This article is a more detailed version of what appeared in the April 2008 print edition of ABA Banking Journal. The new material begins after the heading “Pennsylvania banker first”

 

By Steve Cocheo, executive editor, This e-mail address is being protected from spam bots, you need JavaScript enabled to view it

[This article was posted on April 7, 2008 on www.ababj.com, the website of ABA Banking Journal, copyright 2008 by the American Bankers Association.]

    Today, McFadden comes to mind for the namesake McFadden Act. Most bankers, and most Americans, know nothing about him beyond the name of that law, much of which has been eclipsed by later legislation and industry evolution. But in his day, McFadden and notoriety—indeed, controversy—were close fellows, and today, if one does an internet search, his name shows up most often on the sites of groups entertaining conspiracy theories about the Federal Reserve and its alleged hidden powers over the world.
    McFadden’s journey from bank president to congressional leader to obscurity took him through battles with key regulators and a failed attempt to bring about the impeachment of President Herbert Hoover as the U.S. economy slogged through the Great Depression. The latter is interesting in that some historians blame aspects of the crash on McFadden’s namesake legislation.

Pennsylvania banker first
The scene: ABA’s Annual Convention, Washington, D.C., 1920. Back in those days, ABA conventions were very formal affairs, with general session discussions ranging for hours, with noted figures speaking formally or from the floor to issues of the day. The magazine, then more of an association journal of proceedings with some articles, devoted page after page to detailed accounts of such floor discussions.
    During one of those, McFadden was recognized by outgoing ABA President  Richard S. Hawes, vice-president of St. Louis’ First National Bank, during a discussion on the U.S. gold standard, a subject of heated debate among bankers and others in that period. McFadden’s comments ran for pages in the magazine. Hawes followed the congressman’s remarks with this statement:
    “I want it understood that Congressman McFadden is a delegate to this convention, as he happens to be not only a distinguished congressman but a distinguished banker from Pennsylvania.”
    Indeed, in the July 1920 edition, only months earlier, an unusual change of command had been noted in the magazine’s pages, regarding what was then the House Banking and Currency Committee. New York Congressman Edmund Platt, chairman, had resigned his seat, to accept appointment to the Federal Reserve Board. Platt, a newspaperman from Poughkeepsie, was succeeded by McFadden of Pennsylvania, who had served in Congress for about five years—and who was president of First National Bank of Canton, Pa. That bank, founded in 1881, still exists. It changed to a state charter and a new name, Bank of Canton, in 2005.
    McFadden, born in 1876, was the son of a farmer who had fought for the Union in the Civil War. He attended public schools and a commercial college, and, at 16, took a job as office boy at First National in 1892. Seven years later he became cashier, and, in 1916 he became president. He held that post until 1925.
    A Republican, McFadden was first elected to Congress in 1915, and served until 1934. He served as banking committee chairman for six Congresses, from 1920 to 1931. His was a career marked by controversy and aggressive pursuit of his legislative goals.

Flair for controversy
McFadden came into his leadership post on the crest of a wave of controversy, covered, among other places, in The New York Times.
    To be plain, McFadden and John Skelton Williams, Comptroller of the Currency, appeared to have it in for each other. And both seem to have used every weapon they had available.
    The March 1, 1919 Times opened an article headlined, “Williams Answers One Of His Critics,” with this:
    “John Skelton Williams, Controller of the Currency, made public a letter tonight that he had written to Representative Louis T. McFadden of Canton, Penn., accusing him of ‘having taken a shot at me from safe ambush, and skulking away too hastily to know what injury you had done, or to allow the object of your aim opportunity for defense’.”
    Today, of course, the results of examinations are supposed to be kept strictly confidential. But McFadden had spoken out a few weeks earlier in the House against the OCC and Williams. He called the agency unnecessary and suggested that Williams’ administration and conduct be investigated. Williams had called for McFadden to supply proof or an apology, and more fighting ensued. McFadden’s accusations had coincided with arrival of Williams’ renomination on Capitol Hill, and consideration of that renomination by the Senate Banking and Currency Committee.
    So Williams fired off a salvo, detailed in the Times article:
    “Mr. Williams authorized the statement that Mr. McFadden as cashier and president of a bank in Pennsylvania had been under rebuke and criticism of the Treasury Department for over twenty years, through five Federal Controllerships and by fifteen different bank examiners, and that ‘only the constant interference of the Controller’s office had preserved the institution safe’.” The Times story carried further, more-detailed accusations against McFadden’s running of the bank, including excerpts from an OCC letter to the bank’s board accusing the bank of continually violating the law.
    McFadden was known to want the OCC abolished, and at one point introduced legislation calling for that. So Williams continued his attack, through the Times article, claiming that this effort solely arose from McFadden’s attempt to counter OCC efforts involving his bank through his government post.
    Williams was no stranger to controversy. He came out of a family investment banking firm, and had only had his initial appointment confirmed after charges against himself had been cleared by a special inquiry. Those charges had asserted that he had used an earlier Treasury post, as Assistant Secretary, to steer federal deposits to a relative’s bank.
    Indeed, Williams, considered a very strict regulator, made many enemies in the course of his time as “Controller,” the spelling of the day.
    Williams served, as comptroller, on the committee that organized the fledgling Federal Reserve, for instance, and spoke much of the Fed’s promise as a means of decentralizing from a handful of parties the control of the nation’s financial system. For much of his government career, for his part, McFadden was an enemy of the young Fed.
    Williams’ renomination was never approved, but he remained in office for two more years, until the impending arrival of the Administration of Warren G. Harding in 1921 led him to resign. After that, he began attacking the Fed’s policies for their effect on farm prices.
    Meanwhile, First National Bank of Canton had sued Williams, as comptroller, seeking an injunction against him to prevent him from “doing certain things under color of his office declared to be threatened unlawful, arbitrary, and oppressive” and claiming that he did so from “personal ill will” toward McFadden.
    Among the actions charged: “…often demanding special reports and information beyond the powers conferred upon him by law; by disclosing confidential and official information concerning it to banks, members of Congress, representatives of the press, and the public generally; by inciting litigation against it and its officers; by publishing and disseminating false statements, charging it with unlawful acts and improper conduct and reflecting upon its solvency…” and more.
    Those quotations come from the opinion of the U.S. Supreme Court, on its hearing of a procedural point in the case, which point it decided in the bank’s favor.
    Clearly, the two public figures had a grudge. McFadden’s Times obituary indicates the bank eventually won the suit, but an OCC source indicates that the suit was actually dismissed when Williams resigned his post.

