Many claim that, when he became secretary of the treasury, Chase did not know much about banks and banking. This is not true.
From 1832 through 1843, Chase served as the solicitor in Cincinnati for the Second Bank of the United States. At the outset of this period, the Bank was the largest financial institution in the United States; by the end of this time, after Andrew Jackson refused to renew the Bank’s federal charter, and pulled the federal deposits out of the Bank, the Bank was in liquidation. Most of Chase’s work for the Second Bank was collecting debts, or reviewing files to determine whether the Bank could collect on a particular debt.
More important, in terms of Chase’s banking resume, he served as a director from 1834 through about 1842 for the Lafayette Bank of Cincinnati. Chase also handled the Bank’s legal work during this period and far beyond; there is an 1848 bankruptcy case in which Chase represented the Bank. As a director, Chase was involved in the business of the Bank not just its legal work. Indeed his diary for 1840, more complete than for other years, suggests that he visited the Bank almost daily and attended frequent meetings of the board.
Last night I was reading an ancient article about banks in Ohio and came across an interesting sentence, stating that the Lafayette Bank of Cincinnati had tried and failed in 1839 to obtain an injunction against inspection of the bank by the state’s bank commissioners. I wondered: was Chase the lawyer seeking this injunction? What were the issues? A bit of research revealed the following:
In February 1839, the Ohio legislature, dominated by Democrats, passed a law imposing certain rules on Ohio banks and creating a state bank board composed of three bank commissioners. Section 2 of the statute provided that:
“It shall be the duty of said board of commissioners, or any one of them, at least once in every year, to visit every banking institution in this state, without previous notice, and thoroughly to inspect the affairs of said institutions; to examine all the books, papers, notes, bonds and other evidences of debt of said institutions; to compare the funds and property thereof, with the annual statements made by such bank to the auditor of state, and the statements hereinafter provided for; to ascertain the quantity of specie the said institutions have on hand; and, generally, to make such other inquiries as may be necessary to ascertain the actual condition of the said institutions, and their ability to fulﬁl all the engagements made by them.”
Today this seems pretty standard stuff. Banks are subject to bank regulation, and bank regulators have the right to visit banks and inspect their records. In 1839, however, this was new and somewhat controversial. One Ohio Whig paper claimed that the Democrats created the bank board “to create three fat offices, to be filled by some of their cormorant partisans, that thus the party may have three stout electioneers constantly perambulating the state at the expense of the people!”
The bank commissioners arrived in Cincinnati in May 1839 to inspect the local banks, of which Lafayette was one of the largest. Not long thereafter, the Cincinnati Advertiser, a Democratic paper, reported that Lafayette Bank’s attempt to obtain an injunction against inspection by the bank commissioners had been rejected. “On the policy, propriety or necessity of the application for such an injunction we make no comment; our readers can draw their own conclusions and act accordingly.” The Advertiser was suggesting that the Lafayette Bank had something to hide, that customers should withdraw their funds. Since banks failed frequently in these days, and since depositors were not protected by federal deposit insurance, this was a serious threat to the Lafayette Bank.
The Cincinnati Gazette, a Whig paper, defended the Lafayette Bank. The editor spoke with one of the two judges who explained that they could not rule on the requested injunction because they were shareholders in another state bank and the arguments would affect all state banks. After another attack in the Advertiser, the Gazette editor spoke with “the best source of information—Mr. Chase, the counsellor alleged to have prepared the motion. His information corresponds with that received from the judge. Notice of the motion was given; the bill and exhibits were prepared. These were handed to the judges, for perusal out of court, a common practice, adopted to save taking up time in reading them to the court. Mr. Hatch, one of the commissioners, conversed with the judges, and expressed his wish that the case should be acted upon. But the court declined to act, as I have stated. No motion was made in court, no opinion was expressed or intimated by the Judges. Such are stated by Mr. Chase, the counsel, to be the facts.” Ohio State Journal, May 29, 1839, quoting Cincinnati Gazette.
This was for me the “aha moment.” As I suspected, Chase was the author of the motion for the injunction. So he is not just a “banking lawyer” in the sense of serving as the lawyer for banks as they chase debtors; he is a “banking lawyer” working on the extent of the bank regulator’s authority over a regulated bank. And he is involved in bank politics: Chase is himself at this time a Whig, his bank is perceived as Whig, and he is prepared to challenge in court a Democratic banking commission.