The Politics of Bank Supervision: From Eccles to Bessent

REVIEW ESSAY
Private Finance, Public Power:
A History of Bank Supervision in America
by Peter Conti-Brown and Sean H. Vanatta
Princeton University Press, 2025, 424 pages

Throughout his tenure as chair of the Federal Reserve Board, Marriner Eccles pressed President Franklin D. Roosevelt to over­haul bank supervision. Eccles eventually made his ongoing service as chair contingent on FDR agreeing to support the effort. This initiative is commonly depicted as a power grab. Federal bank regulation and supervision, then and now, is divvied up among three agencies, the Federal Reserve, the Federal Deposit Insurance Corporation, and the Comptroller of the Currency. Eccles wanted the Fed, and the Fed alone, to be the federal bank supervisor. Having already succeeded in enhancing his power once, by spearheading reforms that increased the authority of the Federal Reserve Board, Eccles sought to replicate his success and expand his domain yet further, or so the tale is often told.

In Private Finance, Public Power: A History of Bank Supervision in America, Peter Conti-Brown and Sean Vanatta show that this is just one piece of the story, and the full account provides valuable insights into this phenomenon called supervision. Understanding the rationale behind Eccles’s ambitions also holds lessons for the current moment, revealing just how powerful and malleable bank supervision can be, why the industry’s current effort to remake supervision could backfire, and why those taking up arms to defend supervision may come to regret that decision.

Conti-Brown and Vanatta show that supervision is a powerful tool. It can and often has been used to meaningfully enhance the health of banks and the banking system. Yet they further show that it can and has been used to serve other agendas as well, potentially making it very attractive to an administration looking to deploy such tools in new and sometimes self-serving ways.

Supervision and Risk

A Republican and committed capitalist until the Great Depression, Marriner Eccles was one of the first advocates of deficit spending as a way out of the crisis. Throughout his tenure at the Fed, Eccles viewed the world through a macroeconomic-tinted lens, which illuminated the interconnections between a host of policy issues and the credit and monetary conditions he saw as his domain. Eccles fought often and openly with the Treasury Department on matters of tax policy. He engaged in a radio debate with Senator Harry Byrd on deficit spending to the chagrin of his Fed colleagues. And he would go on to be openly critical of how the Truman administration handled international relations at the end of World War II while still serving on the Fed.¹ He had no problem making his opinions public across these many domains because he believed that what happened in each affected the economy in ways that had significant ramifications for the Fed. As Conti-Brown and Vanatta illuminate, he saw supervision in the same terms.

Eccles recognized supervision as a powerful tool that the government could use to shape bank behavior. The government was in the process of developing a robust rulebook, limiting banks’ activities and affiliations, to restrain banks’ risk-taking. But rules were inherently coarse, could not vary over time, and had little capacity to encourage banks to take more risk when doing so would benefit the broader economy. Supervision had the potential to do all of these things. FDR initially resisted Eccles’s ambitions, but started to come around upon hearing stories of small banks being “harassed” by bank examiners for making precisely the type of small business loans the administration otherwise wanted to encourage.²

Of course, the desired consolidation never came to pass. This is, in part, because of personality conflicts and the fact that Eccles was not the only bank regulator looking out for his turf. But much of the resistance to Eccles’s plan grew from a competing conception of what bank supervision should entail. Leo Crowley, Chair of the newly created Federal Deposit Insurance Corporation (FDIC) during this time, did not believe that supervisory rigor should be contingent on the Fed’s momentary beliefs about the state of the economy. Crowley, Conti-Brown and Vanatta explain, thought bank supervision should move into “line with the New Deal’s political economy of strictly regulated finance.”³ It should be used to discourage, not encourage, bank risk-taking. This view aligned with Crowley’s role in protecting the deposit insurance fund, which had little to gain and much to lose from bank risk‑taking.

