Revolving door governance: bank supervisors in the United States, 1863–1933

ABSTRACT

From the founding of the National Banking System in 1863 until the New Deal in the early 1930s, ‘revolving door governance’ was foundational to financial oversight in the United States. The institutional design of bank supervision encouraged officials to hire early-career bankers who would bring professional knowledge and social capital into government service; who would develop further knowledge, skills, and professional contacts in government service; and who would continue their careers in private employment. In this way, federal officials sought to improve bank performance through public oversight and through the private careers of former supervisors. Revolving door governance, as a means of harnessing professional expertise for public purposes, emerged in the nineteenth century in the absence of organized professions and endured through banking professionalization and the institutionalization of bureaucratic careers in the Progressive Era. Although embraced by government officials as a solution fitted to the American political economy, revolving door governance had deep and enduring flaws. Favoritism and corruption undermined the effectiveness and legitimacy of the public-private career carousel. This article provides historical context for contemporary debates about regulatory capture and regulatory schooling while uncovering revolving door governance as an important mode of nineteenth-century U.S. state building in policy areas – such as bank supervision – that required specialized professional or technical knowledge.

KEYWORDS:

• Bank supervision
• revolving door
• regulatory schooling
• banking history
• American Political Development

Introduction

In January 1934, accounts of the failure of Detroit’s banks saturated the United States press. A year earlier, the city’s two largest financial firms, the Detroit Bankers Company and the Union Guardian Group, had collapsed. Only a statewide banking holiday, instituted in February 1933, forestalled catastrophic liquidation (Awalt 1969). When Franklin D. Roosevelt assumed the U.S. presidency in March, he consolidated state holidays like Michigan’s into a nationwide banking moratorium (Conti-Brown and Vanatta 2021). Once financial markets stabilized, congressional investigations began. Current and former national bank examiners dominated the debate about Detroit’s banks.¹ The inquiry, spanning December 1933 to February 1934, revealed a host of questionable practices within the firms, particularly their habit of hiring the government officials charged with supervising their operations. In response, Senator James J. Couzens (R-MI) introduced legislation prohibiting federal bank examiners from accepting bank employment for two years following their resignation from government service (‘Bank Examiners and Banks’ 1934). Couzens sought to shut the door between government and industry. Supervisory officials strenuously objected. ‘A man coming into the service as an examiner … has nothing to look forward to unless he can go into a bank,’ examiner Alfred Leyburn testified. Prohibiting examiners from taking banking jobs would ‘ruin the morale of the force’ (U. S. Senate 1934, 4705–4706). Couzens eventually dropped the proposal, but the core issue remained – and remains.

The debate about Detroit’s banks focused on what scholars now call the ‘revolving door,’ the movement of staff between regulatory agencies and the industries they regulate (Gormley 1979).² The revolving door, critics argue, is a species of corruption that promotes regulatory capture (Stigler 1971). When regulators come from industry into government, they tend to adopt industry viewpoints (Dal Bó 2006). When regulators move from government into industry, they use their government connections to gain preferential treatment for their firms. The revolving door raises specific concerns for financial scholars. Banks may maintain or even increase risky behavior after hiring former regulators, with attendant consequences for bank-level and systemic risk. This was certainly Couzens’ view of the Detroit banks (‘Bank Examiners and Banks’). Recently, however, scholars examining the revolving door in finance have developed a contrary ‘regulatory schooling’ hypothesis (Lucca, Seru, and Trebbi 2014). These scholars argue that banks hire former regulators to help reduce financial risk, thus advancing supervisory goals by improving banks’ human capital and risk management practices. After the 2008 financial crisis, Shive and Forster found a substantial increase in the number of former supervisors in executive-level banking jobs, demonstrating ‘that firms hire ex-employees of their regulators when they perceive a need to reduce risk (Shive and Forster 2017, 1445).’

This essay offers a historical perspective on the revolving door literature and uses it as a starting point from which to develop a new interpretation of financial governance and regulatory state-building in the nineteenth and early twentieth century United States (Balogh 2009; Bensel 1990; Carpenter 2001; Mashaw 2012; Skowronek 1982). It does so by developing the concept of revolving door governance: the temporary hiring, in technical, scientific, or professionalized policy areas, of early-career experts with the expectation that skills and experience developed in government service will accrue to private industry as human capital (Becker 2009). In the formative era of the U.S. administrative state, revolving door governance enabled the federal government to harness expertise at low cost, without developing permanent bureaucracies of career experts.

In the U.S. federal banking agencies – the Comptroller of the Currency (1863) and the Federal Reserve (1913) – officials used revolving door governance to recruit motivated supervisory staff, to retain them at below market salaries, and then to return them to the private sector with a greater quotient of banking expertise than when they entered government service. They did so to improve bank performance through the work of supervisors as supervisors and then through the work of former supervisors as bankers. Policymakers understood supervisory employment as explicitly temporary, even after the introduction of fixed salaries and bureaucratic hierarchies in the 1910s made supervisory careers within government viable (Parrillo 2013). Contemporary notions of the revolving door and regulatory schooling thus coexisted within pre-1930s financial oversight. U.S. officials used revolving door governance to foster financial industry development and to oversee the banking industry in ways consistent with American antipathy for large, visible, government bureaucracies (Balogh 2009). Officials harnessed the private interests of supervisory officials to their public duties, navigating between bureaucratic autonomy, on the one hand, and ineffectiveness and corruption on the other (Bates 2021; Carpenter 2001; Parrillo 2013; E. N. White 2013; L. White 1958; R. White 2013, 2017). Revolving door governance was, in this way, an essential feature of nineteenth-century U.S. state building, one which continues to infuse U.S. financial oversight.

Revolving door governance was well suited to U.S. banking supervision because the banking market was highly fragmented, the banking labor market was relatively open, and government supervision of banking predated bankers’ organization into professional trade groups (McKinlay 2013). Unlike other nations that industrialized in the nineteenth century, unit banking predominated in the United States. Thousands of small banks dotted the country (E. N. White 1983). In this context, government supervision focused first on improving bank performance through schooling and consultancy (and, when that failed, compelling bankers to comply with banking regulations through policing and enforcement). Officials took this role because, although bankers understood themselves as members of a distinct and coherent occupation, bankers lacked formal professional institutions before 1875 and formal educational and training programs before 1900 (Schneider 1956).³ Thus, revolving door governance emerged not only in the absence of expert state bureaucracies, but also of established professional or expert institutions (Abbott 1988). In this way it differs from other forms of corporatism, in which governments partner with and govern through organized private interest groups (Balogh 1991, 2015; Galambos 1983; Gerber 1995). Revolving door governance was also sticky. After private professionalization, through the American Bankers Association and related organizations and schools, and after the bureaucratization of federal banking agencies, revolving door governance remained intact. In 1930, comptroller of the currency John Pole (1928–1932) called the federal examination corps a ‘training school’ for bankers – a tool for developing human capital and banking expertise in government service which would improve the safety and soundness of the U.S. banking industry in private employment (U.S. House of Representatives, 1930, 155).

