Constituencies and Legislation: The Fight Over the McFadden Act of 1927

The McFadden Act of 1927 was one of the most hotly contested pieces of legislation in U.S. banking history, and its influence was felt over half a century later. This paper studies the congressional voting behavior surrounding the act’s passage. We find that congressmen in districts in which landholdings were concentrated and credit was costlier were significantly more likely to oppose the act. The evidence suggests that whereas the law and the overall regulatory structure can shape the financial system far into the future, they themselves are likely to be shaped by elites, even in countries with benign political institutions. This paper was accepted by Amit Seru, finance.