Adair Turner, whose insights into finance among other contributions got him promoted to Lord Turner, has concluded that lending on housing and other real estate is by far the largest creator of systemic financial risk and banking busts. This conclusion is clearly correct. Among the principal recommendations of his highly interesting 2016 book, Between Debt and the Devil, is that governments must therefore work to constrain banks’ real estate loans and act to limit their recurring tendency to expand into booms and bubbles.

This is precisely the opposite of the historical policy of the American government, which has usually been to enthusiastically promote the inflation of housing credit and denounce the ensuing busts.  Currently, the U.S. government guarantees about 60% of all outstanding mortgage loans and its central bank has created money to the tune of $1.8 trillion to inject into housing finance.

In this context, we reflect on the highly suggestive symbolic shifts in the names of the Congressional committees with jurisdiction over banking.

From 1913, when it was formed, to 1971, the relevant committee of the U.S. Senate was named the Committee on Banking and Currency—a logical and consistent name.  In 1971, the name was changed to the Committee on Banking, Housing, and Urban Affairs—a very different combination of ideas, displaying interest in very different political constituencies. Shortly before, the Congress had restructured Fannie Mae into a government-sponsored housing finance enterprise, and created another one in Freddie Mac, both actions with momentous but unintended future results.

The Committee on Banking, Housing, and Urban Affairs the Senate committee remains.  This displays, as Lord Turner’s view suggests, an overemphasis on housing.  And “Urban Affairs”? The name change is strikingly supportive of Charles Calomiris’ theory that the dominant coalition in U.S. banking politics shifted in the latter 20th century from an alliance of small banks and rural populists, to one of big banks and urban populists.

The relevant committee in the U.S. House of Representatives for 110 years, starting in 1865, had the same historical name: the Committee on Banking and Currency.  In 1975, this was changed to the Committee on Banking, Currency, and Housing.  Promoting housing finance was gaining focus.  Then in 1977, the name became the Committee on Banking, Finance and Urban Affairs.  “Currency” had lost out.  This was during the 1970s, a decade of runaway consumer price inflation, in which an emphasis on controlling the currency might have been useful.  As in the Senate, “Urban Affairs” represented important Democratic Party constituencies and accompanied the government promotion of expanding housing finance.

The House committee’s name changed in the opposite direction in 1995, with a Republican Party majority in the House for the first time in four decades, mostly maintained since then.  It became the Committee on Banking and Financial Services, then in 2001, simply the Committee on Financial Services.  The new name reflected the committee’s greatly expanded jurisdiction, most notably to include the securities industry.  In recent years, this committee has been the Congressional center of trying to reform housing finance along market lines, and in particular, to reform Fannie Mae and Freddie Mac.  These efforts have yet to succeed, unfortunately.

“What’s in a name?”  Nothing, as Shakespeare makes Juliet argue?  Or, over the last several decades, would committees which focused on “banking and currency” have behaved differently from ones diligently expanding their banking interventions to include “housing and urban affairs”?

Featured Publications