McFadden Act


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McFadden Act

Legislation in the United States, passed in 1927, that prohibited federally-chartered banks from operating in multiple states except to the extent permitted by state law. The McFadden Act was largely repealed by the Riegle-Neal Act.
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In a study of the congressional vote on the McFadden Act of 1927, which sought to boost competition in lending, Rodney Ramcharan of the US Federal Reserve and I found that legislators from districts with a highly unequal distribution of land holdings - farming was the primary source of income in many districts then - tended to vote against the act.
The McFadden Act (1927) established a restriction that prevented banks from opening a branch or subsidiary in another state.
The definition of a banking market is no longer a single state (or combinations of states in those situations where exceptions to the old McFadden Act were permitted).
The McFadden Act of 1927, which was a part of the National Bank Act, affected the ability of nationally chartered banks to branch either intrastate or interstate.
Passage of the McFadden Act in 1927, and its amendment in 1933, gave national banks (chartered by the Comptroller of the Currency) branching capabilities identical to those of state banks.
This fragmentation is partly attributable to the restrictions on interstate banking prior to the 1980s, a la the McFadden Act, which prohibited national banks from opening branches across state lines.
Calling policy reform the most important aspect, Rosenberg said, "Nothing short of a comprehensive reform of our current banking regulations will allow our industry to reach its full competitive potential--and develop the kind of resources that can contribute to vital healthy communities." To achieve that goal, Rosenberg believes true nationwide banking with interstate branching must be allowed as stated in amendments to the McFadden Act and that banks must be allowed to compete in the financial services marketplace.
National banks have always been subject to state bank branching laws according to the McFadden Act.
Until the 1980s, banks were limited to "traditional" banking operations due to restrictions dating to the McFadden Act of 1927 (prohibitions on interstate banking) and the Glass-Steagall Act of 1933 (investment/ commercial banking restrictions).
In this connection, the Federal Reserve Board strongly urges the Congress to revisit fundamental reforms involving the elimination of the Glass-Steagall Act and the McFadden Act. The structure and activities of the financial industry are changing; new markets are developing and expanding; and our banks must be allowed to keep pace.
The McFadden Act forces state member banks and national banks to deliver interstate services only through separately capitalized bank holding company subsidiaries (where permitted by state law) rather than through branches.