Institutional Change 1960–2000

Abstract

Other studies of institutional change in U.S. banking have focused on legislative and regulatory change. Certainly these processes are important aspects of institutional change however, they are not sufficient proxies. Institutions are the “rules of the game” that solve collective action problems in a particular setting by governing interaction, outcomes, and information flows.¹ They reflect the beliefs and preferences of those who design them and they shape the beliefs and preferences of those who follow them. As in other regulated industries in the United States, banking institutions exist in the public and private sectors and are quite diverse, encompassing norms, laws, regulations, contracts, charters, bylaws, policies, standard operating procedures, and so on. In toto, institutions reduce uncertainty by creating incentives to act (or not) and imposing constraints on the range of feasible activities in a particular situation.