Rather than coming down on either side of this debate, Conti-Brown and Vanatta use it to show why efforts to reduce supervision to a set of practices designed to achieve a particular aim, even one as amorphous as safety and soundness, miss the point. Supervision, as they see it, is inherently “resistant to efforts to impose a single defining ethos.”⁴ This is one of four subparts through which they further define supervision as the site “where public power meets private finance,” and “where super­visory discretion”—serving myriad evolving aims, usually established by the administration or Congress—“works as the risk absorber for the entire financial system.”

Consistent with Crowley’s view, this definition captures the way deposit insurance puts the government on the hook when banks fail, justifying the use of supervisory authority to minimize bank risk-taking and potential depositor losses. Consistent with Eccles’s view, the government is on the hook for far more than insured deposits. The government’s bottom line depends on tax receipts, which very much depend on the health of the overall economy. If banks are too hesitant to lend, and businesses fail to grow or close as a result, the slowed recovery hurts the country and the government far more than having to make some small depositors whole.

Conti-Brown and Vanatta’s non-definition works because it does not stand alone but rather opens up a volume in which they put meat on its bare bones through myriad episodes like the conflict between Eccles and Crowley. They suggest that supervision, by its nature, invites this type of contestation and evolution. Supervision, in their account, is a mechanism through which the government exercises power by shaping private risk-taking, It is thus quite pliable and can be effective in achieving a range of aims, even if it cannot achieve all of them at once.

The Bank Policy Institute, the trade association that represents the biggest banks, provides a pithier definition of supervision than the multipart shell proffered by Conti-Brown and Vanatta: “Bank supervision is a regime whereby over 5,000 government examiners oversee every aspect of bank operations. . . . In theory, supervision is meant to ensure that banks remain in safe and sound condition, but in practice, supervision has become operational control of our nation’s banks.”⁵

Conti-Brown and Vanatta show that the “but” should be an “and,” as it was the reputation for competence that supervisors earned by promoting bank safety and soundness that inspired policymakers to ask them to do so much more. Yet the two definitions are complements much more than they are competitors. Both suggest that supervision is about stability and much more; both are mindful of just how broad that “more” can be, and both highlight that the means through which supervisors affect bank behavior is by shaping the types and magnitudes of risks that banks are willing to assume. Yet for Conti-Brown and Vanatta, the additional four hundred pages are not just surplusage but vital to actually capturing the nature of supervision.

In refusing to pretend that supervision can be flattened or otherwise simplified, Private Finance, Public Power illuminates why history has surpassed economics as the methodology of choice for public intellectuals and others aspiring to that status. Only history can capture the multidimensional tradeoffs, the radical incompleteness of information possessed by key decision-makers—not to mention their inherent biases, the way powerful tools can serve as magnets for ideas both good and bad, and the overall messiness of the processes through which policy choices are made and implemented. There is not one episode, but many different episodes (carefully chosen from among who knows how many more options) needed to demonstrate the utility, limits, and uniqueness of supervision.

Structurally, the book proceeds chronologically, albeit with interludes at the end of each chapter that take the reader down a rabbit hole which the authors seem to have selected as particularly illuminating or perhaps just entertaining. This structure works. It shows that as malleable as supervision is, the way it is deployed at any given time is also quite contingent, dependent both on context and on the history that came before. Supervision is an aggregation that builds on itself rather than something that can be born anew at each juncture.

The overall picture painted in the volume is one that celebrates technocratic competence while simultaneously showing how that perceived competence invites lawmakers to harness supervision on behalf of expanding and evolving aims. It also shows that these different facets of supervision can never be entirely disentangled; there is no such thing as government free from politics, nor is there such a thing as a useful, flexible governmental tool that does not get redeployed to serve very different purposes from time to time.

