
CARDS, AND THE END OF FINANCIAL CONTROL 108–32 (2024). 



  

206 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

federal, concern.169 Douglas initially framed the debate 
around macroeconomic stability, but gradually emphasized 
protecting consumers from harmful and deceptive lending 
practices.170 He did so against constant opposition from 
congressional proponents of states’ rights, who in the midst of 
the Civil Rights movement sought to defend state 
prerogatives against all federal encroachment.171 Elections 
and presidential leadership provided the electoral pressure 
that ultimately resulted in the passage of the bill.172 

The Truth-in-Lending Act tasked the Federal Reserve with 
regulating credit disclosure—with writing the rules that 
creditors would have to obey—and tasked the remaining bank 
supervisory agencies with ensuring “compliance” with these 
rules.173 Subsequent consumer legislation, including the Fair 
Credit Reporting Act (1970)174 and the Equal Credit 
Opportunity Act (1974),175 would likewise adopt this 
language, placing consumer enforcement with the different 
federal banking and consumer protection agencies, and 
explicitly tying that enforcement to the keyword 
compliance.176 

In one sense, mandated price disclosure and post-hoc 
compliance oversight mirrored the reporting and public 
 

169 BARBARA A. CURRAN, TRENDS IN CONSUMER CREDIT LEGISLATION 
(1965). 

170 Paul H. Douglas, Speech before the National League of Insured 
Savings Associations (May 10, 1960) (on file with Chicago Historical Society, 
Paul H. Douglas Papers, Douglas Statements 1960, box 1297). 

171 Letter from A. Willis Robertson to Paul H. Douglas (Dec. 12, 1961) 
(on file with Chicago Historical Society, Paul H. Douglas Papers, Douglas 
correspondence 1961, box 1299). 

172 See Rubin, supra note 168, at 251–52. 
173 Truth in Lending Act § 108, 15 U.S.C. §1607. 
174 Fair Credit Reporting Act § 621, 15 U.S.C. §1681s. 
175 Equal Credit Opportunity Act § 704, 15 U.S.C. §1691c. 
176 For discussion of FDIC compliance work under this act, see Federal 

Government’s Role in the Achievement of Equal Opportunity in Housing: 
Hearings Before the C.R. Oversight Subcomm. of the H. Comm. on the 
Judiciary, 92nd Cong. 849–850 (1971) (letter from Frank Wille to Theodore 
S. Hesburgh (Oct. 19, 1971)). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 207 

 

surveillance regime of the nineteenth century. Like the 
system of public call reporting instituted by the 1860s 
Banking Acts, price disclosure made market participants—
here, consumers—monitors of financial institutions’ behavior. 
Transparent prices enabled consumers to make informed 
decisions, encouraging banks to improve performance and 
lower prices. Yet, unlike the nineteenth-century disclosure 
regime, which left supervisors to manage non-compliance 
through direct and private supervisory engagement with 
bankers, TILA and subsequent consumer protection 
legislation enabled consumers to file class-action lawsuits 
against firms that failed to comply.177 As Proxmire observed, 
“the law should be largely . . . self-enforcing.”178 

Placing enforcement power in the hands of activist 
consumers accorded with the consumer movement’s goals of 
consumer empowerment, but it also created a difficult tension 
for bank supervisory officials. At first, supervisors tried to 
incorporate consumer oversight into their existing 
examination practices, evaluating bankers’ knowledge of the 
rules and advising them on how to achieve compliance.179 But 
 

177 See JOHN C. COFFEE, ENTREPRENEURIAL LITIGATION: ITS RISE, FALL, 
AND FUTURE (2015). 

178 Truth in Lending—1967: Hearings Before the S. Subcomm. on Fin. 
Inst. of the S. Comm. on Banking and Currency, 90th Cong. 682 (1967) 
(statement of J. L Robertson, Vice Chairman, Bd. of Governors, Fed. Rsrv. 
Sys.). 

179 For example, in June 1969, the FDIC issued examiners a 7-page 
Truth-in-Lending compliance checklist, though which examiners evaluated 
bank managers’ relative knowledge about the new regulations and 
randomly sampled consumer credit files to see that banks were following the 
rules. Memorandum from Edward H. DeHority to Supervising Examiners 
(June 23, 1969) (on file with Nat’l Archives, Records of the Fed. Deposit Ins. 
Corp., Record Group 34, Memorandums to Supervising Examiners, 1934–
1969, box 21). The Federal Reserve Banks and the comptroller also used a 
checklist. Memorandum from James H. Booth to John T. McClintock (June 
4, 1973) (on file with Fed. Rsrv. Bank of N.Y. Archives, Truth in Lending, 
Commercial Paper, Loans, 403.1A); Oversight on Consumer Protection 
Activities of Federal Banking Agencies: Hearings Before the S. Comm. on 
Banking, Housing and Urban Affairs, 94th Cong. 57–58 (1976) (statement 
of James A. McCaffrey). 



