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INTRODUCTION
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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CAPITAL OF CAPITAL
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
INTRODUCTION
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.
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