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A State and Federal History of Bank Deposit Insurance in the United States, 1829-1933

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A State and Federal History of Bank Deposit Insurance in the United States, 1829-1933 GATES, SARAH JANE, Ph.D. More Lives than a Cat: A State and Federal History of Bank Deposit Insurance in the United States, 1829-1933. (2017) Directed by Dr. Charles C. Bolton. 360 pp. This dissertation traces the history of state and federal bank deposit insurance from the first state program enacted in 1829 to the creation of the Federal Deposit Insurance Corporation (FDIC) in 1933. I seek to correct a common misperception that federal deposit insurance was part of the legislative agenda of Roosevelt’s New Deal. Not only was Roosevelt not in favor of the measure, he actively opposed it. Behind this misperception is one hundred years of history of state bank insurance programs and forty years of advocacy at the federal level. This study argues that the call for government bank insurance was a recurring democratic impulse that emanated from the developing, rural economies in the periphery of an expanding nation. The advocates of this legislation sought to use the power of the state to stabilize banking and currency in an expanding market economy in order to better tie the rural periphery to its commercial and financial center. This study is both the history of a bank regulation and the history of a legislative idea whose champions and effects cut across geographic, economic, political, and social boundaries. The first state bank insurance program was formulated in the unique political economy of New York in 1829 at a time when the federal government guaranteed the credit of the United States, but only part of the money supply: specie, government-minted gold and silver coins, but neither bank notes nor bank deposits. State bank insurance programs then spread west to five more states before the Civil War. After the Civil War, bank insurance programs were called for at a time when the credit of the federal government had expanded to guarantee bank notes, but not bank deposits. After the Panic of 1907, eight more states enacted deposit insurance programs. The call for deposit insurance at the federal level began in 1886. The legislative idea was handed down through one hundred and fifty bills and three generations of progressive Democrats from the Middle West and South before FDIC was created in 1933. Government- managed bank insurance represented a renegotiation of the balance of power between the state and private banks to use the power of the state to distribute default risk across all banks, from the weakest to the most powerful. An underlying institutional argument of this study shows that state power was a precondition of government bank insurance and how the state’s credit ultimately became the source of the guaranty. The federal guaranty of bank deposits was not cut from whole cloth in 1933; it was a recurring democratic impulse from the periphery of American capitalism that can be traced to the beginning of the Republic. MORE LIVES THAN A CAT: A STATE AND FEDERAL HISTORY OF BANK DEPOSIT INSURANCE IN THE UNITED STATES, 1829-1933 by Sarah Jane Gates A Dissertation Submitted to the Faculty of The Graduate School at The University of North Carolina at Greensboro in Partial Fulfillment of the Requirements for the Degree Doctor of Philosophy Greensboro 2017 Approved by Charles C. Bolton Committee Chair To Jim, whose support for this project never wavered. ii APPROVAL PAGE This dissertation, written by Sarah Jane Gates, has been approved by the following committee of the Faculty of The Graduate School at The University of North Carolina at Greensboro. Committee Chair Charles C. Bolton Committee Members Greg O’Brien Mark Elliott Jeffrey W. Jones October 20, 2017 Date of Acceptance by Committee October 20, 2017 Date of Final Oral Examination iii TABLE OF CONTENTS Page LIST OF TABLES ............................................................................................................. vi CHAPTER I. INTRODUCTION ................................................................................................1 II. JOSHUA FORMAN, MARTIN VAN BUREN, AND THE ROLE OF THE STATE IN THE CONQUEST, SETTLEMENT, AND ECONOMIC DEVELOPMENT OF WESTERN NEW YORK DURING THE EARLY FEDERAL PERIOD, 1787-1828 ...........................21 Head of the Dog: The Role of the State in the Conquest and Settlement of Western New York, 1787-1806 ......................................24 The Erie Canal: The Role of the State in the Economic Development of Western New York, 1807-1828 ..................................42 III. MARTIN VAN BUREN, JOSHUA FORMAN, THE NEW YORK SAFETY FUND, AND THE SPREAD OF STATE BANK INSURANCE WEST ALONG THE AMERICAN FRONTIER, 1829-1866 .....................................................................................................61 