  

208 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

federal supervisors also recognized compliance policing might 
rub against their safety and soundness mission.180 TILA’s civil 
penalties, combined with new consumer class action lawsuits 
that the act encouraged, “could conceivably threaten the 
solvency of a bank,” a 1971 FDIC memo warned.181 Therefore, 
the FDIC required its examiners to separate compliance 
paperwork from other examination forms, even filing work 
papers in separate envelopes. “All reference to” truth-in-
lending, examiners were instructed, “should be omitted from 
Reports of Examination.” Thus, the FDIC very quickly hived 
off truth-in-lending and later consumer compliance functions 
from its core safety and soundness functions. 

Consumer oversight threatened to disrupt ingrained 
norms of supervisory practice. By the postwar era, supervision 
relied on a confidential enforcement regime, worked out 
between supervisors and bank management in bank offices. 
“We . . . have concluded,” the comptroller explained in 1976, 
“that it was the intention and expectation of Congress that the 
banking agencies would use the same private approach to 
consumer law enforcement as they do in regard to other 
banking laws.”182 Facing the threat of class action lawsuits, 
bankers looked to their examiners for advice on how to 
manage new consumer-regulatory risks. The “private 
approach,” however, was at odds with the premise of publicity 
woven through the consumer protections legislation, as well 
as the orientation, through civil penalties, toward rectifying 
 

180 Memorandum from Edward J. Roddy to Regional Directors (Sept. 24, 
1971) (on file with Nat’l Archives, Records of the Fed. Deposit Ins. Corp., 
Record Group 34, Memorandums to Regional Directors, 1967–1975, box 1). 

181 Memorandum from Edward J. Roddy to Examiners and Assistant 
Examiners (June 30, 1971) (on file with Nat’l Archives, Records of the Fed. 
Deposit Ins. Corp., Record Group 34, Memorandums to Regional Directors, 
1967–1975, box 1). By 1976, at least 160 class action cases had been brought 
against financial and other credit-granting institutions. CONG. RSCH. SERV., 
CLASS ACTIONS BROUGHT IN FEDERAL COURTS UNDER SECTION 130 OF THE 
TRUTH IN LENDING ACT (1976). 

182 Oversight on Consumer Protection Activities of Federal Banking 
Agencies: Hearings Before the S. Comm. on Banking, Housing and Urban 
Aff., 94th Cong. 461 (1976) (response of the Comptroller of the Currency). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 209 

 

past wrongs. Congress wanted bank supervisors to work on 
behalf of consumers to make amends for past mistakes, not—
as supervisors had imagined their role—to work with bankers 
to prevent errors in the future. 

The new consumer emphasis created increasing problems 
in the context of the ongoing agencies’ risk-management 
responsibilities. In the mid-1970s, the agencies responded by 
creating distinct consumer offices and experimenting with 
separate compliance examinations. By creating consumer 
departments and compliance teams, the supervisory agencies 
strengthened the compliance ethic, giving compliance an 
institutional identity by divorcing it from future-oriented 
safety and soundness supervision.183 This professionalization 
of supervisory compliance staff led, in turn, to the similar 
professionalization of compliance staff in banks. Beginning in 
1977, the Magazine of Bank Administration ran a seven-part 
series on “Implementing a Program for Consumer Regulation 
Compliance,” a topic also taken up in other industry 
publications.184 The “compliance officer” was officially born. 
Hiring in compliance was part of a larger explosion of 
compliance costs, a subject of perennial bank complaint. 

 
183 Oversight on Consumer Protection Activities: Hearings Before the S. 

Comm. on Banking Housing and Urban Aff., 94th Cong. 447, 453, 457 
(1976); Home Mortgage Disclosure and Equal Credit Opportunity: Hearings 
Before the S. Comm. on Banking, Hous., and Urban Aff., 94th Cong. 3–4 
(statement of Philip Jackson, Member, Bd. of Governors, Fed. Rsrv. Sys.) 
(1976); Banking Regulatory Agencies' Enforcement of the Equal Credit 
Opportunity Act and the Fair Housing Act: Hearings Before a H. Subcomm. 
on Gov’t. Operations, 95th Cong. 305 (1978) (statement of Carmen J. 
Sullivan, Acting Director, Off. of Consumer Affs. and C.R., Fed. Deposit Ins. 
Corp.). 

184 Joyce M. Saxon, Implementing a Program for Consumer Regulation 
Compliance, 53 MAG. BANK ADMIN. 18 (1977); William L. Hearn, Why Have 
a Compliance Officer?, 60 J. OF COM. BANK LENDING 29 (1978); Karen A. 
Oswald, Developing and Maintaining an Ongoing Consumer Compliance 
Program, 1 J. RETAIL BANKING 33 (1979); Neil B. Murphy, Economies of 
Scale in the Cost of Compliance with Consumer Credit Protection Laws: The 
Case of the Implementation of the Equal Credit Opportunity Act of 1974, 10 
J. BANK RSCH. 248 (1980). 



