Economics,Politics,and Policy Change

Abstract

The regulatory politics literature contains two competing theories of policy change in the area of economic regulation: economic/technological change and the politics of ideas. This article focuses on the salient topic of commercial banking regulation as a laboratory for testing these propositions with regard to policy outcomes. The qualitative and empirical findings indicate that the instability facing the commercial banking industry comes from a combination of policy change as well as general and industry economic conditions. The author argues here, however, that policy change—in the form of deregulation—beginning with the passage of the Depository Institutions Deregulation and Monetary Control Act (DIDMCA) of 1980 appears to serve as the most important explanation for this instability. Furthermore, the results of this study suggest that this policy change does reflect politics (and not economics), thus suggesting that recent commercial banking instability has largely been due to a combination of new ideas and the changing ideological composition of relevant congressional banking subcommittee members during the 1970s.