ABSTRACT
Economic historians have argued that government actions are a major factor determining the contribution of banking to economic development. In this chapter, the regulation of banking in California is explored to see how regulation affected the development of banking in the state. The first important issue addressed in this chapter is the extent to which banking was regulated. Banks today are subject to a wide variety of restrictions ranging from minimum capital requirements to reserve requirements, from ceilings on interest rates on deposits to limits on a bank’s portfolio choices. In analyzing the evolution of banking regulation in California, this chapter will explore the origins of these modern restrictions. The regulation of banking is more than just rules and legislation. The supervision of banks and the enforcement of the laws are also important. After all, legislated restrictions on bank behavior are of little value unless they are enforced. As it turns out, banking legislation in California did increase the constraints on state-chartered banks’ behavior over the period 1860-1910, though they remained relatively minimal until 1909, but these constraints were largely offset after 1900 by weaker enforcement of the banking laws and more relaxed supervision of state-chartered banks until the 1909 Bank Act.