  

210 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

Ultimately, like antitrust, consumer protection legislation 
created a bank policy constituency outside the nexus of shared 
risk management. Federal bank supervisors faced a 
fundamental dilemma: help bankers proactively manage the 
risks of consumer enforcement or help consumers 
retroactively police banker behavior. Through discretion and 
institutional mitosis, they sought to split the difference, 
unintentionally seeding a risk- management arms race. 

 
C. The Expanding Portfolio: Bank Supervision and 

Antidiscrimination 
 
The third major component of the expanding portfolio of 

bank supervision was antidiscrimination. The long legacies of 
redlining and racial exclusion left African- Americans without 
access to the low-cost financing, which enabled white 
households to build substantial housing wealth.185 The initial 
wave of federal Civil Rights legislation did little to address 
this problem.186 As activists increasingly demanded economic 
equality as the necessary complement to civil equality, 
Congress sought to address financial inclusion through the 

 
185 See Mehrsa Baradaran, Jim Crow Credit, 9 U.C. IRVINE L. REV. 887 

(2019). 
186 See Douglas Massey, The Legacy of the 1968 Fair Housing Act, 30 

SOCIO. F. 574 (2015). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 211 

 

1968 Fair Housing Act,187 which outlawed discrimination in 
housing, including discrimination in housing finance.188 

The law’s ambitions were grand: “[i]t is the policy of the 
United States to provide, within constitutional limitations, for 
fair housing throughout the United States.”189 The 
enforcement mechanisms, however, had been weakened 
through political compromise. The Department of Housing 
and Urban Development (HUD) had no tools to compel 
compliance with the Housing Act’s provisions. The DOJ, 
meanwhile, could only bring suit if there was “a pattern or 
practice” of discrimination. HUD tasked supervisory agencies 
with ensuring compliance. As with consumer regulation, 
examiners initially did so through the regular course of 
examination.190 

Although the forceful class action provisions of the Truth-
in-Lending led examiners to take the threat of consumer 
 

187 There was a parallel effort to use supervision to combat 
discrimination in bank employment. On September 24, 1965, Lyndon 
Johnson issued executive order 11246, required federal contractors to 
develop and implement affirmative action policies. All banks with 50 or 
more employees were required to file equal opportunity reports. Examiners 
determines if banks filed their reports and if banks had written affirmative 
action plans and reported non-compliance to the Treasury’s Equal 
Employment Opportunity Department. Letter from Charles E. Walker to 
Frank Wille (Feb. 25, 1971) (on file with Nat’l Archives, Records of the Fed. 
Deposit Ins. Corp., Record Group 34, Memorandums to Regional Directors, 
1967–1975, box 1); Memorandum from Edward J. Roddy to Regional 
Directors (Mar. 31, 1971) (on file with Nat’l Archives, Records of the Fed. 
Deposit Ins. Corp., Record Group 34, Memorandums to Regional Directors, 
1967–1975, box 1). 

188 Fair Housing Act, Pub. L. No. 90-284, 82 Stat. 83 (1968). 
189 Id. at 81. 
190 Letter from P.E. Coldwell, President of the Fed. Reserve Bank of 

Dall., to President of Each State Member Bank in the Eleventh Federal 
Reserve District (May 2, 1969), Circular No. 69-113, District Notices, 
https://fraser.stlouisfed.org/title/5569/item/544107 [https://perma.cc/PV6D-
N3X3]; Letter from Alfred Hayes, President of the Fed. Reserve Bank of N.Y., to 
the President of Each State Member Bank in the Second Federal Reserve 
District (May 2, 1969), Fed. Rsrv. Bank of N.Y. Circulars, 
https://fraser.stlouisfed.org/title/466/item/14043 [https://perma.cc/V6BS-
VMGX]. 



  

212 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

litigation seriously, there is little evidence that bank 
examiners took assertive action on fair housing. Instead, 
supervisory officials relied on the 1968 Act’s weak 
enforcement mechanisms, which authorized HUD to act only 
on the basis of consumer complaints, to shield themselves 
from responsibility. Supervision by complaint was further 
weakened by the DOJ’s insistence that it was “not interested 
in individual cases, but rather in a pattern of 
discrimination.”191 Establishing such patterns required 
evidence, which federal supervisors assertively failed to seek. 
Federal supervisors could not conceive of “any system of bank 
recordkeeping which would produce reliable or useful data in 
this area,” Comptroller William B. Camp told Congress in 
1971.192 Meanwhile, the Federal Reserve board summarized 
its campaign of willful ignorance: “[t]he Board does not know 
of any specific cases of discrimination, nor does it know of any 
specific institutions whose practices indicate discriminatory 
loan practices.”193 

Within the supervisory agencies, consumer protection took 
priority because consumer enforcement penalties posed a 
much more significant risk to banks than the weak 
enforcement provisions of 1968 Fair Housing Act.194 As they 
carved out separate consumer compliance departments, the 
federal banking agencies rolled civil rights oversight into the 
consumer protection remit, effectively subsuming racial 
equity under the goals of consumer protection. 