The article develops this argument by examining first the state-level and then federal origins of U.S. bank supervision. The legislative architects of early supervisory institutions expected that men with banking experience would perform bank oversight, an expectation rooted at the federal level in earlier inspection of steamboats by steamboat engineers. The essay then shows how federal banking officials improvised a bank supervisory regime imbued with an educational ethos. In the nineteenth-century United States, the number of banks far outran the number of trained and experienced bankers. Bank supervisors, meanwhile, had little power to compel bankers to change their behavior. Instead, federal officials instructed bankers on sound banking methods, articulated by officials in Washington DC and promulgated by examiners in the field. After documenting the development of federal supervisory practices, the essay examines the careers of the first cohort of national bank examiners. The cohort was, by definition, unique. Many examiners had been high-ranking state-level banking officials during the U.S. Civil War (1861–1865). Still, their experiences, documented through federal bank examination reports, demonstrate revolving door governance in action, both improving bank performance and enabling favor-seeking and corruption. The final sections focus on the ways reforms introduced in the 1910s transformed supervision by bureaucratizing bank oversight. Through the Federal Reserve Act (1913), Congress realigned examiner incentives by shifting from a fee-per-bank system to fixed salaries. Federal banking officials also introduced new hierarchies that created career paths within the bureaucracy. In theory, the reforms enabled a transition from revolving door governance to bureaucratic career making (Parrillo 2013). Yet the revolving door continued to spin. After the salary revolution, officials like Pole articulated well-developed defenses of revolving door governance to justify the steady flow of government officials into banks.

Creating a federal supervisory system

In the early nineteenth century United States, money creation operated through a tense, public-private partnership. At the federal level, U.S. Presidents Thomas Jefferson (1801–1809) and Andrew Jackson (1829–1837) distrusted banks and wished to maintain government on a strict specie basis. Treasury Secretaries Alexander Hamilton (1789–1795) and Albert Gallatin (1801–1814) preferred a robust banking system, which could provide circulating currency far above the nation’s meager specie reserves (McCraw 2012). State governments were more pragmatic. Barred by the constitution from printing their own money, states ceded this authority to banks, using private corporations as institutions of monetary development (Hammond 1957; Hurst 1973; Schweitzer 1989). Before the Civil War, the U.S. banking market was comprised of more than 1,600 firms, including state-owned banks, specially chartered banks, banks founded under free incorporation statutes, and unchartered private banks (Bodenhorn 2002b). The First (1791–1811) and later Second Banks of the United States (1816–1836) operated as proto-central banks and stood astride these smaller institutions (Cowen 2000; Knodell 2017). They – and especially the Second – amplified the market discipline which checked excessive currency issuance by individual banking firms. The Banks of the United States could collect private bank notes in bulk and press for their redemption in specie, a way of confirming private banks had adequate reserves to back the notes they issued. After Jackson vetoed the recharter of the Second Bank of the United States in July 1832, private institutions, like the Suffolk System in Boston and the Clearing House Association in New York, fulfilled similar roles (Bodenhorn 2002a; Cannon 1910).

Antebellum state supervisory institutions

Alongside institutions of market discipline, some state governments developed rudimentary bank supervisory institutions before the Civil War. Bank examination, the process through which publicly-appointed officials visited a bank to determine whether it was solvent and abiding by the terms of its charter, proved the most important. Initially, state governments performed examinations as needed, usually when a bank was believed to be insolvent (Dewey 1910; Golembe and Warburton 1958; Weber 2011).

Beginning in 1829, several states adopted liability insurance plans, and with these systems created formal supervisory offices. States pursued two different insurance models. New York, Michigan, and Vermont created insurance funds, where participant banks paid into a central pool that would repay creditors of insured banks that failed. In these states, some combination of bankers, state governors, and state legislatures appointed banking commissioners (with governors and legislatures dominating in later years). Bank commissioners examined insured banks on a regular basis and had the power to close banks they deemed insolvent. Yet they lacked authority to proactively correct poor management or excessive risk-taking. None of the insurance funds performed well, and Michigan’s experience was especially disastrous (Golembe and Warburton 1958; Weber 2011). The state’s 1837 banking law created ‘a machine of fraud’ the state’s bank commissioners reported (State of Michigan. Bank Commissioners Report, 1839, 235).

In mutual insurance states (Indiana, Ohio, and Iowa), participating banks were collectively – and immediately – responsible for their colleagues’ liabilities. A Board of Directors, comprised of representatives of the individual banks, appointed examiners who were empowered to address risk taking and mismanagement. In the insurance fund states, examiners tended to be political appointees; in mutual insurance states, they tended to be bankers. Except for Vermont, state banking officials were paid fixed salaries, indicating that they were meant to dedicate their full time to supervision. Nevertheless, their terms in office were uniformly short, usually only one or two years. In the antebellum United States, bank supervisor was not a career, nor even a stable office. Following the effective failure of its insurance fund, the New York legislature abolished the office of Bank Commissioner in 1843, returning to a system of examination on suspicion of insolvency (Golembe and Warburton 1958; Weber 2011).

Steamboats, revolving door governance, and the national banking system

Although the fragmented state banking systems adequately facilitated the nation’s antebellum development, they could not meet the financial demands of Civil War (Hammond 1970). In the South, the Confederate government followed the precedent set during the American Revolution, printing money when it could not borrow or tax. The Union states, meanwhile, used the war to reassert national authority over the money system, creating a system of nationally-chartered banks to help finance the war effort. The National Banking Act, enacted in 1863 and revised in 1864, created a system of free incorporation for federally chartered banks and a national bank note currency secured by government bonds. A separate act levied a 10% tax on state bank notes, clearing them out of circulation and enticing state banks – and experienced state bankers – to join the federal system.

Federal policymakers largely borrowed the institutional design of the national banking system from New York State, which also had free chartering and bond-backed notes (Hammond 1970; Sharkey 1959). Yet the model for banking oversight more closely followed the existing federal examination regime for steamships. Like banks, steamships had the unhappy habit of blowing up. In 1838, Congress created new rules that required captains to obtain an inspection of their vessel and their boiler from a court-appointed inspector every six months. The inspector received five dollars to certify the vessel’s seaworthiness and five dollars to certify the soundness of the boiler. Local courts, however, were seldom competent to appoint inspectors. Steamships kept blowing up. In 1852, Congress overhauled the statute, creating a Board of Supervising Inspectors, which was empowered to hire local, salaried personnel (Burke 1966; Mashaw 2008).

Revolving door governance was central to congressional design. As the legal historian Jerry L. Mashaw writes, ‘The Act seems to have contemplated that both local and supervising inspectors would be, or had been, involved in the steamboat business in some way. Otherwise, where would they obtain the requisite knowledge and experience’ (Mashaw 2008, 1642)? Not yet from professionalized engineers: The American Society of Mechanical Engineers organized in 1880 and issued its first code on boiler inspection in 1884 (Ferguson 1987). Instead, the government relied on private expertise. The Steam Act barred inspectors from examining ships in which that had an interest, indicating at once Congress’s expectation that inspectors would be experienced and interested in steamship operations, while also drawing boundaries between their private interests and public duties.

Congress placed the Board of Supervising Inspectors within the Treasury Department, and institutional experience supervising steamboats likely influenced the design of bank supervision under the National Bank Acts, which were largely drafted within the Treasury (Robertson 1995). Congress, however, took a step backward, returning to the ‘episodically appointed, ambiguously qualified, fee-seeking inspectors’ prevalent under the 1838 Steam Act (Mashaw 2008, 1643), making examiners more akin to sympathetic service providers than objective agents of sovereign authority (Parrillo 2013). Under the 1863 National Banking Law, the new Comptroller of the Currency, who oversaw the national banking system, could appoint bank examiners on a temporary basis, ‘as often as necessary and proper.’ Like steam inspectors, Congress seems to have imagined federal bank examiners would draw their knowledge and expertise from careers in banking, indicating that examiners ‘shall not be a director or other officer in any association whose affairs he shall be appointed to examine’ (National Currency Act, 1863, §51; National Banking Act, 1864, §54). The pay structure also matched steam inspectors. Under the law, bank examiners received five dollars for each workday plus two dollars per 25 miles traveled, fees which the banks paid the government and the government remitted to examiners.⁴ In the same way that steamboat captains paid the government to certify their seaworthiness, bankers would pay the government to certify their creditworthiness.

