Banking and Politics in Antebellum New York

After a long period of solid Democratic control, Whigs secured a majority of seats in the New York State Assembly in 1837, the same year that a major financial panic had crippled the banking system and shaken public confidence in the state's governance. The next year, Whigs proposed a radical new system of “free banking,” in which special charters would no longer need to be obtained from the legislature for a bank to commence operations. Critics of the old chartering system, which required legislative approval of every new bank, charged that it was an inefficient and crooked process that delivered banking monopolies to the powerful and rewarded politicians with kickbacks. This view, shared by many voters, was supported by widespread corruption allegations, the occasional fraud trials, and the connection of the chartering system with the Democratic bloc known as the Albany Regency.
Skeptics, including Governor Marcy, a member of the crumbling Albany Regency, had reservations about displacing the chartering mechanism. Marcy's Democrats had long relied on their capacity to grant special bank charters as a bulwark of party strength and discipline. From a policy standpoint, the governor had long stated his belief that all banks that created money by issuing banknotes should be required to obtain government charters, and he had expressed apprehension about chartering any new banks during the financial chaos of the late 1830s. A rush of new banks was likely to be unleashed if the free banking bill became law. Would this stabilize or further destabilize the state's banking system? The decision facing Governor Marcy was not easy: he could quell public ire by signing the Whigs' bill into law, or he could veto the legislation and seek a less extreme response to the crisis.