By Peter Conti-Brown and Sean H. Vanatta
To the extent that Millard Fillmore, the 13th president of the United States, is remembered, it is not as a banking reformer. He’ s hardly remembered at all, one of a string of 19th-century presidents unable to halt the nation’ s march toward civil war. In his brief stint as New York’ s chief bank supervisor in 1848 and early 1849, however, Fillmore discerned the key failings of the state’ s financial oversight regime. Being Fillmore, he did little about it.
Born in a log cabin in upstate New York, Fillmore made his name as a Buffalo attorney and politician, first as an anti-Mason opposed to the candidacy of Andrew Jackson, and later as a Whig. He was a prominent member of the House of Representatives in the late 1830s and briefly retired to private life in the early 1840s before being elected New York State comptroller in 1847 on the way to the vice presidency in the election of 1848.
As comptroller— the state’ s chief fiscal officer— Fillmore inherited a vestigial bank supervisory authority, one which he deemed wholly insufficient. At the time, most bank oversight came through the market, as noteholders and depositors made judgements about banks’ safety and soundness through their daily interactions with these financial institutions. Market surveillance was aided by a system of state mandated reporting, which required banks to publish their balance sheets at regular intervals.
In 1843, the New York legislature granted the comptroller the power to examine banks only when credible information suggested they had filed false reports or were in unsound condition. How the comptroller would acquire such information without prior access to the innerworkings of the banks was left unstated.
Official portrait of Millard Fillmore by George Peter Alexander Healy, March 4, 1857. Before he became the 13th president of the United States, Fillmore served a brief stint as New York’ s chief bank supervisor in 1848 and early 1849.
Fillmore’ s examination authority was a weak echo of what had come before: In 1829, the legislature enacted the Safety Fund Act, legislation which established a liability insurance scheme designed to protect the state’ s banking system by protecting bank noteholders and depositors from loss in the case of bank failure. To ensure that insured banks were sound, the Act also created a board of bank commissioners, who were empowered to undertake quarterly examinations. The bank commissioners visited the insured banks, inspected their books, interviewed their officers and tried to guide banks toward safety and stability.
New York’ s bank commissioners had little power to change bank behavior. They could advise, not compel. When the twin panics of 1837 and 1839 swept away many of the state’ s banks and bankrupted the safety fund, lawmakers did not seek to strengthen bank examination as an administrative function. Instead, in 1843 they abolished the board of bank commissioners and with them largely— though not entirely— abolished examination as well.
What remained for Fillmore was supervision on suspicion of fraud or insolvency. When creating this power, New York lawmakers added a new feature: Whenever the comptroller used this exceptional examination authority, the law required that he publish the results in the newspapers for the benefit of the public. Examination would thus be an adjunct to the reporting and market surveillance regime, providing information to private bank counterparties, without any scope for negotiation with bankers or discretion by state officials( it was more than a century before Congress would begin the process of rendering any such disclosure completely illegal).
Writing in January 1849, on the eve of assuming the vice presidency, Fillmore castigated the state’ s system of examination on suspicion as a wholly inadequate compromise between public and private risk management.“ Whatever might have been the object, there can be no doubt that the effect of this law is to prevent examinations that might be useful,” Fillmore complained.
Fillmore’ s ire had been raised by the failure of the Canal Bank of Albany in 1848 and the near failure of other banks connected with it. There was a political element to this dispute. Democrat Edwin Croswell, newspaper editor and Fillmore’ s political rival, controlled the Albany bank. Early in July, Fillmore had“ heard some intimations unfavorable to the [ bank’ s ] solvency,” and under the provisions of the law, he dispatched two examiners. Upon arrival, they immediately took possession of and closed the bank. The partisan press leapt on the story, gleefully skewering Croswell and his partners.“ Among the many disgraceful bankruptcies in this State, there has probably never occurred one worse than this,” the Albany Atlas, a rival paper, chortled.
The media reaction may not have been hyperbole. Fillmore’ s examiners found utter chaos inside the bank. The bookkeeper had“ grossly neglected his business” leaving the books of the bank in“ mystified and confused condition.” After five days of work, state officials could only offer a partial report. They identified more than $ 300,000 in liabilities, including $ 189,000 in circulating notes and $ 63,000 in state deposits, against $ 1,102 in coin and“ good current bank bills not exceeding ten or fifteen dollars.” When they presented their full findings a month later, the examiners reported a nearly $ 200,000 hole in the bank, caused by the officers’ habit of lending freely to“ particular favorites” and to themselves.
Examination on suspicion of insolvency provided no check on the“ illegal and improper practices” that had“ for some years been perpetrated by bank officers.”
That is not to say that examination on suspicion was useless: It could quell unfounded rumors against sound banks. Immediately after the Canal Bank’ s failure, Thomson’ s Bank Note Reporter listed the Pratt Bank of Buffalo as holding a large redemption account with the Albany bank. This was an error Pratt’ s officers sought to correct, yet the Canal Bank’ s examiners initially found supporting evidence in a $ 91,000 debt owed by the Pratt Bank on the Albany bank’ s books. In light of this apparent debt,“ calculated to arouse at once … a strong suspicion of your stability,” Fillmore ordered an examination of the Pratt Bank. Soon after, Fillmore published a brief report, which found the bank“ in sound condition and prudently managed.”
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