Forging a supervisory regime

Despite the implication that supervision would occur as needed, the first comptroller of the currency, Hugh McCulloch (1863–1865), created a permanent staff of national bank examiners (Kane 1923; McCulloch 1888). Before the Civil War, McCulloch had been president of the State Bank of Indiana. Like the later Federal Reserve System, the ‘bank’ constituted a network of independent branch offices, which guaranteed each-other’s liabilities and were supervised by a central Board of Directors. The historian Bray Hammond called it ‘one of the most distinguished and honored financial institutions of the country,’ distinguished in part by its robust system of internal oversight (Hammond 1957, 621). Representing the State Bank, McCulloch came to Washington DC in 1862 to lobby against the National Bank Act. He was convinced to support the legislation, however, because it diffused financial power through free federal chartering. ‘It is not to be a mammoth corporation,’ he observed (McCulloch, quoted in Kane 1923, 24).

In developing the comptroller’s office, McCulloch sought to create an effective examination staff, first to convert state banks to federal charters and then to encourage and inspect the new federal banks. To do so, McCulloch discarded Congress’s apparent preference for ad-hoc examination, recruiting a permanent staff of examiners and requiring them to examine banks on a regular basis. McCulloch quickly commissioned about a dozen examiners and provided each with a list of banks to inspect (U. S. Senate 1881). As the banking system took shape, he assigned examiners specific geographic territories throughout the Union states (there being no national banks in the South, with the Civil War still ongoing). He also sought to increase the pay of examiners and office staff, since the compensation authorized by Congress was insufficient to recruit employees ‘of intelligence, character, and good business qualifications’ (U.S. Comptroller of the Currency 1864a, 55).

The problem of low pay

Higher statutory pay was not forthcoming, and so McCulloch, believing that banks benefitted from effective oversight, sought to convince bankers to pay for examinations on the basis of their size (capital). Bankers objected. After his small Massachusetts bank was charged $25 for an examination, the bank’s cashier demanded to know on what basis his bank was assessed such a high fee. Admittedly, deputy comptroller Hiland Hulburd wrote in May 1866, ‘the amount is not assessed according to a technical construction of the law, but is a fair commutation of the charges therein authorized, and is intended to pay such a salary as will enable the Department to employ a competent man to make these examinations’ (Hulburd, quoted in Whitney 1867, 6). Higher examination charges were in bankers’ interest, Hulburd argued, because competent examiners expected appropriate compensation. ‘Such a man will not take the position unless he can earn more than his expenses; and the charges authorized by law would do little more’ (13). To resolve the dispute, Hulburd promised to send another examiner, John Bull, who would be paid ‘under the provisions of the law’ (7). Because Bull came all the way from New York, his traveling expenses amounted to $35.68, so the final cost of the remedial examination came to $40.68. The cashier now felt himself the victim of ‘a heavy tax,’ and published the correspondence (Whitney 1867, 15). Bull, for his part, was not satisfied with the pay either. As he later explained to Congress, ‘I found I was getting so short, that I did not care to be a bank-examiner’ (Bull, quoted in U.S. House of Representatives, 1872, 5).

Low examination fees meant that examiners had to move quickly to earn a decent living. According to his journal, covering August 1868 to May 1869, the examiner R. W. Derrickson never slowed down (Derrickson 1869). Derrickson was one of two examiners responsible for federally-chartered banks in Pennsylvania. On December 22, he inspected both the First National Banks of Indiana and Johnstown, small towns in the west-central part of the state. Following prevailing rail lines, the towns are now an hour drive apart. It seems unlikely Derrickson made the trip so expeditiously. He had to be quick inside the banks. After spending Christmas near Hollidaysburg, Derrickson inspected the town’s bank on December 28. He then traveled to Clearfield, where he cleared the town’s two banks on successive days. By the 31st he was in Curwensville, examining the bank there. He took one day off for New Year’s, then 48 miles to Bellefonte, 50 miles to Huntingdon, 36 miles to Lewistown, and 57 miles to Harrisburg; all on successive days. Hulburd, by then comptroller, may have had Derrickson in mind when he advised Congress in 1869 that ‘the labors of examiners are very severe, involving work by day and travel by night; while the rigid and careful scrutiny required to investigate fully the condition and accounts of the banks is wearying and exhausting’ (U.S. Comptroller of the Currency 1869, X – XI).

Wearying and exhausting work did not stop some examiners from pursuing their private interests, at times at variance with their public duties. Beginning in 1864, Charles Callender worked for the comptroller’s office as a clerk and examiner. The trouble began in Philadelphia. There, when he found banks in weak condition, Callender used his authority to solicit loans in return for favorable reports. Eventually he borrowed more than $400,000 from 15 banks in Philadelphia and New York City, where he was later transferred (‘Charles Callender’s Loans’ 1874; U.S. House of Representatives, 1872). Callender’s activities came to light when the Ocean National Bank in New York City failed in December 1871 (Broxmeyer 2017). An examination performed by the New York Clearinghouse Association revealed that the bank had loaned Callender $76,000 after he declined to report the bank’s poor condition (‘The Case of Callender’ 1871; ‘Financial Troubles’ 1871). Callender’s misdeeds undermined the legitimacy of continuous federal oversight. Among the outcry, the New York magazine Financier offered a literal reading of the national banking law’s ‘necessary and proper’ provision: ‘there is no authority in law’ for routine bank examination, the magazine objected in January 1872. ‘No such office as bank examiner was ever created’ (‘The Examination of Banks’ 1872, 39). Examination was not only illegitimate, but in its pretentions to permanence, illegal.

The fee system and the revolving door

After the Callender affair, Congress reformed examiner pay (Robertson 1995; U.S. Secretary of State, 1875), expanding the fee schedule based on bank capital and allowing the comptroller to fix examiner salaries in reserve cities and far Western states (Table 1). Bankers also used the scandal to secure some authority over who their supervisors would be, substituting industry capture for corruption and political patronage (L. White 1958). In New York and Boston, the city clearinghouse associations gained the informal privilege of appointing their federal examiners. Although reforms raised examiner compensation for work inside the banks, the new pay scheme eliminated mileage reimbursements, reinforcing the incentives to minimize travel costs by moving quickly along predictable routes. Examiners continued to keep a brisk schedule or to maintain supplemental employment alongside their government service. ‘They seemed to be possessed of an unconquerable desire to get through and get away as speedily as possible,’ one banker observed (Wilson 1887, 76).

Table 1. National bank examination fee schedule, 1875–1913.

Capital	Examiner’s Fee
Less than $100,000	$20
$100,000–$300,000	$25
$300,000–$400,000	$35
$400,000–$500,000	$40
$500,000–$600,000	$50
More than $600,000	$75

Source: U.S. Secretary of State (1875), 329.

