Banking: The financial Industry has always been wrong about the dangers of regulation.

A study of recent—and not so recent—financial reform and regulation yields two rules. Rule No. 1: The banks have no idea what kind of regulation is good for them. Rule No. 2: If you ever think the banks have a point, remember Rule No. 1.

This rule dates almost to the beginning of banking history. Many commercial banks in the United States opposed the creation of the first and second national banks of the United States in the late 18th and early 19th century. They saw the proto-central bank as competition, since it was essentially a congressionally chartered private bank that would compete with them. As a result, the United States, in contrast to economic rivals England and France, lacked a central bank in the 19th century—despite periodic banking panics and failures, the severity of which could have been mitigated by a central bank. It was only after the Panic of 1907 that forces were set into motion for the creation of a central bank. Would it surprise you to learn that many bankers and their political allies opposed the creation of the Federal Reserve? Didn't think so.

The same dynamic returned in the 1930s, after Wall Street and the commercial banking sector had essentially destroyed itself. The banking industry had proved utterly incapable of ensuring the safety of its customers' deposits. Yet when the Roosevelt administration proposed the establishment of an industry-funded Federal Deposit Insurance Corp., Francis Sisson, then president of the American Banking Association, called deposit insurance "unsound, unscientific, unjust, and dangerous." After all, "overwhelming opinions of experienced bankers are emphatically opposed to deposit guaranties which compel strong and well managed banks to pay the losses of the weak."

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