The supervisory approach to antidiscrimination changed 
in the mid-1970s, in part because of Congress’s increasing 
 

191 Bias on Mortgages Claimed at Hearing, WASH. POST, Oct. 7, 1971. 
192 Federal Government’s Role in the Achievement of Equal Opportunity 

in Housing: Hearings Before the C.R. Oversight Subcomm. of the H. Comm. 
on the Judiciary, 92nd Cong. 852 (1971) (statement of William B. Camp, 
Comptroller of the Currency). 

193 Id. at 841–42 (statement of Robert C. Holland, Sec’y of the Fed. Open 
Market Comm.). 

194 Oversight on Consumer Protection Activities of Federal Banking 
Agencies: Hearings Before the S. Comm. on Banking, Hous., and Urb. 
Affairs, 94th Cong. 241–45 (1976) (statement of Arthur F. Burnes, 
Chairman of the Fed. Rsrv. Sys.). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 213 

 

dissatisfaction with the record of the supervisory agencies and 
in part because anti-discrimination transformed into a 
consumer protection issue. 

This pattern continued following the enactment of the 
Equal Credit Opportunity Act of 1974 (as expanded in 1976) 
(ECOA). ECOA—originally passed to prevent discrimination 
“on the basis of sex or marital status” in “any aspect of a credit 
transaction,” but eventually to prohibit discrimination on a 
host of other protected categories, including race—gave the 
DOJ and HUD the primary control over its implementation.195 
Still, bank supervisors remained the frontline of 
antidiscrimination compliance. As with the HUD Act, 
supervisors outsourced oversight to the public, relying on 
complaints of discrimination to launch an investigation. 
Further, supervisors incorporated their civil rights 
compliance programs into their emerging consumer 
compliance teams. The FDIC created the Office of Consumer 
Affairs and Civil Rights (the OCACR).196 

Violation of ECOA meant prosecution, although often the 
bank supervisors are the first to learn that there is a problem 
afoot. In 1996, the DOJ issued guidance to the banking 
regulators to outline when referral for prosecution is 
appropriate.197 

Most antidiscrimination statutes in bank supervision, 
then, take on a very highly discretionary flavor, since the 
question is triggered by discretion at two levels: whether to 
investigate the presence of discrimination on the basis of 
protected categories and whether, after investigation, to refer 
alleged violations for prosecution. According to the Federal 
 

195 15 U.S.C. § 1691(a). 
196 Banking Regulatory Agencies’ Enforcement of the Equal Credit 

Opportunity Act and the Fair Housing Act: Hearings Before a Subcomm. of 
the H. Comm. on Gov’t Operations, 95th Cong. 1014 (1978) (statement of 
Carmen J. Sullivan, Acting Dir. of Off. of Consumer Affs. and C.R.). 

197 Memorandum from the Dep’t of Just. on Identifying Lender Practices 
that May Form the Basis of a Pattern or Practice Referred to the Dep’t of 
Just. (1996), 
https://www.justice.gov/sites/default/files/crt/legacy/2014/03/05/regguide.pd
f [https://perma.cc/4U56-RW36].  



  

214 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

Reserve’s 1977 Equal Credit Opportunity Act report to 
Congress, the comptroller found that “97 percent of all 
national banks were in violation of the act to some extent.”198 
Thus, even when federal supervisors were willing to look for 
discrimination, their preference remained to seek voluntary 
corrective action, rather than to pursue forceful—and 
potentially politically or financially risky—remedial 
measures. 

The Community Reinvestment Act of 1977 (the CRA) is a 
different animal altogether. William Proxmire, Paul Douglas’s 
intellectual successor in the Senate on banking disclosure and 
consumer protection, sponsored the bill to address redlining, 
the historical discriminatory practice of “deliberately avoiding 
making loans in black communities[.]”199 

 The supervisory ethos of the CRA was more similar to 
TILA (centered on disclosure) than ECOA (which relied on 
enforcement).200 The CRA simply required banks to disclose 
the level of lending in low-income communities (often 
neighborhoods where most residents were racial minorities) 
that bank supervisors would then use to rate banks as 
“Outstanding” or in “Substantial Noncompliance” or, more 
often, somewhere in between.201 

 
198 Banking Regulatory Agencies’ Enforcement Hearing, supra note 196, 

at 472. 
199 See Baradaran, supra note 185, at 935. 
200 12 U.S.C. § 2901(a)(1). 
201 12 U.S.C. §§ 2903(a); 2906(b)(2). There is a vibrant historical debate 

about the origins of redlining. For a review of sources see Peter Conti- 
Brown & Brian Feinstein, Banking on a Curve: How to Restore the 
Community Reinvestment Act, 13 HARV. BUS. L. REV. 335 (2023). Briefly, 
governmental maps that literally used red lines to denote poor 
neighborhoods that should not receive federal support were an early source 
of the frustration. See KENNETH JACKSON, CRABGRASS FRONTIER: THE 
SUBURBANIZATION OF THE UNITED STATES (1987). Hillier argues that these 
governmental maps were irrelevant for future redlining, which came from 
other sources. See Amy Hillier, Redlining and the Home Owners’ Loan 
Corporation, 29 J. URB. HIST. 394, 394 (2003). Glock suggests that, despite 
the FHA’s earlier discriminatory practices, their own lending patterns lent 
more aggressively in majority-minority neighborhoods. See Judge Glock, 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 215 