For the rest of the nineteenth century, comptrollers complained about poor pay and lobbied for salaried examiners. Salaries, reformers argued, would enable examiners to do their investigative work thoroughly instead of sprinting to catch the last train out of town. In an important sense, though, the fee system provided bank examiners a halfway between bureaucratic careers and proprietary independence. Although salaried employment became increasingly common in the nineteenth-century United States, middle-class men still envisioned dependent clerkship as a loathsome but necessary step to independent partnership or proprietorship (Aron 1987; Zakim 2018). Or so they hoped (Sandage 2006). Examiners, working for fees, planned their routes, managed their travel, and hired their own assistants. They understood themselves as independent, capable of earning higher net pay through efficiency and expertise. A stint as a federal bank examiner also provided valuable experience for a private career in banking. Examiners’ work carried them through banks, large and small, enabling them to build networks, make friends, and cultivate the connections that might lead to more remunerative, authoritative, and stationary work. Examiners, to use Mark Granovetter’s phrase, developed a host of weak but useful ties (Granovetter 1973; Wendschlag 2024).

Supervisory career paths were not uniform, and some staff moved between examiner work in the field and steady pay back in Washington DC. Only in the 1910s did reformers shift federal examiners onto fixed salaries and create a bureaucratic examination hierarchy, with 12 chief examiners responsible for subordinates in geographically defined districts (U.S. Comptroller of the Currency 1915). These reforms tilted federal supervision from fee-based governance toward fixed bureaucracy (Parrillo 2013), opening the possibility of supervisory careers.

Supervisory schooling

In the nineteenth century, U.S. bank supervision was primarily an exercise in collecting, evaluating, and exchanging information. Examiners tried to determine whether a bank was solvent and complying with the national banking law. They also sought to root out fraud, especially theft by insiders, but hard experience demonstrated that fraud was difficult to detect. ‘It is not to be expected that an examiner shall, in a single day, detect and correct the abuses of a year,’ one comptroller observed (U.S. Comptroller of the Currency 1873, 49–50). Instead, supervision operated as a kind of schooling, through which examiners evaluated a bank’s business practices and guided bank management toward sound banking principles. Supervision as schooling reflected the limited scope of examiners’ power. Federal examiners’ only true enforcement tool was to close and liquidate a bank, a messy and politically fraught process most sought to avoid. Bank supervisors also lacked remedial and rescue tools, like a balance sheet to provide liquidity. Examiners could inform, instruct, and criticize, but they had little authority to compel behavior. Still, bank directors and managers had good reason to heed supervisory advice: under the national banking system, bank shareholders bore double liability, meaning their personal resources could be called upon to meet creditor claims in the case of bank failure (Bodenhorn 2015; E. N. White 2013).

The structure of the U.S. banking system encouraged the instructional approach. Congress anticipated that established, long-lived state banks would join the new federal system. Many did. But many new banks and inexperienced bankers also sought federal banking charters. The number of federal banks grew steadily over time, from 1,627 in 1870, to 2,095 in 1880, to 3,566 in 1890 (U.S. Comptroller of the Currency 1870,1880,1890). Many were small, rural, and staffed by bankers with limited experience. After calling on the First National Bank of Danville, Indiana, the examiner Butler Ward explained to McCulloch, ‘none of the parties engaged have had any experience in business of such a nature & they were anxious for any suggestions which I could make’ (Ward 1864). Through supervision, the government provided those suggestions.

What examiners taught bankers

Supervision as schooling reached beyond the strict construction of the national banking law and incorporated ideals of banking practice into the supervisory regime. Here again McCullough’s improvisational construction of the comptroller’s office proved decisive. In a circular letter in July 1863 and then in a longer pamphlet in 1864, McCulloch advised prospective bankers how to pursue ‘a straightforward, upright, legitimate banking business,’ and to disdain “‘splendid financiering” (U.S. Comptroller of the Currency, 1864b, 35). Specifically, he encouraged bankers to make small loans in relation to their capital, to distribute them widely in their communities, and to record them assiduously. ‘The Comptroller will afford every aid and encouragement in his power to banks organized for the purposes of carrying into effect the spirit and intention of the law,’ McCulloch promised (Senate 1881, 12–13).

The comptroller defined what a legitimate banking business entailed, and examiners explained to bankers how to meet federal standards. McCulloch’s instructions, supplemented with the text of the National Banking Act, became the first examination manual, which examiners like R.W. Derrickson used to guide their work. Some banks, like the First National Bank of Indiana, Pennsylvania, a farming community 50 miles east of Pittsburgh, perfectly encapsulated McCulloch’s vision. The bank was ‘doing a safe [and] very profitable business,’ Derrickson reported, with ‘money loaned in very small [amounts] throughout this county’ (Derrickson 1869, 104). Many banks, though, did not live up to the comptroller’s standards or practiced banking on principles outside the ‘spirt and intent of the law,’ as McCulloch and his examiners defined it. Derrickson found that the First National of Erie, ‘does a small business,’ and ‘is of no public benefit’ (48). While the bank had $150,000 in capital, it had only lent $64,399, with almost half going to the bank’s officers. Derrickson elaborated on his dissatisfaction in a lengthy critique of the First National Bank of Girard, which he examined later that month. ‘This bank,’ Derrickson wrote, ‘does but very little if any business outside of the six stockholders who own the bank. The president informed me that they would not take the risk of loaning out their circulation when they could purchase U.S. Bonds with it’ (62). Derrickson was not pleased. ‘I would deem it very advisable if legislation could be had to take the priveledge [sic] granted away from these gentlemen, and give it where it could be used as was intended by the framers of the Act’ (62). Such legislation was not forthcoming. Instead, examiners could only hope that with time and repetition, schooling would yield results.

Over the nineteenth century, examiners developed more sophisticated instructional tools, which reflected a transition from a legal and political supervisory emphasis after the Civil War to greater attention to banking theory and business practices in later decades. In the 1880s, for example, examiners began categorizing and criticizing bank loans according to a typology of slow, doubtful, and loss (Conti-Brown and Vanatta 2021). Criticism served several functions. It enabled examiners to determine bank solvency by tallying devalued or worthless assets and to track bank health over time (Calomiris and Carlson 2022). As importantly, the language of slow, doubtful, and loss linked up with the prevailing ‘real-bills doctrine’ or commercial loan theory of banking. Legitimate banking meant making short-term, self-liquidating loans, rather than providing illiquid, long-term capital financing. In this case, slow, doubtful, and loss enabled examiners to critique assets on a spectrum of liquidity to credit quality. Slow loans might have high credit quality, but were illiquid. Loans in the loss category were unlikely to ever be repaid. Doubtful loans sat somewhere in the middle. With loan criticism, examiners could guide willing bankers toward appropriate, liquid commercial loans, while nudging them to collect or close out non-performing assets. Slow, doubtful, and loss were not legal categories – they emerged from the practice of supervision and efforts to teach bankers how to lend safely.

Expertise and professionalization

Bank supervision as schooling necessarily created conflicts over authority and expertise. Some comptrollers, like McCulloch and John Jay Knox, Jr. (1872–1884), commanded respect because of their banking experience and – in Knox’s case – public commentary on banking. A practical, quasi-academic, and transatlantic banking literature expanded in the nineteenth century, through popular texts like Isaac Smith Homans’s Banker’s Common-Place Book (Homans 1851) and Albert S. Bolles’s Practical Banking (Bolles 1895), which each ran through many editions. In the United States, however, formal banking schools did not yet exist. Banking knowledge accrued through occupational experience, and bankers and supervisors alike evaluated professional standing and authority in terms of length of service. In their reports, examiners used this metric as a marker for bankers’ competence. Bankers likewise used length of tenure to claim authority vis-à-vis examiners. ‘I was perfectly aware, from some ten years’ experience, what it meant to manage a country bank properly,’ the Massachusetts cashier declared as he challenged McCulloch’s suspect pay regime (Whitney 1867, 8).

