They fear their regulators. More than anything else (almost), bankers live in fear of those who supervise them. Regulators—think of Office of the Comptroller of the Currency for national banks and the Federal Reserve for state-chartered banks—are empowered to ensure that banks are run prudently. Their operatives, bank examiners, conduct periodic on-site and continuous remote monitoring of every bank, large or small.

Bank examiners have the ability to strike fear in the hearts of the executives running the deposit-taking and loan-making institutions around the country, regardless of size. They can put banks out of business or can force them to pull back from virtually any aspect of their businesses.

That makes bank examiners very powerful. In 1937, the country was starting to slide back into the deepest of the depression’s abyss. Although bank balance sheets had been repaired and loans should have been readily available, once-scarred lending officers were not about to stick their necks out. Credit was simply not available, although bank liquidity ratios were high. As the story goes, the Federal Reserve and the Treasury gathered the bank examiners, told them to go forth and tell their banks: Make loans or else. The “or else” was a nuanced threat to make life hell for the banks that didn’t get the message. It worked. Credit became much easier to access, the economy ceased its swoon and times became better.

The same is apt to be true today, but upside down. Bank examiners will be looking for excess, for deteriorated standards and any other signs of non-conservative practice. It will do what the Fed would otherwise—yet more tightening of rates. The examiners by suasion will do what is needed to further curtail price pressures. The fear of regulatory wrath will be a major tool in fighting inflation, an even more powerful tool than interest rates themselves. It is likely to be an effective substitute for further Fed rate hikes. The examiners hold the hammer.

George Ball is chief executive officer of Sanders Morris Harris in Houston.