 

The CRA thus became squarely the subject of supervision: 
the CRA exam itself was a separate enterprise from other 
exams but was conducted under the same supervisory teams 
for those primary supervisors at the Fed, FDIC, and 
Comptroller. The strategic decision that Congress chose for 
supervisors in the face of these ratings also put into 
conversation various other strands of supervisory discretion. 
Supervisors were to use the results of these exams to either 
reward compliant banks or punish non-compliant banks when 
they sought permission to expand their businesses, 
principally through new mergers and applications for new 
business lines. Since part of the CRA exam included inputs 
from those in the community where reinvestment was 
supposed to take place, banks had a powerful incentive not 
only to do well on these exams but also to recruit community 
groups to support their bids for expanded business.202 

* * * 
 
The examples outlined above—antitrust and merger 

evaluation, consumer protection, and the enforcement of civil 
rights—show an important turn in the postwar institutional 
shift for bank supervision. The basic institutionalization 
accomplished from 1863 to 1933 remained in place; bank 
supervisors were co-owners of risk management with the 
banks themselves but held strong to the residual systemic 
risks of financial collapse. These risks were divided among the 
different agencies: macroeconomic stability risk belonged to 
the Fed, the robustness of the national banking system to the 
comptroller, and protection of depositors and the Deposit 
Insurance Fund to the FDIC. As a partial consequence of the 
successes of the residual risk management of these systemic 
risks, Congress continued to expand the portfolios to include 
these other important policy priorities. What Congress did not 
do is tell supervisors how to optimize these sometimes-
 
How the Federal Housing Administration Tried to Save America’s Cities, 28 J. 
POL’Y HIST. 290, 308 (2016). 

202 See REBECCA K. MARCHIEL, AFTER REDLINING: THE URBAN REINVESTMENT 
MOVEMENT IN THE ERA OF FINANCIAL DEREGULATION (2020). 



  

216 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

conflicting priorities. That optimization was left to the 
supervisors themselves, a process that only expanded their 
discretionary authority over the entire system. Even when 
supervisors failed to achieve Congress’s priorities, as in anti-
discrimination policy, the (ironic) outcome was the creation of 
new supervisory tools and the expansion of official discretion. 
 

IV. MODERN APPLICATIONS OF RISK, 
DISCRETION, AND BANK SUPERVISION: 

CLIMATE CHANGE, MERGER POLICY, 
AND DEPOSIT INSURANCE 

 
The positive theory of bank supervision that we have 

articulated through this extensive history contains, as noted, 
four components: supervision exists (1) at the intersection 
between public and private that has (2) evolved into a large 
apparatus touching on various policy goals whereby (3) 
Congress has given supervisors discretion to prioritize and 
implement these sometimes conflicting, sometimes 
complementary goals. These factors have created a system 
that is (4) resilient to permanent reform because it is a risk 
absorber for the entire financial system. 

In this final section, we outline the ways that this 
framework can help us make sense of three of the most 
important and pressing policy issues currently facing banks: 
(1) how to evaluate the risks imposed by global climate 
change, (2) how to manage bank concentration and bank 
merger policy, especially in times of crisis, and (3) how to 
understand the relationship between hard-to-price deposit 
insurance and bank supervision. 

 
A. Global Climate Change and Bank Supervision 

 
The question of how central banks and bank supervisors 

will manage climate- related risks has become one of the most 
contentious in current debates about our financial system. 
Sarah Bloom Raskin, Joe Biden’s nominee for Vice Chair for 
Supervision and a former central banker and Deputy 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 217 

 

Treasury Secretary under the Obama administration, faced 
defeat in the U.S. Senate due to her views that “financial 
regulators have yet to show that they are thinking creatively 
about potential solutions” and that they must “ask themselves 
how their existing instruments can be used to incentivize a 
rapid, orderly, and just transition away from high-emission 
and biodiversity-destroying investments.”203 Her fate was 
sealed when Senator Joe Manchin, Democrat of West 
Virginia, indicated that Raskin “failed to satisfactorily 
address [his] concerns about the critical importance of 
financing an all-of-the-above energy policy to meet [the] 
nation’s critical energy needs.”204 The Federal Reserve has 
been most vocal in trying to walk a line on the appropriate 
interventions for a central bank in this space, not always 
speaking with one voice. “Our view is that is an issue that was 
given to other agencies to deal with,” the Fed’s General 
Counsel, Mark Van Der Weide said in 2020.205 Fed Chair Jay 
Powell made similar kinds of commitments, claiming climate 
change is “an important issue but not principally for the 
Fed.”206 On the other hand, former Fed Vice Chair Lael 
Brainard contended that while “there is substantial 
uncertainty surrounding how or when” the economic and 

 
203 See Sarah Bloom Raskin, Changing the Climate of Financial 

Regulation, PROJECT SYNDICATE (Sept. 10, 2021), https://www.project-
syndicate.org/magazine/us-financial-regulators-climate-change-by-sarah-
bloom-raskin-2021-09 [https://perma.cc/9DB9-PE5U]. 