In this sense, U.S. bankers engaged with government schooling qua supervision as they undertook an ongoing process of professionalization (Abbott 1988). Bankers understood themselves as a distinct social and occupational group, one linked to professionalizing British bankers through shared business practices and, in the case of influential urban bankers, international trade (Green 1979). In the late nineteenth century, as part of a nationwide professionalization movement, U.S. bankers created professional organizations to advance their interests (Haber 1991). The American Bankers Association (ABA), founded in 1875 following the catastrophic panic of 1873, became the central node of these efforts (Schneider 1956). Because the banking system was highly fragmented – the adherence to unit banking meant that in 1880 there were just over 2,000 nationally- and just under 1,000 state-chartered commercial banks – and because banks varied significantly in size, bankers struggled to find consensus on any but the least controversial issues (U.S. Comptroller of the Currency 1880). Banking schools and professional training standards took significant time to develop. In 1884, Chicago banker and ABA President Lynam Guage lamented that the association had accomplished little except ‘advancing correct ideas’ (‘American Bankers Convention’ 1884, 1075). He urged the adoption of a professional education program modeled on the London Institute of Bankers, which had initiated a program of professional training in 1879 and qualification examinations in 1880 (Green 1979). These plans stalled until 1900, when the ABA organized an Institute of Bank Clerks as the first of what became a robust system of professional schooling, testing, and certification (Schneider 1956).

The absence of strong professional alternatives created space for revolving door governance as a second-best institutional solution to financial oversight and banker training. Some officials would have preferred a normalization of bureaucratic careers, especially the hiring and retention of experienced examiners. ‘It is not claimed that every examiner employed is a first-class expert,’ comptroller Knox observed in 1881. ‘The compensation authorized is not sufficient for that purpose’ (U.S. Comptroller of the Currency 1881, XXXVIII). Bankers, too, wanted experienced examiners. ‘No person should be eligible to the office of Bank Examiner who is not only a thorough accountant, but has had some practical experience in the banking business,’ one banker argued at the ABA conference in 1887. ‘No man knows or can know how to examine a bank as well as a banker’ (Wilson 1887, 77). Compensation remained the limiting factor, compelling an approach where examiners learned on the job and eventually took their knowledge and skills to the private sector. Reformers called for fixed salaries and permanent employment to little immediate effect (Wilkins 1887). Instead, federal bank examiners schooled their banker charges before leaving government service for more lucrative careers in banking.

Banks hiring supervisors

From the founding of the national banking system, comptrollers argued that meager pay inhibited their capacity to hire competent staff. ‘Banking institutions pay from $2,500 to $5,000 per annum to men for work which I am expected to have done … at salaries of $1,600 to $1,800,’ comptroller Hulburd complained to Congress in 1868 (U.S. Joint Select Committee on Retrenchment, 1868, 28–29). Instead of viewing federal service as a career, supervisors used federal employment to gain skills and build networks that would advance their private careers in banking. This is not surprising. Before the Civil War, middle-class American men understood their career arc as moving from dependence to independence. Clerks, working for salary, expected to go into business on their own. The massive expansion of the federal government during the Civil War helped normalize bureaucratic careers for many American men and women, yet the ideal of masculine independence still retained a strong hold (Aron 1987; Zakim 2018). Higher pay and better working conditions also recommended bank employment.

Using the annual balance sheet summaries published by the Comptroller of the Currency and the Rand McNally Bankers Directory, eight of the 15 national bank examiners listed in the Federal Register in 1867 can be traced to positions as cashiers or presidents in national banks (Rand McNally and Company, various years 1879–1894).⁵ In every case, examiners joined banks they had previously examined. In a few specific ways, the initial corps of federal examiners was unusual. Many had significant political careers before the Civil War and many were serving as state bank supervisors during the war. Likely, McCulloch and other leading Republican Party officials sought their knowledge and influence to convert state banks to federal charters – and to exclude speculative bankers who would not credit the federal system. Nevertheless, the careers of these examiners were also typical of supervisory staff that tended to move between public service and private banking employment (L. White 1958).

Revolving careers

In June 1865, comptroller Freeman Clarke (1865–1867) commissioned Andrew B. Mygatt as national bank examiner with responsibility for banks in the small northeastern states of Connecticut and Rhode Island (Senate 1881). Before the Civil War, Mygatt had served in the Connecticut legislature, rising to president protem of the state Senate in 1861 (Connecticut Secretary of State, n.d.). From 1862 to 1865, Mygatt was one of three state bank commissioners, and a prominent citizen in the town of New Milford (Connecticut Office of the Bank Commissioner 1860, 1862). The earliest examination reports for the First National Bank of New Milford date from June 1873, at which time Mygatt was examining the bank twice a year, performing an extra examination at the request of the president and directors. Mygatt likely knew these men well, as his father had served as president of the bank when under a state charter (S. G. Mygatt 2008). Mygatt uniformly found the small bank, with capital of $125,000, a ‘sound and prosperous institution’ (A. B. Mygatt 1874). In December 1877, however, Mygatt ventured a faint criticism. The bank kept a large deposit in New York City at 2% interest. ‘It needs a younger and more enterprising board of directors, who will endeavor to loan its funds to advantage,’ he reported (A. B. Mygatt 1877).

When the bank was next examined in August 1879, Mygatt was president, where he remained until 1900 (U.S. Comptroller of the Currency 1900). Mygatt excelled at investing the bank’s funds. The bank ‘is in a thriving country town,’ examiner John M. Magruder explained, and ‘the deposits are so comparatively large that … a considerable portion of its discounted paper is purchased in New York, Hartford, etc., … selected by the President with great care’ (Magruder 1882). Mygatt’s federal experience prepared him for this role. As a later examiner explained, Mygatt, ‘from long service in the position of bank examiner, gained a valuable knowledge of credits, which is exceedingly useful to the bank’ (Dooley 1888). That long government service continued until 1886. For more than six years, Mygatt was at once a national bank examiner and a bank president, during which time he was responsible for examining more than 100 banks each year. He remained highly regarded, especially for his ability to root out fraud (‘Examiner Mygatt to Retire’ 1886). ‘Mygatt,’ the New York Times reported upon his retirement from federal service, ‘has brought many cashiers to the state prison’ (‘Bank Examiner Mygatt’ 1886).

Other examiners followed a similar trajectory. E. C. Sherman served as a Massachusetts state bank commissioner before joining the comptroller’s office (‘Banking in Massachusetts’ 1864). In 1867, he appeared on the list of national bank examiners and as president of the Old Colony National Bank, in Plymouth. It is unclear whether he held both positions simultaneously. Beginning in 1871, he served as the first president of the larger National Bank of the Commonwealth, in Boston, by which time he appears to have ceased his government employment. Examiners Chandler R. Ransom and John Magruder praised Sherman’s management. ‘This Bank is a striking example of what may be done towards building up a prosperous and successful business,’ Magruder wrote (Magruder 1872a).

