Private Finance, Public Power is a history, up to 1980, of bank supervision in America written by Peter Conti-Brown and Sean H. Vanatta. The first task of the book is to define bank supervision and differentiate it from the closely related area of regulation. One simple definition is that supervision is the enforcement of rules that apply to banks, while the establishment of those rules is regulation. The core argument of this book, in contrast, is that such a definition is too narrow and misses that supervision entails a broader public power and responsibility over the banking system. This abstract concept can be illustrated by simply observing that when a bank fails, both bank and supervisory officials come under scrutiny. This scrutiny of supervisors would not happen if they were not seen as having both the power and responsibility to have prevented the failure. It is instructive to interrogate this core argument by making the assertion, for argument’s sake, that bank officials have always had the primary responsibility for the risks their activities produce. This assertion implies that, however shared the responsibility has been with supervisors, and however large the expectations placed on supervisors have been, supervisors have always had a secondary role in public expectation. Conti-Brown and Vanatta take a different view. They describe banks as responsible for frontline risk related to their immediate business choices, albeit with supervisors looking over their shoulders. However, they argue that all residual risk, such as fallout from

banking weakness for the financial system as a whole, is solely owned by supervisors.

The idea that supervisors have had to manage all residual risk in the banking system is a sweeping argument. One consequence is that bankers themselves tend to fade into the background of this history. Another is that supervision becomes a broad tent concept under which Conti-Brown and Vanatta place a wide variety of historic practices. Perhaps because the management of all residual financial risk is so enormous, multi-faceted, and controversial, the book catalogs a sprawling set of tools that supervisors have developed.

For example, the book starts with a discussion of the Bank of the United States, a kind of proto-central bank championed by Alexander Hamilton to unite the country’s financial system. Supervision is described as taking the form of demands that other banks redeem their banknotes. This is an interesting spin on an old tale, notable mostly for how different it is from later forms of supervision, and also how obviously incomplete this practice was when considered a form of supervision.

A more evergreen kind of supervision is discretion over chartering. Chartering policy has either dialed up or down the level of competition in the banking system. The proliferation of bank charters in the early 1900s, for example, gave way to concerns about “excess competition” starting in the 1930s. That new orthodoxy was first challenged for a time in the 1960s when James J. Saxon became Comptroller of the Currency, who is the subject of one chapter in the book.

Supervision by currency redemption and by chartering are just the start. The Federal Reserve is described as conducting supervision by discounting, in its role as a lender to commercial banks. There is supervision by antitrust enforcement, public investment, insurance underwriting, corporate governance, publicity, confidentiality, consumer protection, liquidation, forbearance, examination, call reports, correspondence, loan criticism, judicial oversight, and stress tests. Supervision extends to multiple public agencies and also includes private bodies such as clearinghouses.

This grab bag of tools, modes of thought, and actors involved in supervision is a valuable overview. Reviewing it, the sheer variety leaves me with some uneasiness, to see so many historic actors convinced that they finally had the right approach, only to be viewed later as obviously wrong and misguided, even when they were faithfully executing their duties.

Take chartering as an example. Older debates about chartering appear antiquated today. Yet, an evergreen concern is whether the banking system has an appropriate level of competition. Compared to most of the historical period covered in the book, demand for new bank charters has been quite low since the 2007–2009 financial crisis. The competitive environment has changed significantly since 1980, the endpoint of analysis in the book. New banks today must compete with banks that have regional or national footprints, along with an ever-growing array of nonbanks that are often subject to less stringent regulations. One trend is for banks to create business models focused on providing specialized services to firms in a particular sector of the economy, wherever they are located in the country. Silicon Valley Bank, with its focus on tech and venture capital, is an example of this. Similarly, a key source of demand for new charters today comes from fintech and crypto firms, which typically do not propose to offer the full range of services that banks might have provided 50 years ago.

History helps us identify what is novel and how supervision came to have its current form. A new chapter in the history of bank supervision will be written as banking continues to evolve beyond traditional models and supervisors adapt their toolkit.