Banking Systems and the Political Economy: the United States Experience

There have been a number of inquiries as to the correlation between the political economy of a particular state and the kind of banking institution that the particular country has. There is no question that there is indeed a correlation between the two but the question is how do the political institutions of the state affect the economic growth and the operation of the banking institutions of the state. In the same way, one might ask also how the political set-up of the state may affect the operation of the banking institutions and the economy in general.

The study, Political Competition and Economic Growth: Lessons from the Political Economy of Banking in Mexico and the United States, discussed that the political institution of the state is basically the rules that direct the functioning of the political system. The study stated that the banks play an important role in the financial system of the state and is necessary for the growth of the national economy. It was mentioned that the banks are highly susceptible and vulnerable to the changes in the other institutions of the state. The government therefore plays an important role in the formulation and the enforcement of rules that may affect financial contracts. The government basically determines who can acquire a bank charter and under which circumstances and conditions can they do so. Likewise, prior to the establishment of the banking institution, it is the government that plays a significant role.

The early financial institutions showed that many banking institutions were established and operated by the state. Also, the government plays a significant role in the formulation of regulations to ensure the protection of the smaller and newer banks. The government, according to the study, is an interested party as it looks into the banking system as a potent source of finance other than the revenues from the taxes collected by the state. The government tries to intervene in these financial institutions as the government is interested to ensure that the banks are consistent and stable to ensure a long term national development. In the United States, political institutions such as the suffrage of the electorate, federalism and the separation of powers are those that greatly affect the banking and economic system.

In another study on the Constitutional Imperative in Reform of the Monetary and Banking Systems of the United States, the author, Edwin Vieira Jr., said that reforms in the monetary and the banking system of the United States has to be appreciated and to be approached as a matter of both law and economics. One of the most controlling and paramount law in the United States is its Constitution. Much of the policy reforms in the United States are being studied to be incorporated into a Constitutional reform. Accordingly, if a real reform in the monetary and the banking system is to be achieved, real reform should have a constitutional imperative. This is in view of the past and present crises in the banking system in the United States which require tremendous reforms not only in the economic system but also in the political system to keep at pace with the economic changes that are needed.

It must be remembered that as nations develop, the economic as well as the political systems should also be able to adjust to the changes. If a nation wants to enhance its monetary and banking system, the pertinent political systems should also make considerable adjustments; otherwise, no real, concerted and uniform reform can be made.

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