Before the Civil War, Chandler Ransom served as auditor of accounts for Massachusetts, before becoming cashier for a Boston bank. He seems to have resigned that post before becoming a bank examiner in 1864. Ransom began by covering all national banks in Massachusetts, but by 1871 his remit had narrowed just to Boston banks. In 1872, he assumed the presidency of the North National Bank of Boston. A few years earlier, the bank suffered a significant defalcation, when the cashier used bank funds to speculate in securities markets. Ransom did not discover the fraud, but he performed a thorough examination to certify the health of the bank. After the bank’s directors elected him president, Ransom used his influence in the comptroller’s office to promote the interests of his bank and secure favors for his friends. Unlike Mygatt and Sherman, examiners often criticized Ransom’s management. The first examination found a too-large loan to the town of West Roxbury, which Ransom argued was within the spirit of the law (banks were not allowed to make loans in excess of 10% of their capital, but surely this did not apply to government borrowers) (Magruder 1872b). Ransom’s bank was also often short on its reserve (Ripley 1874). ‘We can only promise to do better in the future!’ Ransom wrote in response to examiner criticism, making sure to always send ‘kind regards personally to all in the department’ (Ransom 1873).

Some examiners joined banks at moments of trouble or transition. Butler Ward, who examined banks in upstate New York, found the First National Bank of LeRoy in gradual decline. Ward had a personal connection to the bank. ‘Under the President of this bank & in this office I first received my practical knowledge of banking,’ Ward explained in his October 1866 report (Ward 1866). By 1869 the president had died and the bank passed to his sons, whom Ward described as ‘disaffected’ (Ward 1870). Examining the bank following a state-level election in November 1871, Ward found everyone in the bank ‘more or less under the influence of liquor,’ and the records in disarray. The new president promised Ward that he would not find the bank in such condition again. ‘I do not have much confidence in his promises,’ Ward observed (Ward 1871). By the next report, Ward was the bank’s cashier. In August 1873, examiner David Alexander described Ward as ‘a gentleman whose experience as bank examiner should be of great service’ (Alexander 1873). Few subsequent reports were as glowing: a later examiner called Ward ‘fully able but dilatory’ (Williams 1879). The bank continued on, paying steady dividends until 1885, when its federal charter expired and it converted back to a state charter (U.S. Comptroller of the Currency 1885).

Likewise, examiner R. W. Derrickson’s brother was a longtime president of the First National Bank of Meadville, Pennsylvania. Derrickson examined his brother’s bank twice in the 1860s, finding the discounts ‘to be good … [and] well distributed’ (Derrickson 1867). In 1869, however, the bank started to unravel. Derrickson resigned from federal service to join his brother, where he may have tried to hide the bank’s true condition from his successor. In the examiner Thomas Williams’s second visit to the bank, Derrickson ‘was very attentive showing me about town and its drives after sundown’ (Williams 1872). By the third examination, Williams felt he was being strung along. ‘Although the brother has treated me with civility, he has never seemed desirous that I should thoroughly investigate everything,’ Williams reported in August 1873 (Williams 1873). Williams found the bank solvent, but a former employee confided ‘that there were many irregularities covered up and that R.W.D. deceived me in my first examination.’ The next year, though, brought a new examiner, who found the bank well managed, if high-flying (Alden 1874). ‘The bank,’ the examiner observed, ‘is conducted on the principal of making the most money’ (Alden 1875). The comments do not seem to have been meant as criticism.

The first cohort of national bank examiners was unique. Many had been state banking commissioners during the Civil War, and McCulloch likely recruited them to incorporate their bureaucratic knowledge and political standing into the national system. Some, like Asa R. Camp of Vermont and Elihu Baker of Iowa, did not return to banking. Many did, often to firms where they had ties before becoming examiners and always over which they had oversight responsibility as examiners. Some, like Mygatt, used knowledge gained in the federal service to run their banks more effectively. Others, like Ransom, used their social ties to seek favors and forbearance. For these officials, national bank examiner did not offer a viable a career, but a rung on the ladder to bank employment.

There are counter examples: John Magruder joined the Treasury Department as a clerk in 1868 (U.S. Comptroller of the Currency 1868). He took over examining banks in Boston for Chandler Ransom in the early 1870s, before becoming head of the comptroller’s division of reports in Washington DC. Around 1880, he decided he ‘would like to get into private business,’ and began a 60-day trial at the Maverick National Bank in Boston (U. S. Senate 1893, IX – X). Magruder lasted two weeks, deciding quickly that he was not suited to the work. He returned to the comptroller’s office. In 1881, Magruder was appointed examiner for Boston, a position he held until his sudden death in November 1891 (‘A New Bank Examiner for Boston’ 1881). Magruder’s long federal career had not inhibited his acquisitive ambitions. He had borrowed heavily from the Maverick bank to speculate in sugar, and the bank’s demise in 1891 seems to have contributed to his own (‘The Late Mr. Magruder’ 1891).

Comptrollers embrace the revolving door

The banking historian Fritz Redlich argues that, ‘in the nineteenth century United States everybody who counted wanted to make money’ (1973, 308). The nation’s improvised and evolving regulatory efforts worked best by harnessing those ambitions (Hartz 1948). Bank supervisory staff were all keen to get into private business. Some were suited for it. Others were not. By the 1890s, comptrollers began to articulate a theory of revolving door governance that accepted government employment as typically the starting point for a banking career. ‘Our best examiners are those in the prime of life, who work with energy and fidelity, hoping to demonstrate their ability and worth, thereby securing for themselves a desirable and permanent position in some good bank,’ comptroller Edwin Lacey (1889–1892) wrote in 1892, the year after Magruder’s ‘unfaithfulness’ brought scandal on the agency. ‘This incentive and this ambition insures the best work’ (U.S. Comptroller of the Currency 1892, 43). The Comptroller of the Currency did not publish examiner lists until 1902, making systematic analysis of late-nineteenth-century examiner career trajectories difficult. The continuous focus by comptrollers on the problem of retention, though, emphasizes the extent to which examiners used public service to further private banking careers. Indeed, Lacey reframed this apparent flaw as a feature – as an incentive for examiners to work hard despite the wearing travel and small compensation.

What was true for supervisory staff was also true for the comptrollers. From the founding of the agency, comptrollers almost uniformly moved from federal service into prominent banking careers. Before becoming comptroller, Lacey had been cashier and president of the First National Bank of Charlotte, Michigan (capital: $50,000).⁶ He had also served for four years in the U.S. House of Representatives (‘Mr. Lacey’s Appointment’ 1889). He resigned the comptrollership in 1892 to become president of the Bankers National Bank of Chicago (capital: $1,000,000) (Kane 1923).

Although most of the comptrollers before Lacey had been bankers, most who followed him drew their relevant qualifications from politics (Kane 1923). A. Barton Hepburn, who briefly succeeded Lacey before joining the Third National Bank in New York (capital: $1,000,000), had been a lawyer, lumberman, and New York State politician. He had served as New York Banking commissioner before being appointed national bank examiner for New York City in 1889 (‘A Batch of Consuls’ 1889). Hepburn alighted just as the Panic of 1893 was coming into view, and his successor, James H. Eckles, had no relevant banking experience. After four years as comptroller, Eckles ascended to the First National Bank of Chicago (capital: $1,000,000), bringing the bank’s two most recent national bank examiners, John C. McKeon and Joseph T. Talbert in as vice president and cashier, respectively (Oakley 1898). The pattern would continue. In 1905, the Washington Post called the ‘Comptrollership of the Currency … a Stepping Stone to Financial Prominence’ (‘Fits Men to be Bank Presidents’ 1905).

