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Publius: The Journal of Federalism 1991 21(3):27-41;
© 1991 by CSF Associates Inc.
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The Savings and Loan Debacle and Erosion of the Dual System of Bank Regulation

Edward W. Hill
Cleveland State University

The crisis in the banking and thrift industries is catalyzing a shift in the traditional system of dual state-federal bank regulation toward the federal government and away from the states. Erosion in this system has been evident for the past decade due to actions of the Congress, federal regulators, and the judiciary. The dual system has two sets of flaws. One is regulatory competition that encourages weak monitoring of financial institutions by states. The other is created by the "moral hazard" of the current system of federal deposit insurance. There are two paths to reform. One is continued erosion of the power of the states. The alternative is to provide incentives that reinforce the dual system of regulation and deter the sources of "moral hazard."


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