Bankers, Politicians, and Technocrats

As a starting point, the book provides strong support for the notion that there is an important place for supervision as a complement to regulation in efforts to promote the resilience of the financial system. To oversimplify, the standard account builds on the assumption that between explicit deposit insurance and implicit too-big-to-fail guarantees (that seemingly now reach quite modest-sized banks), the government is often liable when a bank fails. Because shareholders get all of the upside, and the government bears much of the downside, banks will tend to take too much risk. Capital requirements and other regulations help mitigate this tendency, but such rules are inherently incomplete and often geared to prevent the last crisis. Since banks profit when they find innovative ways to comply with the letter while bypassing the spirit of the law, efforts to limit bank risk-taking only work if the rule book is complemented by a more flexible tool that can address this inevitable gamesmanship. Other characteristics readily attributable to bank management, from excessive optimism to incentives to delay and deceive, similarly create the need for a gap filler. Supervision is this tool.

In this account, the discretion given to supervisors is critical to their efficacy. It is what enables supervisors to mitigate threats before they become manifest. In the economics literature, this theory is supported by evidence showing that supervisors are in fact very good, most of the time, at identifying problem banks before they fail and at increasing scrutiny in ways that can help soften the blow when they do fail.⁶ Research also shows that heightened scrutiny by bank supervisors can enhance bank performance.⁷ For example, one study found that when healthy banks became subject to more rigorous supervision, the average bank improved operations in a way that enabled them to make more small business loans.⁸ Conti-Brown and Vanatta add teeth to these empirical findings. They show that while safety and soundness have never been the sole aims of supervision, supervision has often served as the “technocratic foundation” underlying a resilient financial system.⁹

Conti-Brown and Vanatta also provide rich support for the related notion that supervision plays an important role in information production, enhancing both internal and external assessments of a bank’s financial health. For example, empirical research shows that banks are often too slow to recognize expected losses accumulating in their loan portfolios and these delays can exacerbate the fragility of the banking system.¹⁰ Other research shows that supervision can help counteract these challenges; banks, for example, are more likely to recognize losses and issue restatements after supervisory examinations.¹¹ Conti-Brown and Vanatta provide qualitative support for these findings and illuminate how well-informed supervisors can mitigate the damage banking crises so often inflict on businesses and families. They show, for example, that bank supervisory information played an important and overlooked role in one of the most famous bank regulatory experiments of the New Deal: the bank holiday.

FDR was sworn in as president for the first time on Saturday, March 4, 1933. Two days later, he closed all of the banks. As FDR explained in his first fireside chat, he had declared the first and only national bank holiday because widespread bank runs threatened to cripple the already battered banking system. He then worked closely with Congress to devise a plan to restore the public’s faith in the banking system. In his effort to project calm, he wisely avoided going into detail about the ways further decimation of the banking system could inflict lasting damage on the economy and the arbitrariness of the losses depositors incurred when banks failed.

The story thus far is well known, at least among banking nerds, and so too is the fact that the government then undertook a staged reopening that was far more successful than many experts today might predict. The president’s decision to use the fireside chat to speak directly to people across the country, acknowledging their fears and providing assurance, was pivotal. But as Conti-Brown and Vanatta show, so too was the mountain of information that the Office of the Comptroller of the Currency (OCC) and other examiners brought to the table. That information allowed the government to make far more informed assessments of which banks were sufficiently sound that they could be opened quickly, which needed to be closed, and which required further scrutiny before being placed into one of those categories.

The government’s assurances, implicit and explicit, helped to rebuild the trust that had been lost in the banking system. But those assurances would have fallen apart had the government been less discerning or slower moving. And the government was able to proceed as effectively as it did only because of the information that supervisors had been gathering fastidiously for years prior to the bank holiday. They still made mistakes, but far fewer than they would have without the OCC’s supervisory team.

Weaving these strands together, one message running through Private Finance, Public Power is that supervisors are pretty good technocrats, and the banking system is healthier, and less of a threat to the real economy, when the rules governing banks are complemented by robust supervision. If supervision is rolled back, as the industry seems keen to have happen, there will likely be a cost to pay at some point in the future. But that is just one set of strands. There are others, with very different implications.

Another theme, if it may be called that, is that supervision has never been just about safety and soundness. As Conti-Brown and Vanatta tell it, competence has an underside. It has made supervision and supervisors into targets. When the administration or Congress wants to achieve something new and banks could help achieve their desired aim, policymakers know to enlist supervisors as accomplices. Sometimes, supervisors have come willingly, even enthusiastically, and have been quite effective; at other times, they have resisted and proven less helpful than hoped.

