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Introduction New York, Banking City

Ever since Alexander Hamilton and his associates

traits that Americans and others have associated

founded the Bank of New-York in 1784, New York

with banks, New York City, and urban life in gen-

City’s banks and bankers have been star actors

eral. Thus, by the mid-19th century, Wall Street

in the city’s and the nation’s affairs. In every

and New York City came to stand for great wealth

important chapter of the city’s growth—its early

and sophistication in the American imagination,

19th-century rise to commercial primacy over

but also arrogance and callousness; conspicuous

its rival, Philadelphia; its promoting of canals,

display of influence, but also concealed power;

railroads, the Southern plantation economy,

economic opportunity for the lucky, resourceful,

and the American industrial revolution; and the

and privileged, but also obstacles to opportunity

20th-century building of the nation’s corporate

for most others. No other institution in the city’s

headquarters that exported American economic

history has been more important simultaneously

power around the world—New York banks have

to New York’s development and to its national

been front and center. Conversely, almost every

and global influence and stature. Certainly, the

major controversy and crisis involving American

city and its banks have continually shaped and

banking—from the Panic of 1792 to Occupy Wall

reshaped each other in innumerable ways. Our

Street in 2011—has had New York City as a princi-

aim is to explore that relationship—and the ways

pal setting or target. This book offers a narrative

New Yorkers and many others have understood

of the intertwined histories of New York City and

it—over the course of nearly 230 years.

its banks, from Hamilton’s day to our own. Over the centuries, for good or ill, New York

The book is organized chronologically to follow the trajectory of the city’s banking history

City has become synonymous with its banks.

from the 18th to the early 21st centuries. Between

Though New York has multiple identities—the city

1784 and the early 1830s, postrevolutionary

of immigrants, the nation’s cultural and enter-

New York City quickly became one of the new

tainment center—it has arguably been a capital of

nation’s important financial centers. By the end

finance for the longest, with Wall Street its reign-

of that period, New Yorkers had established the

ing symbol. Beginning in the late 18th century,

three major types of banks that remain central

the Lower Manhattan thoroughfare attracted the

in American economic history, and to our narra-

city’s banks, brokerages, insurance companies,

tive: commercial banks, which accepted deposits

exchanges, and government financial institutions.

and made interest-bearing loans, initially to

Ever since, it has represented the contradictory

merchants and other members of the urban elite; savings banks, which accumulated the deposits of working people and invested them in interest-

v James H. Cafferty, Wall Street,

Half Past 2 O’Clock, Oct. 13, 1857 (detail), 1858. Oil on canvas (50 × 39½ in).

Museum of the City of New York, Gift of the Honorable Irwin Untermyer, 40.54

earning securities, in order to teach depositors the values of thrift and economic foresight and provide them a means to get ahead; and the firms of investment bankers who bought and sold stocks and bonds issued by corporations and


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governments. (In the post-Civil War era, these

the relationships between banks and governments,

businesses would become full-fledged investment

business, and the general public. They have also

banks, organized to issue stocks and bonds for

repeatedly shifted the balance of power between

companies and governments, to raise the capital

banks and their clients, often in unpredictable

needed to originate and market those securities,

ways. The late 19th-century “titans of finance”

and in many cases to manage the consolidation

such as J. P. Morgan and Jacob Schiff, invest-

of companies into larger, industry-dominating

ment bankers who took the lead in consolidating

corporations.) From these beginnings, New York

industrial corporations, gave way by the 1950s

banks rose to facilitate and fuel the nation’s agri-

to bankers who scrambled to catch up with the

cultural economy, to fund its spreading network

assertive expansion of U.S.-based multinational

of canals and railroads, and to help sponsor the

industrial corporations selling their goods around

commercial, financial, and infrastructural growth

the world. By the 1980s, the focus had shifted to

of the city itself. New York’s banks were never

new, aggressive, risk-taking investment and com-

alone in this process; hundreds and then thou-

mercial bankers, impatient with regulations and

sands of other banks spread across the country

limits, who often dictated the terms of buyouts to

were also involved. But after the mid-1830s, no

corporate boards and executives or traded securi-

other place on the continent concentrated bank-

ties for their own profit.

ing capital, ingenuity, and innovation the way New York City did. Wall Street was where New York bankers

New York’s banks—and “Wall Street” in particular—have remained at the center of political debate over the morality and fairness of the

channeled English and European loans and

nation’s financial economy, and, with their accu-

investments to underwrite the expansion of the

mulation of capital and ability to provide or deny

19th-century American economy. After World

loans and investments, have been the focal points

War I, and even more decisively after World War

of heated controversies. New Yorkers, like other

II, the same thoroughfare would be central to the

Americans, have repeatedly had to grapple with

nation’s new identity as creditor to the world, and

a central tension inherent in banking. Banks

to New York’s position as “capital of capital.” In

match people possessing extra capital (investors

the following decades, the banks continued to

and depositors) with people who need credit,

play a vital, if often contested role in the daily

thereby fueling economic growth. But banks are

life and public affairs of the city itself—amid the

then tasked with the large responsibility of man-

ongoing repercussions of the 2008 financial melt-

aging and reducing the risk inherent in lending

down, continuing dramas over malfeasance and

and borrowing. As repeated panics and crashes

regulation, and the rise of competing “money cen-

have shown, this risk management is itself a very

ters” (London, Hong Kong, Singapore, and other

risky business, and banks have not always kept

cities) around the world.