204 See Jane Mayer, Sarah Bloom Raskin Withdraws Her Nomination to 
the Federal Reserve Board, NEW YORKER (Mar. 15, 2022), 
https://www.newyorker.com/news/news-desk/sarah-bloom-raskin-
withdraws-her-nomination-to-the-federal-reserve-board 
[https://perma.cc/86KP-Y4VV]. 

205 Am. Bankers Ass’n, Fed Official: No Near-Term Plans for Climate 
Risk Weights, Stress Tests, BANKERS J. (Jan. 17, 2020), 
https://bankingjournal.aba.com/2020/01/fed-official-no-near-term-plans-
for-climate-risk-weights-stress-tests/ [https://perma.cc/LRL6-YVRV]. 

206 See Katia Dmitrieva, Federal Reserve Leaves Action on Climate 
Change to Politicians, BLOOMBERG (Nov. 13, 2019), 
https://www.bloomberg.com/news/articles/2019-11-13/federal-reserve-leaves-
action-on-climate-change-to-politicians. 



  

218 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

financial consequences of climate change will materialize, “we 
can begin to identify the factors that could propagate losses 
from natural disasters, energy disruptions, and sudden shifts 
in the value of climate-exposed properties.”207 All of these 
examples suggested a much more aggressive approach to 
climate change be part of the Fed’s bailiwick. 

Scholars have been similarly divided. Some advocate for 
wholesale engagement of banking regulators and central 
banks in combating climate change.208 Others view such 
moves as a kind of “central bank activism.”209 Still others call 
for “technocratic pragmatism” for the Fed to “develop the 
expertise necessary to address complex, emergent problems 
that affect the Fed’s broad statutory missions,” including 
climate change.210 

The risk-and-discretion model of bank supervision makes 
clear that whether bank regulators do anything, bank 
supervisors already own this residual risk. This fact is true 
whether Congress formally assigns the risk to them, in an 
important sense, since Congress has already given 
supervisors the responsibility for ensuring both systemic 
financial stability and idiosyncratic risk for individual 
financial institutions—so-called macroprudential and micro-
prudential risk, respectively. 

To be clear, the risk-and-discretion framework does not 
resolve what non-bank supervisors should do. Central 
bankers may or may not have political cover or legal ability to 
 

207 Lael Brainard, Governor, Fed. Rsrv. Sys. Bd. of Governors, Address 
at The Economics of Climate Change Research Conference sponsored by the 
Federal Reserve Bank of San Francisco: Why Climate Change Matters for 
Monetary Policy and Financial Stability (Nov. 8, 2019), 
https://www.federalreserve.gov/newsevents/speech/brainard20191108a.htm 
[https://perma.cc/H2KU-BEGJ]. 

208 See Graham Steele, Confronting the ‘Climate Lehman Moment’: The 
Case for Macroprudential Climate Regulation, 30 CORNELL J. L. & PUB. 
POL’Y 109 (2020). 

209 See Christina Skinner, Central Bank Activism, 71 DUKE L.J. 247–328 
(2021). 

210 See Peter Conti-Brown & David Wishnick, Technocratic Pragmatism, 
Bureaucratic Expertise, and the Federal Reserve, 130 YALE L.J. 639 (2021). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 219 

 

use tools of monetary policy, conventional or unconventional, 
to engage in climate change remediation or prevention. What 
the framework provides is the recognition that supervisors 
share residual risk management with the private sector. If 
private banks are paying attention to climate risk–and they 
are, increasingly, and to an overwhelming extent– then bank 
supervisors must follow.211 

While the politics of climate change are far from resolved, 
recognizing bank supervisors as the government’s agents in 
the financial system authorized to use their discretion to 
manage all residual risk suggests that those who have 
opposed bank supervisory maneuvers fight against a system 
that is already well entrenched. In this sense, whether 
Congress specifically legislates to encourage supervision to 
expand further into climate change prevention and 
remediation is almost immaterial. A well-motivated bank 
supervisor can already begin this work; all bank supervisors, 
no matter their motivation, will bear the responsibility for 
crises that follow for mismanaged risk. At the same time, the 
historical experience of bank supervision also suggests that 
certain approaches that seek to harness the bank supervisory 
system to advance climate goals may be less effective than 
advocates suppose. Legislation which seeks to use supervisors 
in a regime that addresses climate risk by punishing banks 
that do not comply with congressional policy goals may create 
a conflict of supervisory prerogatives. Like consumer 
protection and anti- discrimination, examiners may prioritize 
safety and soundness over all else, giving them an opportunity 
to “ignore” one congressional edict in the name of honoring 
another. 

