Money  /  Narrative

A Decisive Influence: The American Public’s Role in Financial Regulation

The history of grassroots banking politics has been overlooked — and even denied.

The history of grassroots banking politics has been overlooked and even denied. According to U.S. history textbooks, public interest in the money question was intense yet brief. During the 1896 presidential campaign, the standard story relates, the spellbinding oratory of William Jennings Bryan epitomized a singular moment when the public took note of financial policy, specifically the gold standard, and then forgot about it. But Bryan’s defeat in this election did not mark the end of mass involvement in banking and monetary issues. Rather, it was the beginning of a struggle between workers and farmers on one side and bankers on the other—a struggle that produced the framework of a new financial order.

Leading bankers pushed for the Federal Reserve Act of 1913, which created the nation’s preeminent banking regulator.[3] Yet this law would have looked far different absent public influence. Importantly, while bankers wanted the central bank placed under their control, the negative public reaction to this proposed arrangement ensured government authority over the institution. Furthermore, farmers’ lobbying during the Federal Reserve debate won a commitment from President Woodrow Wilson to establish low-cost agricultural credit. The resulting Federal Farm Loan Act of 1916 presented a decisive break with laissez-faire economics and established the precursor of today’s Farm Credit System.[4]

In the wake of the financial crisis of 2007–08, the Banking Act of 1933, popularly known as “Glass-Steagall,” resurfaced from historical obscurity. The Clinton administration had nullified the law’s wall between commercial and investment banking, which many postmortems deem responsible for the “Great Recession.” The 1933 law enacted two critical reforms: the division of commercial and investment banking, which sought to safeguard savings and checking deposits from risky investments, and the establishment of a federal guarantee that depositors would be reimbursed in the event of a bank closure. Use of the title “Glass-Steagall” omits the influence of public opinion on the legislation while highlighting its southern Democrat congressional co-sponsors Representative Henry B. Steagall and his senior colleague Senator Carter Glass.[5] But the background of the two key features of the law reveals the significance of public influence over the era’s financial reforms.

While a broad swath of the public took an interest in questions of banking policy, farmers and workers throughout the nation were especially engaged with the issue, often channeling their advocacy through membership organizations. Convention resolutions and other policy statements regularly declared the positions of labor unions and farmer groups to politicians and the press. Elected officials also received a steady stream of mail from constituents—particularly working people—writing to urge changes to the banking system.