That supervision is a tool that can achieve a variety of aims is evident from the conflict between Eccles and Crowley. Crowley’s view is consistent with the narrow, dominant view of supervision as a complement in the government’s efforts to prevent excessive risk-taking by banks. Eccles recognized supervision could be used instead to promote risk-taking. The extent of government power that can come into play when examination is harnessed to its fullest comes through in the cause that put Crowley and Eccles on the same side: World War II.

Supervision beyond Stability

Within hours of the Japanese bombing Pearl Harbor, supervision became another front in the war effort. As Conti-Brown and Vanatta recount, supervisors became accomplices in the government’s efforts to identify and confiscate Japanese-owned and otherwise tainted property. They were also enlisted in the effort to help fund the war, encouraging banks both to buy Treasury bonds and to make loans to others so that they too could buy Treasuries. Without stepping down as Chair of the FDIC, Crowley oversaw much of this effort, taking on a new role as head of the office of Alien Property Custodian. Some of these initiatives were formalized in laws and regulations, but supervision was at the vanguard and remained helpful in implementation throughout the war. Despite, or perhaps because, this experience provided strong support for Eccles’s contention that supervision could be used to encourage targeted risk-taking, supervision was returned to its fragmented prewar status quo as the threat faded.

Other instances in which supervisors have been tasked with additional roles have proven less finite. Some prime examples, as Conti-Brown and Vanatta show, arose in the 1960s and 1970s, when Congress passed landmark civil rights legislation and other laws that sought to affirmatively redress discriminatory lending practices and promote consumer protection. The three federal bank supervisors uniformly opposed these expansions. It didn’t help that supervisors had often encouraged the very lending practices banks were now being asked change. Although they went along when Congress required them to, their efforts and the results were decidedly mixed.

Yet one of the more interesting revelations that emerges from these analyses is not the way supervisors slow walked implementation or the many controversies that ensued as the supervisory mandate evolved, but the reasons why examination functioned as the locus of these efforts. Conti-Brown and Vanatta wisely lift their gaze beyond the supervisors and lawmakers to draw into focus the civil rights leaders and consumer protection advocates who actively lobbied for these changes and who filed suit when supervisors dragged their feet. We learned that these organizations targeted supervision because they recognized, as the book’s title so aptly captures, that supervision is where private finance meets public power. Supervision was a site where they could use the arm of the state to change “private” risk-taking and thus change whom the private sector served and whom it exploited. This is what made super­vision a target for movements that wanted to upend long-standing hierarchies and institute their visions of more just economic systems.

Here again, the book’s insights regarding the capacity of supervision to change who has access to bank loans and on what terms finds support in the empirical work. One of the most striking findings from the economics literature is that in countries with “weak institutions,” more robust supervision can undermine the “efficient” allocation of capital. Put differently and to oversimplify the literature: robust supervision promotes better bank lending in countries that have well-developed legal and economic systems. But in places where the rule of law is less robust and corruption more common, increasing supervisory rigor has a very different impact. It makes it harder for well-run companies to obtain loans on reasonable terms, while making it easier for companies that are politically connected to obtain loans on favorable terms.¹² Without appropriate institutional checks, in other words, powerful supervisors seem to use their power to push banks to make more loans to those who have successfully curried favor with politicians, even at the expense of their capacity to make loans to otherwise deserving companies.

Significantly, perhaps because the United States was for a long time a country with strong institutions, Conti-Brown and Vanatta uncover little evidence that examination has been a locus where public officials have abused their power to serve private aims. The aims supervision has been asked to serve may be controversial, but the controversies Conti-Brown and Vanatta address are ones that were aired and resolved through the constitutionally prescribed processes through which this country makes law.

Nonetheless, the capacity for supervision to serve a range of aims beyond stability, albeit with mixed success, and the fact that some of those aims are less than legitimate complicates the effort to draw any clean policy lessons from their account. The discretion and opacity that are key to allowing supervision to work so well in the right setting also make it conducive to abuse.

