• Before railroads appeared on the scene, banks were by far the most controversial corporations.  Hamiltonians, who envisioned America as a centralized nation relying heavily on industry and trade, viewed banks as essential to that vision and to achieving greatness for the nations.  Jeffersonian and, later, Jacksonian Democrats, who wanted a more localized and less industrial society, viewed banks as a threat to their vision and, because of their great financial power, as a threat to democracy itself.  New York was a central battleground for these competing visions.

• In New York, Martin Van Buren’s liberal “Bucktail” Democrats recognized that banks were needed to provide capital for a rapidly growing state, but they were concerned about excessive bank power.  They did not prohibit banking in the state’s 1821 constitution s but required a 2/3 vote of the legislature for all new corporate charters, thus effectively restricting bank growth.  In 1829, a Democratic legislature enacted a Safety Fund Law that allowed banks to incorporate more freely but placed them under close regulation and created a state banking commission, the first state financial regulatory agency in America.

Key cases:

Thomas v. Dakin – New York, 1839 (22 Wendell 81); Warner v. Beers – New York, 1840 (23 Wendell 103); DeBow v. People – New York, 1845 (1 Denio 13); Gifford v. Livingston – New York, 1845 (2 Denio 380)

• In 1838, in the midst of a depression caused in part by banking restrictions, Whigs took control of the legislature and passed a more liberal banking law.  But the law passed by less than a 2/3 majority, and a prolonged battle over the law’s validity that illuminated Americans’ continuing anxieties about the role of banks in a modern democracy.

• In Dakin, New York’s supreme court held that the 2/3 rule of the 1821 constitution applied to banking laws.  But the following year, in Warner, the Court of Errors and Appeals – composed partly of judges and partly of state senators, many of whom had voted for the 1838 law – overruled Dakin.  They reasoned that an exception must be made to the 2/3 rule because the new law promoted equality of opportunity, which after all was a primary goal of the 1821 constitution.  Four years later, in DeBow, the supreme court struck back, defending its decision in Dakin and dismissing Warner as a legislative, not a judicial decision.  But in Gifford, the Court of Errors and Appeals had the last word, holding by a small majority that Warner was decisive and that the 2/3 rule did not apply to the 1838 banking law.