The salary revolution and the stickiness of revolving door governance

A confluence of structural and political forces converged in the late nineteenth century to move federal bank examination from the fee system to fixed salaries, initiating a shift away from revolving door governance and toward a greater investment in hiring and retaining competent bank supervisors. First, the United States experienced a gradual bureaucratic revolution, in business and government, which made salaried careers more common (Aron, 1987; Chandler 1977; Parrillo 2013). Second, good-government reformers sought to transition from the patronage politics that ruled the early federal bureaucracy to a new civil service system, inaugurated by the Pendleton Act of 1883 (Skowronek 1982; L. White 1958; R. White 2017). In theory, federal employees would earn their positions and advance their careers on the basis of competence demonstrated through qualifying examinations, not political connections. Third, frequent, high-profile fraud scandals and the nation’s decennial financial panics (1873, 1884, 1893, 1907) ensured continuous agitation for better financial oversight. This was especially the case as deposits gradually made up a larger share of bank liabilities, so that bank defalcations and failures threatened the working capital of businesses and savings of working families (Jaremski and Rousseau 2018).

In the movement toward financial reform, the Panic of 1907 was a watershed. In its aftermath, Congress established the National Monetary Commission to examine the U.S. banking system in relation to its European counterparts and to develop reforms that would prevent panics in the future (Broz 1997; Lowenstein 2015). Bank supervision was a key pilar of the reform agenda – so much so that the subtitle of the Federal Reserve Act, an outgrowth of the commission’s work, was ‘to establish a more effective supervision of banking’ (E. N. White 2013).

In the wider context of the reform debates, bankers, bank supervisors, and members of Congress considered whether federal bank examiners should be incorporated into the classified civil service, which would include competency evaluations, as well as whether they should be offered fixed salaries. Bankers argued that reforming supervision was profoundly important. As one banker wrote, ‘I consider that improved examination is much more important than changes in the currency’ (National Monetary Commission, 1908b, 149). With the growth of deposits as a core bank liability, bankers recognized that financial panics carried significant political consequences. They wanted a supervisory system that, in its effectiveness, forestalled populist cries for more fundamental financial reform.

From fees to salaries

President Theodore Roosevelt (1901–1909), who had headed the U.S. Civil Service Commission from 1889 to 1895, appointed Lawrence O. Murray (1908–1913) comptroller in 1908 with the aim of reshaping bank oversight ahead of the slow-moving legislative process (the previous comptroller, William B. Ridgley, had retired to the National Bank of Commerce, in Kansas City, Missouri) (Kane 1923). In congressional hearings, Murray professed his commitment to civil service principles. Yet he argued that no written test could evaluate the skills and traits examiners needed to perform their work. ‘A man who would commit the national banking act to memory and … pass par on every single question … might be wholly unfit in natural instincts and training and temperament and tact and judgment … to go into a great bank and examine it,’ Murray observed (National Monetary Commission, 1908a, 27). Rather, examiners needed professional knowledge that was social and experiential. To obtain the qualified staff he needed, Murray resolved to only hire candidates with banking experience.

How, though, could the comptroller expect to hire such men at the low pay offered under the fee system? Incredulous, Senator Nelson Aldrich (R-RI), chairman of the commission, asked: ‘You can not get that kind of man for $2,000 a year, can you?’ Murray, like Lacey, emphasized that the revolving door played to the comptroller’s advantage, drawing ambitious, early-career professionals into federal service and eventually returning them – better trained – to well compensated banking careers. ‘You can get a very good man for $2,000—a very good young bank man,’ Murray explained. ‘There are very excellent young material in some of the banks … who will develop into good officers, who are getting $1,200 and $1,500 a year, and are very glad to become national-bank examiners.’ These men ‘will develop into good officers,’ which is to say, good bankers. Examiner was merely a rung, and Murray claimed to have 1,000 applications on file (National Monetary Commission, 1908a, 26).⁷

In advance of congressional hearings, Murray had surveyed national bank examiners, bankers, and other stakeholders to assess their views on legislative changes that might shift examiners into the classified civil service and onto fixed salaries. Opinions were mixed. Bankers and examiners were skeptical of civil service tests that would elevate theoretical knowledge above practical experience. To the extent there was agreement about the merits of the civil service, it centered around making examiner appointments apolitical. To that time, bank examiners still relied on the support of political ‘friends’ to attain their positions (R. White 2017). In the wider context of Gilded Age corruption, stories circulated of patronage appointees who proved little more than nuisances to the banks they supervised (National Monetary Commission, 1908b). Revolving door governance worked when federal officials hired legitimate professionals, not charlatans and favor-seekers.

On the issue of salary, bankers and examiners favored a compensation system that allowed the comptroller to recruit skilled staff and enabled examiners to spend adequate time in banks. Salary, one examiner argued, ‘must be sufficiently large to retain competent examiners, many of whom have left the service and returned to the banks’ (National Monetary Commission, 1908b, 20). The ‘salary,’ an Oklahoma banker observed, ‘should be such that would tempt good men to take the positions’ (64). Over and over, examiners and bankers alike emphasized that the fee system encouraged – perhaps compelled – examiners to move through banks too quickly. By paying examiners appropriate salaries and covering their traveling expenses, respondents explained, Congress would fundamentally improve bank oversight. With a proper salary, ‘an examiner can afford to follow up a slight clue which might lead to important disclosures’ (16).

Countercurrents of support remained for the fee system. Smaller banks, which paid lower fees and expected examination costs to rise under the salary system, supported examination on a fee basis. Some examiners saw the fee system as an inducement to self-directed efficiency, ideas rooted in nineteenth-century masculine work ethic (Rodgers 1979). ‘As soon as an examiner is put upon a salary or per diem and has to make an expense account he, in a measure, loses independence,’ an examiner in Illinois explained (National Monetary Commission, 1908b, 30).

The revolving door sticks

Ultimately the 1913 Federal Reserve Act instituted a system of examiner salaries, and by the mid-1920s national bank examiners were required to pass entrance examinations as a condition of service (Cameron 1924). As a result of the salary revolution, the number of national bank examiners expanded while the number of examinations each performed declined. In 1907, there were 102 national bank examiners, responsible for examining 6,650 banks twice each year, for an average of 130 examinations per examiner (U.S. Comptroller of the Currency 1907). By 1922, 201 field examiners oversaw 8,262 national banks, working out to 82 examination a year. Twelve chief examiners, whose territories aligned with the newly drawn Federal Reserve districts, supervised the field staff, while a varying number of examiners undertook special assignments (U.S. Comptroller of the Currency 1922).

The institutionalization of examiner salaries could be viewed as a pivotal moment, when federal examiners transitioned from facilitative payments and temporary employment to permanent, salaried, Weberian bureaucratic careers (Parrillo 2013). Yet, as Nicholas Parrillo shows in other areas of U.S. governance, the process of bureaucratization advanced unevenly. Even in the nineteenth century, the supervisory bureaucracy had offered some lines of career advancement, both to better compensated examiner positions in large cities and to salaried administrative positions in Washington DC. At the same time, comptrollers continued to articulate a vision of revolving door governance through which bank examiner posts offered practical training for would-be bankers after the salary revolution in bank supervision. As comptroller D. R. Crissinger (1921–1923) wrote in 1922, ‘The best testimony to the high quality and character of the examining force is found in the fact that the bureau has constant difficulty in retaining the services of its skilled examiners because their special qualifications constantly appeal to the best banks, which are continually drafting them away from the bureau at greatly advanced compensation’ (U.S. Comptroller of the Currency 1922, 5).

