Papers presented by Sean Vanatta since 2019

2025 Atlanta, Georgia

"“The Ascent of the Prudent Man: Trusteeship and the Legal Origins of Financialization”"

Abstract:

In the years after World War II, an alliance of lawyers and bankers rewrote the laws governing trust investments, a campaign that transformed American finance. The changes focused on state-level rules that determined how trustees—who oversaw estates, surplus corporate capital, and blossoming pension funds—could invest funds entrusted to their care. Before the war, most states followed New York’s “legal list” model. Legislatures and courts created strict criteria for permissible investments. These tended to be safe, low-yielding assets, like government bonds, mortgages, and corporate bonds meeting specific criteria. By contrast, Massachusetts and a few outliers followed the “prudent man” rule, which enabled trustees to invest “how men of prudence, discretion and intelligence manage their own affairs.” Here, trustees could invest not only in safe assets, but also in corporate bonds, stocks, and more exotic securities. Seeking to enhance their power over investment portfolios, in the late 1930s organized bankers and lawyers launched a sustained campaign to reframe trusteeship around the figure of the prudent man, supplanting government-mandated investments with the judgement of private fiduciaries. Over the 1940s and 1950s, the rule supplanted the legal list model in most states. State prudent man rules elevated prudent men—trust lawyers, bankers, investment advisers—granting them substantial authority over socially consequential capital allocation decisions that had, under the legal list model, resided in government officials. More broadly, the ideology of the prudent man led public and private investors to pursue maximal individual returns, to downplay systemic risk, and to reject public-spirited tradeoffs (effects especially visible, the paper will show, in public employee pension plans). The ascent of the prudent man was, in the last analysis, a formative vector of financialization.

2024 Providence, Rhode Island

"The Board does not Know of Any Specific Cases of Discrimination”: How Consumer Protection Trumped Antidiscrimination within the U.S. Bank Supervisory Agencies, 1965-1977"

Abstract:

Beginning in the mid-1960s, U.S. consumer and civil rights activists sought to turn an unlikely arm of the federal administrative state to their causes: bank supervision. Fighting against long-standing racial and gender discrimination in banking and in favor of new financial safety measures like price and credit score disclosure, these activists won a string of Congressional victories in the late 1960s and early 1970s, including the Fair Housing Act (1968), the Truth-in-Lending Act (1968, with amendments in 1970), the Fair Credit Reporting Act (1968), the Equal Credit Opportunity Act (1974, with amendments in 1976), and many others. Collectively, these laws made federal bank supervisors—the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve—responsible for ensuring that the nation’s banks complied with new consumer protection and anti-discriminatory provisions. Bank supervisors balked at these novel responsibilities. To that point, federal banking officials had worked to ensure banks remained solvent and stable; they feared consumer protection and antidiscrimination mandates would interfere with what they understood as more important work. Recently, historians have focused significant attention on the legislative victories won by consumer and civil rights groups to make finance more equitable and accessible, but scholars have not yet examined the implementation of these laws. Through close examination of supervisory archives and congressional records, this paper shows that federal supervisors focused most of their attention on helping banks comply with consumer protection laws, in order to protect banks from private consumer lawsuits that could threaten their solvency. Because anti-discrimination laws lacked effective private enforcement provisions, federal supervisors made little meaningful effort to establish patterns of racial discrimination within financial institutions. Over time, civil rights and antidiscrimination laws became subsumed under the larger framework of consumer protection, further weaking an already waning federal commitment to financial equity.

2023 Detroit, MI, United States

"Reinventing Bank Supervision during the New Deal, 1933-1938"

Abstract:

In March 1933, U.S. President Franklin D. Roosevelt saved the American banking system. Taking office amid a wave of bank failures and state-level banking holidays, Roosevelt closed the nation’s banks and promised the American people that his government would only reopen those that were sound. Roosevelt’s banking holiday pulled the economy from the brink and set the stage for landmark reforms aimed at restraining finance and financiers. The story of these reforms—of the legislative contests between Carter Glass and Henry Steagall that produced the separation of commercial and investment banking and instituted national deposit insurance—are well known. So too are the new agencies—the Securities and Exchange Commission and the Federal Deposit Insurance Corporation—created through the New Deal’s reforms. New Deal financial reform, in short, is a story of invention. But what about reinvention? What about the banking agencies—the Comptroller of the Currency and the Federal Reserve—that passed through the fires of bank failure and emerged, intact but changed, on the other side? How did bank supervision, the institutions and practices of government financial oversight, adapt to the financial world the New Dealers made? To unpack how federal officials reinvented bank supervision during the New Deal, this paper examines two core debates within Roosevelt’s administration. First, it examines how U.S. policymakers sought—and failed—to consolidate bank oversight into one agency. Second, once consolidation failed, it shows how officials sought and achieved uniformity in bank oversight practices across the disparate banking agencies. Of critical importance in these debates were bank examination forms and the ways supervisors and bankers would use and interpret those forms in the oversight process. Through protracted negotiations mediated by the Secretary of the Treasury, the heads of the U.S. banking agencies wrestled with how the banking system had changed after the new deal by arguing (and arguing) over the content of the forms. In taking up this second debate, the paper also links back to the midyear conference panel on forms and reports.

