Courtesy of Heritage Auctions, ha. com
$ 1 bank note from the Pratt Bank of Buffalo, circa 1850s.
With this supervisory reassurance, pressure on the Pratt Bank subsided. Indeed, the Canal Bank’ s examiners later discovered that the Pratt loans were dummy entries that allowed the Albany bank’ s officers to lend still more money to themselves.
The public exoneration of the Pratt Bank suggests the one benefit of New York’ s examination system: The state could vouch for the soundness of suspect banks. Given the state’ s deep partisanship and the earlier failures of the Safety Fund’ s examination regime, it is not obvious that market participants would always credit such state pronouncements. The real weakness of supervision on suspicion, as Fillmore understood, was that undertaking public oversight in any but the direst circumstances posed an extreme danger.“ Because it is known that an examination can only be made where there is ground of suspicion, the very fact of making it brings discredit upon the bank,” Fillmore observed.
Fillmore had a solution: He called for annual examinations, undertaken by surprise, and“ left to [ the comptroller’ s ] discretion whether the report of such examination should be published.” Such a system“ would tend greatly to restrain any abuse and to prevent fraudulent practices,” an observation keenly informed by the Canal Bank’ s years of illegality and
mismanagement. Surprise examinations, undertaken by public officials and published at supervisor discretion was a risk management system that had not been tried before. It was also one with an obvious conceptual flaw: Would the comptroller publish only the bad reports or only the good reports?
Fillmore, though, was on his way up and out; the legislature declined to adopt his proposals. In 1854, lawmakers transferred the latent examination authority to the state banking superintendent, the official charged with overseeing New York’ s free banking system. Throughout the 1850s, state banking officials remained dissatisfied with the scope of their authority, while bankers found new ways to avoid the limited powers officials did have.
By December 1858, Superintendent James M. Cook had had enough. Cook, a Whig-turned-Republican, served as a state senator, comptroller and nearly secured the Republican nomination for governor. He picked up Fillmore’ s critiques and carried them forward. The power to examine on suspicion of wrongdoing or insolvency, he argued, created the false impression that the superintendent had the capacity to determine when reports were fraudulent, or to somehow detect bank insolvency through the reports bankers filed themselves.“ Figures and affidavits are never made by bank officers to expose insolvency or defalcations. They, the figures, are most useful adjuncts to conceal the real condition of affairs.”
Worse, Cook found that bankers— subject to the damning scrutiny of examination— further avoided even weak public oversight by throwing themselves upon the mercy of friendly courts. In his one attempt to exercise his examination authority, Cook complained,“ by the time his agent had obtained a slight insight into the real condition of the affairs of the bank, he was politely met by its receiver, appointed by the court at the solicitation of the officers themselves and told that his duties were ended, and that the property and effects of the bank were beyond his control and power, even for examination.” Once in the hands of a court-appointed receiver, the bank was no longer subject to administrative oversight.
The law, Cook complained, gave a public imprimatur to private lies that the superintendent was powerless to root out. The implicit promise that the superintendent could investigate created“ an ostensible responsibility” for verifying the truth of bankers’ statements“ which it is utterly impossible... to fulfill.” Instead of following Fillmore’ s call for permanent public
14 FINANCIAL HISTORY | Fall 2025 | www. MoAF. org