This constituted a loss for supervisory agencies, as Crissinger recognized, and comptrollers used the constant drain of experienced examiners to lobby for better supervisory compensation. Again in 1925, comptroller Joseph W. McIntosh (1924–1928) told a congressional committee that ‘our turnover now in the personnel of our bank examiners is tremendous, considering the number of men we have. We take these bright young fellows, selected on account of their personality and their ability. They examine the banks and get acquainted with the bankers—’ The Chairman of the committee interrupted him, ‘And then they take them away from you?’ Yes, McIntosh replied, ‘they take them away from us. We have lost three or four just recently in New York’ (U.S. House of Representatives, 1927, 552). Weak ties, developed through supervisory work, continued to open doors into bank employment (Granovetter 1973).

Because the comptroller did not list federal bank examiners between the initial cohort in 1867 and 1902, we lack long-term data on examiner turnover. From one set of lists published in the comptroller’s annual reports from 1903 to 1907, 90% of examiners stayed on for two years, 78% for three years, and 68% for four years. These retention rates occurred during the waning days of the fee system, at a time when the number of nationally chartered banks (and bank examiners) increased rapidly (Appendix). Regular examiner lists resumed in 1916. Overall examiner numbers remained static during World War I, growing incrementally in 1919 and 1920 before experiencing a 50% increase in 1921 (owing perhaps to a new presidential administration). Examiner numbers then stabilized around 200 by mid-decade. For a period covering 1917–1931, 71% of examiners stayed on for two years, 63% for three years, and 52% for four years. In short, after the transition from fees to salaries, examiner cohorts appear to have decayed more quickly, as examiners continued to leave the federal service for private banking employment. As McIntosh explained, ‘I think the examining force is the best place in the world for a young man to start to get into business’ (U.S. House of Representatives, 1927, 69). Comptroller John Pole agreed. ‘Men getting $5,000 a year walk into positions of $15,000 a year and men who are getting $7,500 a year now and then $15,000 or $20,000 a year. It is extremely difficult to compete with commercial banks in matters of salary’ (U.S. House of Representatives, 1930, 155).

Nevertheless, the transition from fees to salaries may have made federal bank supervision more effective, by enabling examiners to spend more time with each bank. With the Great Depression and its cascading bank crises not far on the horizon, that point is debatable (Conti-Brown and Vanatta 2021; E. N. White 2013). After the 1930s banking crises, U.S. financial supervisors stood at a crossroads. They could continue their longstanding practice of recruiting and training talented early career staff, at low pay but with the promise of remunerative banking careers. Or they could bar the revolving door. They never considered the latter choice. Although supervisory training would professionalize after the 1930s – in part because the decimated baking industry offered fewer prospects – revolving door governance remained and remains an active feature of the U.S. supervisory system (Shive and Forster 2017).

Conclusion

From the founding of the National Banking System in 1863 until the New Deal in the early 1930s, revolving door governance was foundational to U.S. financial oversight. The institutional design of bank supervision – following the earlier regime of steamboat inspection – encouraged the hiring of early-career bankers who would bring professional knowledge and social capital into government service; who would develop further knowledge, skills, and professional contacts in government service; and who would then continue their careers in private employment. In this way, federal officials sought to improve bank performance through public oversight and through the private careers of former supervisors. Revolving door governance, as a means of harnessing professional expertise for public purposes, emerged in the absence of organized professions and endured through banking professionalization and the institutionalization of bureaucratic careers. Although embraced by government officials as a governance solution fitted to the nineteenth-century American political economy, the system had deep and enduring flaws. As contemporary revolving door skeptics might predict, favoritism and corruption undermined the effectiveness and legitimacy of the public-private career carousel. This article aimed to provide historical context for contemporary debates about regulatory schooling and regulatory capture, while uncovering revolving door governance as an important mode of nineteenth-century U.S. state building in policy areas – such as bank supervision – that required specialized professional or technical knowledge.

Acknowledgments

I would like to thank the organizers of and participants in the “Human Capital in the History of Financial Regulation and Supervision, 19th–21st Centuries” panel at the 2022 World Economic History Congress, especially Thibaud Giddey, Mikael Wendschlag, and Eiji Hotori for the invitation to participate and Masato Shizume for helpful and encouraging comments. Thanks also to my University of Glasgow Economic and Social History colleagues who provided feedback in our works in progress seminar, to Stephen Mihm and Jesse Tarbert for their comments, and to the journal’s anonymous reviewers. Christina Kim provided invaluable research assistance. Finally, this work builds on an ongoing collaboration with Peter Conti-Brown, which infuses everything written here. All errors, of course, remain my own.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Data availability statement

The data that support the findings of this study are openly available through the University of Glasgow Dataserve: http://dx.doi.org/10.5525/gla.researchdata.1444.

Correction Statement

This article has been corrected with minor changes. These changes do not impact the academic content of the article.

Additional information

Notes on contributors

Sean H. Vanatta

Sean H. Vanatta is lecturer in United States economic and social history at the University of Glasgow and senior fellow at the Wharton Initiative for Financial Policy and Regulation (2023–2024). His research examines the political economy of finance in the United States. He is the author of Plastic Capitalism: Banks, Credit Cards, and the End of Financial Control (Yale University Press 2024) and, with Peter Conti-Brown, The Banker’s Thumb: A History of Bank Supervision in the United States (Princeton University Press, forthcoming). His scholarship has also appeared in journals including Business History Review, Enterprise & Society, and Capitalism: A Journal of History and Economics.

Notes

1. In this essay, ‘national’ and ‘federal’ are used interchangeably to indicate bank examiners employed by the United States government. After 1863, the U.S. had both federal- and state-chartered banks. Individual states maintained their own supervisory institutions. Unless otherwise specified, the focus here will be federal supervisors and supervisory institutions.

2. Revolving door scholarship tends to focus on regulation and regulators, but it includes, by implication, supervisors as well.

3. Here I focus on the American Bankers Association and its Institute of Bank Clerks. Specialized, regional associations, such as the New York Clearinghouse Association (1853), existed earlier, as did formal education in a small number of elite schools, beginning with the Wharton School of Finance and Economy in 1881.

4. For comparison, high-ranking male clerks in the comptroller’s office received between $1,600 and $1,800 a year, lower-ranking male clerks between $1,200 and $1,400, and female copyists and counters $900 (U.S. Secretary of Interior, 1872).

5. A ninth, Sullivan M. Cutcheon, later headed two savings banks in Detroit, Michigan (Moore et al. 1906).

6. All bank capital figures drawn from U.S. Comptroller of the Currency (1922).

7. Murray’s idealized career path from bank employment to government and then back to banking is reflected in contemporary news accounts, eg. ‘D. G. Wing is Elected’ (1900) and ‘Feast is Given for Talbert’ (1909).

Appendix

Source: U.S. Comptroller of the Currency. Annual Report of the Comptroller of the Currency. Washington: Government Printing Office.

Source: U.S. Comptroller of the Currency. Annual Report of the Comptroller of the Currency. Washington: Government Printing Office.