Supervision in Our Time

Conti-Brown and Vanatta, as the exceptional historians that they are, have put together a work that ends in 1980 and yet lays bare why supervision is the site of so much current contestation. Supervision is both vital to promoting stability and is an inherently fraught endeavor. It is a site where the government exercises power in line with both technocratic and political ends.

Since I am not a historian, but a law professor interested in the transformation of the federal government now underway, I will take the liberty of concluding with some very presentist reflections. My main takeaway as I finished reading the volume is that the gutting of supervision—which I thought may be imminent during the second Trump administration—is far less likely than I had supposed. The authors convinced me that supervision is too powerful and flexible a tool for any administration to lay down voluntarily.

I doubt that this is a lesson the authors intended to convey. Their book does reveal that supervision has served a variety of aims, but it suggests that, in the United States, most of those aims emerged from the appropriate political processes. The executive branch may have taken the lead in repurposing supervision during World War II, but that too is consistent with the way the executive has often taken the lead during times of crisis and war. If anything, Private Finance, Public Power has notably few examples of supervision being abused to serve private aims.

Yet it is the book’s bigger lessons about the nature of the power embedded in the act of supervision that may well be the means through which we come to see the past as prologue. To make all of these abstract notions a little more concrete, supervision embodies how the second Trump administration is different than the first in ways that the banking industry either has not grasped or is hoping to ignore, and which the administration itself is perhaps only slowly waking up to.

The effort to remake supervision started during the first Trump administration, when Randal Quarles was serving as vice chair for supervision at the Federal Reserve. Supervision, in his view, should be regularized and made more transparent. He openly acknowledged tensions between supervision’s efficacy and these other aims. Yet as he explained in speeches at the time, in his view, these other values are fundamental to a liberal democracy and not adequately protected in the way supervision was being carried out. The tradeoffs thus tilted toward meaningful reform.¹³ Concerns that the Obama administration had used supervision to discourage banks from serving certain clients added a lot of fuel to this flame.¹⁴ Quarles made some progress reforming supervision during his tenure, but Covid and other events precluded the transformation he had hoped to see.

When President Trump nominated Fed Governor Michelle Bowman to serve as vice chair for supervision in the spring of 2025, the banking industry saw an opportunity to revive Quarles’s efforts and perhaps go even further than he had envisioned.¹⁵ News reports, thus far, suggest progress is being made, and I expect further wins are likely.¹⁶ Banks may well succeed in bringing about some overdue changes to the framework used for supervisory ratings and may well succeed in tilting the scales toward greater transparency and reduced discretion, even when there is a real cost to efficacy. But zooming out reveals how a very different set of dynamics may soon come to bear on the issue of supervision.

This administration has a more cohesive and comprehensive vision of how financial regulation fits into its broader policy agenda than any other administration in recent decades. Treasury Secretary Scott Bessent is leading this effort, and he has made his place at the helm clear. As he explained in a speech delivered at the Federal Reserve, at an event Vice Chair Bowman organized in July 2025: “I intend for Treasury to drive financial regulatory policy.”¹⁷

Bessent further set forth his priorities for financial regulation, calling for a scheme that “puts American workers first, prioritizes growth, safeguards financial stability, and protects our national security.” And he provided a laundry list of just how he intends to achieve these aims, highlighting: “We will. . . . We will. . . . We will. . . .” The “We” to which he referred seems to be the Treasury Department at the top of a coordinated effort to which all of the other financial regulators will contribute.

The administration has been laying the groundwork for a more coordinated and comprehensive approach to financial regulation since the inauguration. For example, less than a month after he was sworn into office, President Trump issued an executive order, “Ensuring Accountability for All Agencies,” requiring all of the regulators once deemed “independent,” including the Fed when wearing its financial regulatory hat, to submit to a White House oversight scheme long used to coordinate and direct rulemaking by executive agencies. This executive order is significant, for it both illustrates and operationalizes this new, more cohesive approach.¹⁸ The very setting in which Bessent delivered his July speech—inside a Federal Reserve building, following an introduction and welcome from Fed Chair Jerome Powell—bespeaks the shift underway. Right now, this may be adding to banks’ hopes of a new dawn. They might hope the administration is sufficiently organized and motivated to bring about real change in how supervision is carried out, despite the frictions that always arise when trying to change bureaucratic practices.

