When Banks Fail: Stockholders, Stakeholders, and the Moral Economy around the Panic of 1819

Sharon Ann Murphy

This paper examines the public response to the activities of the Hallowell and Augusta Bank of Maine during the period from 1812-1816, which played out in a legislative committee investigation and court cases into the 1820s.  Some of the bank directors used the foggy situation created by Massachusetts laws to hide their own mishandling of bank funds.  The rationale for granting special privileges such as bank charters was that they provided a public benefit that could not be obtained otherwise. What remained unclear was whether banks were primarily obligated to serve the public interests of their communities, or the private interests of their shareholders?  When these interests came into conflict, whose interests came first?  When and why do we see a shift from the public welfare being paramount, to private interests reigning supreme?  This period around the panic in 1819 appears to be a critical moment when these ideas were being contested in a wide variety of public forums. The misbehavior of banks like the Hallowell and Augusta Bank was an opportunity for the public to debate these issues.