Banking, Bank Panics, and Bank Regulation in the Early Federal Period .....................................................................................................65 Rise of the Democratic Party and the Creation of the Safety Fund ...........76 Expansion of Bank Insurance Programs West ...........................................98 IV. THE EXPANSION AND DENIAL OF FEDERAL GUARANTY OBLIGATIONS DURING THE NATIONAL BANKING ERA, 1863-1913 ....................................................................................................105 Federal Guaranty Supplied: The Circulating Medium, 1863-1865 .........107 Federal Guaranty Denied: The Failure of the Freedmen’s Savings and Trust Company, 1874 ....................................................................119 Federal Guaranty Supplied: The U.S. Postal Savings System, 1910 .......138 iv V. ROBERT L. OWEN, THE OKLAHOMA DEPOSIT INSURANCE LAW, AND THE SPREAD OF STATE DEPOSIT INSURANCE IN THE AMERICAN FRONTIER, 1907-1929 ...............................................157 Robert L. Owen, Jr. ..................................................................................166 The Oklahoma Program ...........................................................................174 The Spread of State Deposit Insurance Programs ....................................181 VI. WILLIAM JENNINGS BRYAN, ROBERT L. OWEN, AND THE RISE OF FEDERAL ADVOCACY FOR DEPOSIT INSURANCE FROM THE MIDDLE WEST, 1886-1919..................................................221 Legislative Phase I, 1886-1906 ................................................................229 Legislative Phase II, 1907-1919 ..............................................................244 VII. HENRY B. STEAGALL, FEDERAL DEPOSIT INSURANCE, AND THE “MID-CONTINENT REVOLUTION,” 1920-1933 ...........................274 Legislative Phase III, 1920-1933 .............................................................274 VIII. CONCLUSION .................................................................................................327 IX. EPILOGUE .......................................................................................................335 Acknowledgments....................................................................................337 BIBILOGRAPHY ............................................................................................................343 v LIST OF TABLES Page Table 1. The Growth of State and National Banks and Bank Deposits in Oklahoma, Kansas, Texas, and Nebraska, 1908-1913 ...............................212 Table 2. Legislative Phase 1: Federal Deposit Insurance Bills by Decade & Political Party, 1886-1906 ...........................................................................230 Table 3. Legislative Phase 1: Federal Deposit Insurance Bills by Decade & Region, 1886-1906 ......................................................................................231 Table 4. Five-Year Subscribers to William Jennings Bryan’s The Commoner, as of Dec. 1907 .................................................................................................243 Table 5. Legislative Phase II: Federal Deposit Insurance Bills by Historical Context and Party, 1907-1919 ....................................................................247 Table 6. Legislative Phase II: Federal Deposit Insurance Bills by Historical Context & Region, 1907-1919 ....................................................................249 Table 7. Legislative Phase II: Federal Deposit Insurance Bills by Historical Context and by States with Deposit Insurance Programs, 1907-1919 ........256 Table 8. Legislative Phase III: Fed. Dep. Ins. Bills by Historical Context & Political Party, 1920-1933 ...........................................................................277 Table 9. Legislative Phase III: Fed. Dep. Ins. Bills by Historical Context & Region, 1920-1933 ......................................................................................278 Table 10. Federal Deposit Insurance Bills: Source of the Guaranty and Sources of Funding by Legislative Phase, 1886-1933 ..................................................292 vi 1 CHAPTER I INTRODUCTION The Federal Deposit Insurance Corporation (FDIC) is commonly known as a legacy of the New Deal. Even the gift shop of the Franklin Delano Roosevelt Presidential Library sells t-shirts printed with the FDIC logo along with the alphabet soup of New Deal program acronyms. Above and below the sea of acronyms is a quote from historian Arthur Schlesinger, Jr.: “The world we live in today is Franklin Roosevelt’s world.”1 Roosevelt may have signed the Banking Act of 1933, which created the FDIC, but he did not support the measure. In fact, he ardently worked to defeat it. Although FDIC is commonly thought of as part and parcel of FDR’s legislative agenda, the provision
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