McFadden moves on
The banker-congressman survived this melee, and continued to serve, in time becoming banking committee chairman and later, with the Democrats regaining House control, ranking minority member of the committee.
    McFadden appears to have been popular with bankers, for a time. The Journal, in covering him, noted that McFadden “… is a banker and, as head of the House Banking and Currency Committee is generally accredited with having served as a buffer in preventing legislation unjust to banks from being passed.”
    After much work, McFadden and supporters brought the McFadden Bank Act into law in February 1927, when President Calvin Coolidge signed it, in the words of a later McFadden speech, “64 years to the day after Abraham Lincoln signed the National Bank Act and 136 years to the day after George Washington signed the first banking act.” The law recognized national bank powers that had been granted by the Comptroller’s Office on a case-by-case basis beforehand, but today is remembered chiefly as a branching statute. It authorized national banks to operate home-city branch offices where state banks had similar privileges, and was intended to obtain parity for national banks in a time when some worried about their survival. In addition, the law barred interstate branching. In later years the act and the related Douglas Amendment became prime targets of those favoring interstate expansion by banks. The law also liberalized national banks’ real estate lending authorities.
    McFadden basked in industry respect, especially from national banks. A year after the law’s effective date, in “The McFadden Act Justifies Itself,” the January 1928 Journal’s leading article, J.W. McIntosh, then Comptroller of the Currency, wrote, glowingly:
    “The time has been too short to afford a demonstration of the full effects of the Act, but not too short to indicate the tremendous advantages of this legislation, both to the national banks and to the business communities they serve, and indeed, also to the entire banking business.”
    In July 1928, an address titled, “Duties of the Banker That Are Not Cover By Law,” by McFadden, was reprinted in the Journal, with this note from the editor: “Mr. McFadden, himself the author of considerable legislation for the control of the banking business, has come to the conclusion that what is really needed to correct some of the conditions that still worry bankers is less law and more sound thinking on the part of bankers themselves.” The article detailed ways McFadden felt bankers could change their behavior and avoid further legislation and regulation.
    McFadden’s long article contained a section that summarized his philosophy; one small excerpt:
    “Statutory laws can be passed that would have a tendency to check inflation and prevent speculation, but what is the use of talking about statutory laws? They should not be needed among a body of bankers as intelligent as those who are carrying on that business in our country.”

McFadden and the Crash
While his namesake act is most remembered as a branching statute, some historians see it as inevitably connected with the Crash.
    “Real estate lending, primarily nonfarm… was an important source of unsettled banking markets during the Great Depression,” wrote Elmus Wicker in The Banking Panics of the Great Depression (Cambridge University Press, 1996). “The stage was set for the expansion of real estate lending by national banks after the passage of the McFadden-Pepper bill in 1927…” Wicker cited increased sensitivity to depreciation in real estate prices on national banks due to rising concentrations of real estate credit in their portfolios, courtesy of the Act.
    How much of a factor McFadden’s law was, in a decade called the “Roaring 20s” for all kinds of reasons, is best left to economics and historians.
    For his part, McFadden went after other arms of the government.

Latter days in Congress
In 1932, McFadden introduced a 4,500-word resolution calling for the impeachment of President Herbert Hoover, a fellow Republican, for “high crimes and misdemeanors.” McFadden objected to Hoover’s going against congressional insistence against cancellation of war debts from WWI and more, including questionable conversations with international bankers.
    This resolution was unexpected, yet quickly quashed. A month later, McFadden tried again, and failed again. Finally, on his third attempt, he was denied permission to speak from the House floor, in spite of seniority and rank.
    The Republicans got their own back, revoking his ability to make patronage appointments, and spurning his leadership of the Pennsylvania delegation. Some tried to wrest the next Republican nomination for his seat from him. However, he held it, though that term, from 1933-1934, was his last. He lost in 1934, and his attempt to regain his seat two years later failed. He died suddenly during a family trip to New York City in 1936.
    Conspiracy theorists out on the Internet like to question if the diagnosis of “coronary thrombosis” wasn’t a coverup for something more sinister. Their reasoning, also wrapped up in conspiracy thinking, seems to rest on a major address on the House floor made by McFadden against the Federal Reserve, in the words of one transcript of the statement, “one of the most corrupt institutions the world has ever known….In that dark crew of financial pirates there are those who would cut a man’s throat to get a dollar out of his pocket…”

 

• Historical sources for this article, in addition to those mentioned, besides issues of the Journal, include The Dictionary of American Biography, accessed through the Gale’s Biography Resource Center.

[This article was posted on April 7, 2008 on www.ababj.com, the website of ABA Banking Journal, copyright 2008 by the American Bankers Association.]

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