Omni College Plus Up to October 2019

(3) National banks were allowed to engage in previously off-limits investing activities,
including buying real estate and purchasing subsidiaries.
(4) Both state and national banks were prohibited from having branches in more than one
state.
Provisions (1)-(3) gave national banks more power than they previously had, and
provision (4) prevented state banks from becoming multi-state entities in an effort to regain their
lost competitive advantage (Conti-Brown 2017).
From McFadden to Riegle-Neal
There were two sides to the McFadden Act, in that it gave national banks powers that
they previously didn’t have, while subjecting all banks, including national banks, to severe
restrictions, the most obvious one being the prohibition on having branches in multiple states.
These two aspects of the McFadden Act reflect the public’s ambivalence at that time towards
banks (Rajan et al., 2015). On the one hand, the public was distrustful of banks and wished to
prevent the emergence of a banking monopoly or oligopoly: hence the fourth provision. On the
other hand, the country was prospering, and the public believed the Federal Reserve System to
be at least partly responsible for this: hence the first three provisions (Bernanke 2017).
According to some experts, the extra powers now had by national banks led to reckless
behavior on their part that helped bring about the Crash of 1929. Whether or not this is true, the
bill that led to the McFadden Act almost certainly would not have passed had Congress voted on
it right after the 1929 Crash, instead of right before it (West 2019).