Ever since Alexander Hamilton and his associates founded the Bank of New-York in 1784, New York City’s banks and bankers have been star actors in the city’s and the nation’s affairs. In every important chapter of the city’s growth—its early 19th-century rise to commercial primacy over its rival, Philadelphia; its promoting of canals, railroads, the Southern plantation economy, and the American industrial revolution; and the 20th-century building of the nation’s corporate headquarters that exported American economic power around the world—New York banks have been front and center. Conversely, almost every major controversy and crisis involving American banking—from the Panic of 1792 to Occupy Wall Street in 2011—has had New York City as a principal setting or target. This book offers a narrative of the intertwined histories of New York City and its banks, from Hamilton’s day to our own.
Over the centuries, for good or ill, New York City has become synonymous with its banks. Though New York has multiple identities—the city of immigrants, the nation’s cultural and entertainment center—it has arguably been a capital of finance for the longest, with Wall Street its reigning symbol. Beginning in the late 18th century, the Lower Manhattan thoroughfare attracted the city’s banks, brokerages, insurance companies, exchanges, and government financial institutions. Ever since, it has represented the contradictory traits that Americans and others have associated with banks, New York City, and urban life in general. Thus, by the mid-19th century, Wall Street and New York City came to stand for great wealth and sophistication in the American imagination, but also arrogance and callousness; conspicuous display of influence, but also concealed power; economic opportunity for the lucky, resourceful, and privileged, but also obstacles to opportunity for most others. No other institution in the city’s history has been more important simultaneously to New York’s development and to its national and global influence and stature. Certainly, the city and its banks have continually shaped and reshaped each other in innumerable ways. Our aim is to explore that relationship—and the ways New Yorkers and many others have understood it—over the course of nearly 230 years.
The book is organized chronologically to follow the trajectory of the city’s banking history from the 18th to the early 21st centuries. Between 1784 and the early 1830s, postrevolutionary New York City quickly became one of the new nation’s important financial centers. By the end of that period, New Yorkers had established the three major types of banks that remain central in American economic history, and to our narrative: commercial banks, which accepted deposits and made interest-bearing loans, initially to merchants and other members of the urban elite; savings banks, which accumulated the deposits of working people and invested them in interest-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 governments. (In the post-Civil War era, these businesses would become full-fledged investment banks, organized to issue stocks and bonds for companies and governments, to raise the capital needed to originate and market those securities, and in many cases to manage the consolidation of companies into larger, industry-dominating corporations.) From these beginnings, New York banks rose to facilitate and fuel the nation’s agricultural economy, to fund its spreading network of canals and railroads, and to help sponsor the commercial, financial, and infrastructural growth of the city itself. New York’s banks were never alone in this process; hundreds and then thousands of other banks spread across the country were also involved. But after the mid-1830s, no other place on the continent concentrated banking capital, ingenuity, and innovation the way New York City did.
Wall Street was where New York bankers channeled English and European loans and investments to underwrite the expansion of the 19th-century American economy. After World War I, and even more decisively after World War II, the same thoroughfare would be central to the nation’s new identity as creditor to the world, and to New York’s position as “capital of capital.” In the following decades, the banks continued to play a vital, if often contested role in the daily life and public affairs of the city itself—amid the ongoing repercussions of the 2008 financial meltdown, continuing dramas over malfeasance and regulation, and the rise of competing “money centers” (London, Hong Kong, Singapore, and other cities) around the world.
Several major themes recur throughout this history and thus in the chapters that follow. New York has consistently been an incubator and promoter of changing financial strategies and instruments, reflecting its role as the nation’s banking center and further enhancing that role over time. From the savings bank in 1819, to the personal loan department in the 1930s, to negotiable CDs and mortgage-backed securities of the late 20th century, New York’s bankers have repeatedly embraced or spurred innovations, usually enhancing their influence and status by doing so. These changing strategies have altered the relationships between banks and governments, business, and the general public. They have also repeatedly shifted the balance of power between banks and their clients, often in unpredictable ways. The late 19th-century “titans of finance” such as J. P. Morgan and Jacob Schiff, investment bankers who took the lead in consolidating industrial corporations, gave way by the 1950s to bankers who scrambled to catch up with the assertive expansion of U.S.-based multinational industrial corporations selling their goods around the world. By the 1980s, the focus had shifted to new, aggressive, risk-taking investment and commercial bankers, impatient with regulations and limits, who often dictated the terms of buyouts to corporate boards and executives or traded securities for their own profit.