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2023 Detroit, MI, United States

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2022 Mexico City

"The Ascent of the Prudent Man: State Trust Rules and the Origins of Financialization"

Abstract:

In the years after World War II, an alliance of lawyers and bankers quietly rewrote the state laws governing trust investments, a campaign that transformed American capital markets. The changes focused on state-level rules that determined how trustees—who oversaw estates, surplus corporate capital, and blossoming pension funds—could invest funds entrusted to their care. Before the war, most states followed New York’s “legal list” model. Legislatures and courts created strict criteria for permissible investments. These tended to be safe, low-yielding assets, like municipal, state, and US bonds. By contrast, Massachusetts and a few outliers followed the “prudent man” rule, which enabled trustees to invest “how men of prudence, discretion and intelligence manage their own affairs.” Here, trustees could invest not only in safe government bonds, but in corporate bonds, stocks, and more exotic securities. Guided by the American Law Institute, lawyers encouraged wider adoption of the prudent man rule beginning in the 1930s. They were joined in the early 1940s by the American Bankers Association (whose member banks managed trust investments). Writing in The Virginia Law Review in 1948, future Supreme Court Justice Lewis F. Powell, Jr., argued that the prudent man rule was “the manifest trend of the times.” Over the 1940s and 1950s, the rule supplanted the legal list model in most states, with several consequences. First, prudent man rules elevated prudent men—trust lawyers, bankers, investment advisers—granting them substantial authority over socially consequential capital allocation decisions that had, under the legal list model, resided in state legislatures. In practice, trustees seized the opportunity to prioritize corporate over public investment. More broadly, the ideology of the prudent man led public and private investors to pursue maximal individual returns, to downplay systemic risk, and to reject public-spirited tradeoffs. The ascent of the prudent man was, in the last analysis, a formative vector of financialization.

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2021 Hopin Virtual Events Platform

"The Origins of Federal Bank Supervision and Supervisory Discretion, 1863-1875"

Abstract:

American political historians have long seen the Civil War as a watershed moment for the American state, when governance through “courts and parties” began to give way to the Yankee Leviathan—to a new and more assertive federal bureaucracy. The Comptroller of the Currency, who oversaw the new national banking system beginning in 1863, was central to this transformation. Yet, while the early Comptrollers built a federal banking system and a bureaucracy to oversee it from scratch in the mid-1860s, so far this effort has eluded sustained scholarly attention. This paper, part of a larger project on the history of federal bank supervision, will begin to fill that gap. It will argue that although Congress provided a scanty and constrained blueprint for the office of Comptroller, its first occupant, Hugh McCulloch, nevertheless developed an activist oversight institution around a moral vision for federal financial governance. Drawing on the early records of the Comptroller, along with examination reports and examiner diaries, it will show the ways McCulloch empowered clerks in Washington and examiners in the field to monitor bankers and ensure they were pursuing what he called a “straightforward, upright, legitimate banking business.” As the paper will show, this phrase embraced an idealized set of business practices, which would ensure the successful operation of a bank in the public interest. In pursuing this vision, McCollough went far beyond the limited construction of his powers under the National Bank Acts, inscribing the judgement and discretion of government officials as core tenants of what would become federal bank supervision. Arguably, these remain central down to the present.

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2020 Charlotte, North Carolina

"The Fall of Fiscal Mutualism: New York State Public Employee Pensions and the State Origins of Financialization"

Abstract:

Beginning in late 1950s, New York Comptroller Arthur Levitt fundamentally reconfigured his state’s fiscal relationship with its public employee retirement system. In 1958, 30 percent of the retirement system’s $1.1 billion in assets, set aside to provide retirement security to state workers, were invested in state and local bonds. Then Levitt began to divest. By 1967, local securities made up less than 2 percent of pension assets, replaced with corporate stocks and bonds, 35 percent of the state’s $2.7 billion portfolio. In orchestrating this transition, Levitt shifted the pension system away from its longstanding fiscal support of the local infrastructure of postwar liberalism. State workers and local governments, formerly bound in a relationship of fiscal support—which I call fiscal mutualism—were now equally dependent on financial markets, with broadly divergent outcomes. Entrusted to the financial instruments of corporate capitalism, pension yields went up, for a time at least. So did local bond rates, as municipalities experienced the full weight of market discipline. So far, the story of the rise of finance in the United States has been a federal story, told in conjunction with the fall of the New Deal order during the pivotal decade of the 1970s. States, meanwhile, have been left out of the narrative. The experience of New York’s pension system reveals, however, that state policymakers turned to finance sooner and trusted in markets earlier than scholars have recognized. By bringing state-level financial intermediaries like Levitt to the center of the story, this paper demonstrates that finance was not the end of the New Deal order, it was its foundation.

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