More lives than a cat: a state and federal history of bank deposit insurance in the United States, 1829-1933

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