 

 
211 See Daniel Beltran et al., What Are Large Global Banks Doing About 

Climate Change? (Int’l Fin. Discussion Papers, Paper No. 1368, 2023), 
https://www.federalreserve.gov/econres/ifdp/what-are-large-global-banks- 
doing-about-climate-change.htm [https://perma.cc/TUL9-6L2J]. 



  

220 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

B. Bank Merger Policy in the Twenty-First Century 
 
A growing chorus of scholars and policymakers–and in 

some cases, scholars- turned-policymakers–have invited a 
reexamination of antitrust policy in the twenty-first 
century.212 The basic insight is that historical programs of 
antitrust enforcement arising in the 1960s that focused on 
consumer welfare as the only meaningful category of 
consequence were wrong. More important, these scholars 
argue, is to understand that “a company’s power and the 
potential anticompetitive nature of that power cannot be fully 
understood without looking to the structure of a business and 
the structural role it plays in markets.”213 In banking, this 
antitrust ethos has entered scholarly discourse, too.214 

In banking and finance, there has been bipartisan 
enthusiasm for this approach. For example, the day after the 
2020 presidential election, the Trump Administration’s DOJ 
sued Visa to block the acquisition of tech startup Plaid.215 
Furthermore, in July 2021, President Joe Biden issued an 
executive order stating the policy of the Administration to “to 
enforce the antitrust laws to combat the excessive 
concentration of industry, the abuses of market power, and 
the harmful effects of monopoly and monopsony.”216 In the 
same order, he instructed the DOJ, Federal Reserve, FDIC, 
 

212 See TIM WU, THE CURSE OF BIGNESS: ANTITRUST IN THE NEW GILDED 
AGE (2018); Lina M. Khan, Amazon’s Antitrust Paradox, 126 YALE L.J. 710 
(2016). 

213 Khan, supra note 212, at 717. 
214 See Jeremy Kress, Modernizing Bank Merger Review, 37 YALE L.J. 

435 (2020). Tim Wu, Lina Khan, and Jeremy Kress have all joined the Biden 
Administration in various capacities (Wu as Deputy Director of the White 
House’s National Economic Council, Khan as Chair of the Federal Trade 
Commission, and Kress as Special Advisor to the Assistant Attorney 
General for Antitrust at the Department of Justice). 

215 Press Release, U.S. Dep’t of Just., Justice Department Sues To Block 
Visa’s Proposed Acquisition of Plaid (Nov. 5, 2020), 
https://www.justice.gov/archives/opa/pr/justice-department-sues-block-
visas-proposed-acquisition-plaid [https://perma.cc/X3SJ-B38Z]. 

216 Exec. Order No. 14,036, 86 Fed. Reg. 36,987 (July 14, 2021). 



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 221 

 

and OCC to “review current practices and adopt a plan . . . for 
the revitalization of [bank] merger oversight.”217 

Banking antitrust has, as noted above, has long been a 
confused and confusing subfield given the different 
supervisory priorities that different governmental actors 
might place upon it. This complexity remains unchanged. The 
banking crisis of 2023 highlights this tension further. As 
Silicon Valley Bank barreled toward its government-assisted 
crash—the second-largest bank failure in U.S. history— the 
government scrambled to find a suitable partner to acquire 
the bank, imposing conditions on the very banks that were 
qualified to take over. Meanwhile in international contexts, 
Credit Suisse, the second-largest bank in Switzerland, was 
acquired following its March 2023 failure by the largest bank 
in Switzerland, UBS; both Swiss banks were considered global 
systemically important banks. 

Risk-and-discretion bank supervision provides precisely 
this kind of flexibility to choose or invoke problems or 
solutions with bank concentration, as the circumstances 
permit When bank lobbyists advance the argument that 
economies of scale from bank concentration justify a consumer 
welfare approach—permitting nearly every proposed banking 
merger—they ignore decades of evidence indicating that bank 
merger policy operates differently. The same tendency to 
overlook historical evidence applies when neo-Brandeisian 
critics advocate for blocking mergers solely based on 
concentration, regardless of potential benefits. 

The reality for bank merger policy is that supervision 
facilitates any vision for merger policy. The law is too broad 
and supervisory discretion too capacious to limit it. This 
breadth illustrates here, as elsewhere, why the personnel 
selected to lead supervisory functions are so enormously 
important. A chief supervisor of a federal banking agency can 
accomplish a wide array of conflicting goals across 
administrations, depending entirely on their own balance of 
competing priorities. 

 
217 Id. 



  

222 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

 
C. Deposit Insurance and Bank Supervision 

 
Before the 2008 financial crisis, scholars in the United 

States long thought that the problems of bank runs had been 
solved by the advent of deposit insurance.218 Other countries 
came to a similar conclusion. For example, Canada 
established deposit insurance in 1967 after successfully 
weathering the Great Depression. Similarly, the United 
Kingdom shifted from partial to full deposit insurance in 2009. 
Similarly, the United Kingdom, which had a regime of partial 
deposit insurance, instituted full insurance in 2009. 

