The Interstate Commerce Act created the first US federal regulatory agency, which helped shape financial markets and served as the model for many regulators that followed.
On February 4, 1887, President Grover Cleveland added his signature to the bottom of two pages of hand-written legislation that would create the first US federal regulatory agency and impact financial markets for years to come. The Interstate Commerce Act‘s key creation, the Interstate Commerce Commission (ICC), would also serve as the model for many of the regulatory agencies that followed.
By the late 1800s, railroad companies dominated shipping and transportation in the US. Several states had tried to curb railroad companies’ growing power and address perceived abuses. But in 1886, the Supreme Court ruled that state efforts to regulate interstate commerce were unconstitutional. That decision pushed Congress to create the Interstate Commerce Act.
The act attempted to counteract rate-fixing among railroads and made it illegal to charge customers different rates for the same service. It also empowered the ICC to investigate and prosecute railroads that violated the act. The ICC’s jurisdiction eventually extended beyond railroads to all common carriers including long-haul trucking, interstate bus lines, and even telephone companies. Only airlines were outside the ICC’s purview.
In 1906, the ICC gained the power to set the maximum rates that railroads could charge. Railroad shares tumbled, helping spark the first worldwide financial crisis of the 20th century. This Panic of 1907 led to the creation of the Federal Reserve System.
By the 1980s, a wave of deregulation had washed away much of the ICC’s authority. Congress terminated the agency in 1995 and transferred most of its remaining duties to the new Surface Transportation Board.
While it’s extinct, the ICC’s influence can still be felt in markets and the current regulatory environment. The ICC’s structure—a commission sitting between Congress and the public—served as the model for many other market-impacting federal regulatory agencies that followed such as the Federal Trade Commission, the Federal Communications Commission, the Consumer Product Safety Commission and the Securities and Exchange Commission.