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Abstract: In the wake of the collapse of Silicon Valley Bank (“SVB”) in March 2023, the third largest bank failure in U.S. history and the first domino to fall in a broader regional banking crisis, a common refrain echoed among scholars, policymakers, and the public alike: where were the regulators? The collective gaze of the nation quickly turned toward the Federal Reserve, which served as the primary regulator of SVB and bore responsibility for its safety and soundness. While the immediate aftermath of SVB’s downfall brought focused and valuable critiques of the Federal Reserve’s supervisory process, this Article revisits the institutional history of the Federal Reserve to raise broader questions about the very framework of financial regulation in the twenty-first century. Retracing the evolution of the Federal Reserve reveals that its regulatory and supervisory power has grown dramatically over the course of a century in ways neither Congress nor the central bank anticipated.
As this Article argues, the rise of the bank holding company, a corporation created to acquire and hold the stock of banks and other financial entities, as the dominant organizational structure of modern American finance unexpectedly transformed the Federal Reserve into the regulator-in-chief of the American financial system. For though the Federal Reserve shares authority over financial regulation and supervision with two other federal regulators as well as state regulators, it occupies a privileged position within this fragmented system due to its role as the sole regulator of all U.S. bank holding companies. While bank holding companies controlled only 7.5 percent of commercial bank assets when Congress granted the Federal Reserve this power in 1956, they now control 95 percent of commercial bank assets and nearly every systemically important financial institution operates as a bank holding company. As the postmortem of SVB continues to unfold amidst a wider reassessment of financial regulation and supervision, this Article foregrounds the overlooked centrality of the bank holding company to the structure and oversight of American finance. Grappling with the Federal Reserve’s largely accidental path to regulatory supremacy, and the efforts to reconfigure that arrangement throughout the twentieth century, ultimately serves as a critical reminder of the roads not taken and opens up new possibilities in a key moment of reform. Amidst renewed challenges to the Federal Reserve’s independence and wider attacks on the administrative state itself, unearthing the central bank’s remarkable and inadvertent path to regulatory power could not be timelier.
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