risks from overflowing and damaging the entire

Several major themes recur throughout this

economy. This fact has polarized New Yorkers

history and thus in the chapters that follow. New

and others for over two centuries. Against those

York has consistently been an incubator and

who have posited the city’s banks as the agents of

promoter of changing financial strategies and

growth, prosperity, and stability, others have asked

instruments, reflecting its role as the nation’s

whether the banks represent an illicit concentra-

banking center and further enhancing that role

tion of wealth and power threatening to extinguish

over time. From the savings bank in 1819, to the

democracy itself. Recurring financial crises

personal loan department in the 1930s, to nego-

radiating out from Wall Street into prolonged

tiable CDs and mortgage-backed securities of

nationwide recessions have especially focused

the late 20th century, New York’s bankers have

popular outrage on banks, blamed for precipitat-

repeatedly embraced or spurred innovations,

ing—or failing to prevent—such catastrophes.

usually enhancing their influence and status by

Cycles of prosperity followed by unpredict-

doing so. These changing strategies have altered

able downturns generated questions about the


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clinch their primacy in the nation’s economy; and during the Civil War, when they again played a

1929, and 2008, to mention only the most severe

critical role in the creation of a national banking

crises. Even when criticism has targeted the

and currency system, ultimately enhancing their

entire nationwide banking system, New York’s

influence. During the 1910s, Wall Street commer-

concentration of important banks and dispropor-

cial and investment bankers largely fashioned

tionate share of the nation’s deposits has made

the Federal Reserve System to try to save banks

it the convenient and vivid symbol of all of bank-

and the economy from financial instability; and

ing’s alleged evils. At the same time, New York has been a


complicity of New York’s bankers in greed-driven risk taking in 1792, 1837, 1857, 1873, 1893, 1907,

during the mid- and late 20th century, New York bankers gradually but effectively led the fight to

battleground on which ordinary New Yorkers—

repeal the strict banking regulations adopted

laborers, artisans, European immigrants, African

during Franklin Roosevelt’s New Deal. Over the

Americans, Latinos, gays and lesbians, and

centuries, the relationship between Wall Street on

women—have struggled to expand their own

one side and Albany and Washington on the other

access to bank loans and investments, as well as

has been a complex one of mutual suspicion and

to bank employment. Sexist, homophobic, and

resentment, but also of lobbying, dialogue, com-

racist denials of loans and mortgages—the lat-

promise, and collaboration.

ter abetted by federal government policy—have

Regardless of political stances, debates over

reflected larger upheavals in American society,

regulatory change, and persistent suspicion of

from the protests of Jacksonian working men in

Wall Street, the nation’s officeholders, like the

the 1830s against wealthy “aristocrats” to the

American people as a whole, have repeatedly

feminist, gay rights, and civil rights movements

proven that they are deeply dependent on New

of the mid- and late 20th century. However, by

York’s banks. Nowhere is this more evident than

fighting battles against New York’s banks, activ-

in the fact that U.S. presidents have turned so

ists have affirmed the importance of banks in

often to New York City bankers to be their secre-

controlling the lifeblood of capital that expands

taries of the treasury, Federal Reserve chairmen,

economic opportunities.

overseas emissaries, and economic “wise men”

A related theme is the relationship of New

(and, increasingly, women as well). The interde-

York’s banks to government. Since the mid-19th

pendence of New York banks and federal policy

century, the United States has had two capital

making continues today, as lawmakers, regulators,

cities. Washington, DC has been the political

and bankers continue to draft and interpret the

capital; New York has been the cultural, com-

fine print of the Dodd-Frank Wall Street Reform

mercial, and financial capital. Within New York

and Consumer Protection Act of 2010. It remains

State, on the other hand, political power over the

to be seen how a new political and regulatory cli-

city and its banks has often been at least partly

mate, still evolving in the wake of the 2008 Great

in the hands of legislators in Albany. This has

Recession, will ultimately reshape relationships

meant that New York City’s bankers have been

between banks and the public whose daily lives

both targets and actors in recurrent efforts by

remain deeply affected by their conduct. New

Washington and Albany to regulate, deregulate,

York City’s banking institutions will most likely

and re-regulate American banks. But New York

continue to be engines of economic change and

bankers have also played a direct and pivotal

the subject of some of our most intense and deeply

role as instigators, initiators, and modifiers of

felt arguments over the proper role of finance in

regulatory change in a way rivaled by few other

daily life, the relationship between accumulation

groups of private businessmen in American

and opportunity, and the balance between eco-

history. This pattern can be found in the 1830s,

nomic inclusion and exclusion, just as they have

when Manhattan bankers availed themselves of

been for over 200 years. In that way, its banks will

President Andrew Jackson’s nationwide Bank

continue to mirror arguments about the nature,

War and New York State’s Free Banking Act to

meaning, and future of New York City itself.


Capital of Capital, by Steven H. Jaffe and Jessica Lautin