New York’s banks—and “Wall Street” in particular—have remained at the center of political debate over the morality and fairness of the nation’s financial economy, and, with their accumulation of capital and ability to provide or deny loans and investments, have been the focal points of heated controversies. New Yorkers, like other Americans, have repeatedly had to grapple with a central tension inherent in banking. Banks match people possessing extra capital (investors and depositors) with people who need credit, thereby fueling economic growth. But banks are then tasked with the large responsibility of managing and reducing the risk inherent in lending and borrowing. As repeated panics and crashes have shown, this risk management is itself a very risky business, and banks have not always kept risks from overflowing and damaging the entire economy. This fact has polarized New Yorkers and others for over two centuries. Against those who have posited the city’s banks as the agents of growth, prosperity, and stability, others have asked whether the banks represent an illicit concentration of wealth and power threatening to extinguish democracy itself. Recurring financial crises radiating out from Wall Street into prolonged nationwide recessions have especially focused popular outrage on banks, blamed for precipitating—or failing to prevent—such catastrophes. Cycles of prosperity followed by unpredictable downturns generated questions about the complicity of New York’s bankers in greed-driven risk taking in 1792, 1837, 1857, 1873, 1893, 1907, 1929, and 2008, to mention only the most severe crises. Even when criticism has targeted the entire nationwide banking system, New York’s concentration of important banks and disproportionate share of the nation’s deposits has made it the convenient and vivid symbol of all of banking’s alleged evils.
At the same time, New York has been a battleground on which ordinary New Yorkers—laborers, artisans, European immigrants, African Americans, Latinos, gays and lesbians, and women—have struggled to expand their own access to bank loans and investments, as well as to bank employment. Sexist, homophobic, and racist denials of loans and mortgages—the latter abetted by federal government policy—have reflected larger upheavals in American society, from the protests of Jacksonian working men in the 1830s against wealthy “aristocrats” to the feminist, gay rights, and civil rights movements of the mid- and late 20th century. However, by fighting battles against New York’s banks, activists have affirmed the importance of banks in controlling the lifeblood of capital that expands economic opportunities.
A related theme is the relationship of New York’s banks to government. Since the mid-19th century, the United States has had two capital cities. Washington, DC has been the political capital; New York has been the cultural, commercial, and financial capital. Within New York State, on the other hand, political power over the city and its banks has often been at least partly in the hands of legislators in Albany. This has meant that New York City’s bankers have been both targets and actors in recurrent efforts by Washington and Albany to regulate, deregulate, and re-regulate American banks. But New York bankers have also played a direct and pivotal role as instigators, initiators, and modifiers of regulatory change in a way rivaled by few other groups of private businessmen in American history. This pattern can be found in the 1830s, when Manhattan bankers availed themselves of President Andrew Jackson’s nationwide Bank War and New York State’s Free Banking Act to clinch their primacy in the nation’s economy; and during the Civil War, when they again played a critical role in the creation of a national banking and currency system, ultimately enhancing their influence. During the 1910s, Wall Street commercial and investment bankers largely fashioned the Federal Reserve System to try to save banks and the economy from financial instability; and during the mid- and late 20th century, New York bankers gradually but effectively led the fight to repeal the strict banking regulations adopted during Franklin Roosevelt’s New Deal. Over the centuries, the relationship between Wall Street on one side and Albany and Washington on the other has been a complex one of mutual suspicion and resentment, but also of lobbying, dialogue, compromise, and collaboration.
Regardless of political stances, debates over regulatory change, and persistent suspicion of Wall Street, the nation’s officeholders, like the American people as a whole, have repeatedly proven that they are deeply dependent on New York’s banks. Nowhere is this more evident than in the fact that U.S. presidents have turned so often to New York City bankers to be their secretaries of the treasury, Federal Reserve chairmen, overseas emissaries, and economic “wise men” (and, increasingly, women as well). The interdependence of New York banks and federal policy making continues today, as lawmakers, regulators, and bankers continue to draft and interpret the fine print of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. It remains to be seen how a new political and regulatory climate, still evolving in the wake of the 2008 Great Recession, will ultimately reshape relationships between banks and the public whose daily lives remain deeply affected by their conduct. New York City’s banking institutions will most likely continue to be engines of economic change and the subject of some of our most intense and deeply felt arguments over the proper role of finance in daily life, the relationship between accumulation and opportunity, and the balance between economic inclusion and exclusion, just as they have been for over 200 years. In that way, its banks will continue to mirror arguments about the nature, meaning, and future of New York City itself.