But it also means that it is the White House and Treasury, not the bank regulators, that banks must win over to bring about the desired reforms. And as Bessent’s speech reflects, this is an administration that is very attuned to the notion of financial regulation as a toolkit that it can use to further other priorities. This also comes through in other actions by this administration. In August, for example, the White House issued an executive order entitled “Guaranteeing Fair Banking for All Americans.” It grows from the premise that “[f]inancial institutions have engaged in unacceptable practices to restrict law-abiding individuals’ and businesses’ access to financial services.”¹⁹ And it directs the Treasury Secretary to “develop a comprehensive strategy . . . to eliminate such debanking.”²⁰

The framework for understanding supervision developed by Conti-Brown and Vanatta is very useful here. If excessively strict supervisory practices are the reason some people and companies have been denied access to bank accounts, weakening supervision may allow more people to access financial services. If, however, it is not supervisory rigor that is leading to the denials, but banks are instead denying accounts because of their own risk-based compliance systems to detect and prevent money laundering, the picture looks very different. In that instance, a “comprehensive strategy,” may well include calling on bank regulators to use their supervisory authority to encourage banks to assume more risk when vetting potential customers. And because this administration cannot prevent future enforcement of the anti-money laundering laws that Congress has put into place, banks may face future liability for weakening or overriding their internal compliance procedures.

The anti-money laundering regime is a mess, so it may be easy to dismiss this example. But this is an area where it certainly looks like the administration may pressure banks to take on more of a certain type of risk in order to further the administration’s priorities, which is very different than merely reducing regulatory burdens so banks can take on more of the risks that they want to take. Moreover, supervision could well be an effective tool to bring about a meaningful and timely change in how banks onboard clients. So supervisors will best be able to help the administration bring about the desired changes in bank behavior, but they will have far more capacity to do that if they retain much of the discretion they currently enjoy.

More to the point, this is but one small example of a much broader phenomenon. Bessent seems to have Eccles’s capacity to see interconnections across domains. He is correct in seeing in financial regulation an instrument for the pursuit of the administration’s broader objectives, from promoting growth to furthering the range of objectives this administration has laid out as part of its national security strategy. And Bessent seems to be making progress in learning how to seize and wield that instrument.

All this suggests that the very terms the industry is currently using to build support to defang supervision may well invite a very different response. Recall that it was the Bank Policy Institute that has taken the position that “in practice, supervision has become operational control of our nation’s banks.”²¹ This definition is likely to send tremors through the hearts of Reagan Republicans and those like Quarles who are committed to a robust version of “rule of law” values. But it reads like an invitation to those, on both the right and the left, seeking levers to enhance the effective power of the federal government that they can use to further their own preferred agenda.

Private Finance, Public Power suggests some tempering is warranted on both sides, as supervision’s power and malleability are both more constrained than the industry’s description might seem to indicate. But it also suggests that there are good reasons for those who worry about government abusing its authority to focus on supervision, and there are equally good reasons for why governments seeking to accomplish big things may be loath to handicap supervision as a potent policy instrument.

Reading history is always a lesson in the dangers of hazarding predictions. Supervision may yet become a shell of what it was. But the rich tapestry that Conti-Brown and Vanatta weave in Private Finance, Public Power leaves me skeptical that such an outcome is imminent. More interestingly, their work suggests that the superficial partisan debate now underway, with Republicans seemingly more amenable to weakening supervision and Democrats seeking to defend it, may elide the issues that will look important when this era becomes the subject of history books.

This article originally appeared in American Affairs Volume IX, Number 4 (Winter 2025): 26–38.

Notes