The United States has had a long history of gradual then 
sudden expansions of deposit insurance, sometimes in the face 
of crisis and often in response to lobbying from banks.219 But 
it has always been limited. The original terms of the Glass-
Steagall Act of 1933 were to extend such insurance only to 
$2,500 per account. Two years later, Congress expanded that 
to $5,000. In 2008, after a run of uninsured depositors on 
several institutions, Congress more than doubled the 
$100,000 level prevailing since 1980 to $250,000. 

In the aftermath of the banking crisis of 2023, debates rage 
anew about whether to expand that insurance limit or even to 
eliminate it entirely.220 Sometimes these calls come to 
enhance supervision to mitigate underpriced insurance, 

 
218 See Michael D. Bordo, The Lender of Last Resort: Some Historical 

Insights (Nat’l Bureau of Econ. Rsch. Working Paper No. 3011, 1989), 
https://www.nber.org/system/files/working_papers/w3011/w3011.pdf 
[https://perma.cc/9PKS-AZQP].  

219 See Eugene N. White, Deposit Insurance (World Bank Pol’y Rsch. 
Working Paper No. 1541, 1995), 
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=569205 
[https://perma.cc/7JDD-LVNQ]. 

220 Morgan Ricks & Lev Menand, Scrap the Bank Deposit Insurance 
Limit, WASH. POST (Mar. 15, 2023), 
https://www.washingtonpost.com/opinions/2023/03/15/silicon-valley-bank-
deposit-bailout/.  



  

No. 1] RISK, DISCRETION, AND BANK SUPERVISION 223 

 

sometimes they come with no connection to bank supervision 
at all.221 

The risk-and-discretion framework has much to offer this 
debate. The FDIC was created alongside deposit insurance as 
the mechanism to supervise its use. This created a 
supervisory ethos keen to protect the value of the Deposit 
Insurance Fund, the financial mechanism that provides 
insurance payments to depositors in the event of bank failure. 
The primary mechanism in the deposit insurance system, 
however, is not consistently supervisory, but the fact that 
insurance is priced to compensate the fund in case of bank 
failures. 

Our framework suggests that efforts to massively expand 
insurance will not be effective, given a basic asymmetry in the 
system of supervision and public insurance pricing. Never in 
U.S. history has deposit insurance been lowered. Supervision 
as discretion moves cyclically. What is more, the pricing of 
deposit insurance is subject to relentless pressure to 
deregulate through pricing strategies. The residual ownership 
of risk that bank supervisors will carry suggest that they will 
be responsible for failed bank entities, regardless of whether 
they have the funds to do so or, potentially, whether bank or 
bank-like entities are formally covered by deposit insurance. 
Expanding deposit insurance in the hopes that there will be 
commensurate expansions in supervision is therefore unlikely 
to occur. 
 

CONCLUSION 
 

This Article presents a new framework for conceptualizing 
bank supervision, a unique and vital part of both state 
capacity and financial markets. We argue that the 
fundamental responsibility of supervisors is to negotiate: to 
negotiate the joint responsibility of residual risk management 
 

221 David Wessel, A Debate: Should the US Raise the $250,000 Ceiling 
on Deposit Insurance?, BROOKINGS INST. (May 2, 2023), 
https://www.brookings.edu/articles/a-debate-should-u-s-raise-the-250000-
ceiling-on-deposit-insurance/ [https://perma.cc/XEC3-TJCL]. 



  

224 COLUMBIA BUSINESS LAW REVIEW [Vol. 2025 

 

with the banks they supervise and to negotiate between and 
among the boundaries of different approaches to bank 
supervision that history has accreted over time. 

This history and framework have implications beyond 
banking and bank supervision. As courts increase their 
presence in the evaluation of agency actions, some have 
argued in favor of more judicial presence in the field of bank 
supervision, characterizing the field as “the most oppressive 
component of the federal regulatory state.”222	 That evolution 
is extremely unlikely to occur. For 160 years, bank supervision 
has existed in the shadows as an alternative mechanism for 
negotiating the co-ownership of financial risk. Even 
identifying the legally cognizable action that courts could 
invalidate in bank supervision is nontrivial. Instead, 
supervisory ownership of residual risk and co-management of 
frontline risk will continue to thrive and even expand in the 
retreat of other risk management strategies, such as 
regulations that require increased specificity to survive 
judicial challenge. 

Bank supervision, in other words, is not only likely to 
persist in the post-Chevron era. It is likely to expand. This 
Article provides a roadmap for the options that expansion can 
take. 

 

 
222 Are Bank Examiners Next on Industry Lawsuit List?, CAPITOL ACCT. 

(July 10, 2024), https://www.capitolaccountdc.com/p/are-bank-examiners-
next-on-industry [https://perma.cc/4U6Y-YV5R].