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| Bankers have not always been loved. Adam Smith |
When I came back to New York in the early
1960s and rented an apartment on Jane Street in the West Village, I did my
banking at the Chemical Corn Exchange Bank on 14th Street and Seventh
Avenue. It never occurred to me to ask
what connection there could be between a bank and chemicals or a corn
exchange. In this regard I was probably
no different from most New Yorkers, who are too busy and too hurried to poke
about in the city’s history. But I have
since come to realize that names like “Chemical Corn Exchange Bank” say a lot
about banking in early nineteenth-century New York.
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| A Chemical Bank note, 1835. Back then, bank notes were the common form of currency. |
The New York Chemical Manufacturing
Company was founded in 1823 by a number of enterprising merchants to manufacture
such chemicals as blue vitriol, alum, nitric acid, camphor, and saltpeter, as
well as medicines, paints, and dyes.
Their real goal was to start a bank, which meant obtaining a charter
from the New York State Legislature, but they knew that they would have a
better chance of getting the charter if their bank was part of a larger
business. The legislature’s suspicion of banks probably resulted from the inept
management of the Second Bank of the United States, which many thought responsible for the disastrous Panic
of 1819. But in 1824 the legislature
amended the company’s charter to create the Chemical Bank of New York. Meanwhile the chemical plant continued to
operate at a site north of the city near the Hudson River, its many smokestacks
emitting clouds of black smoke.
Operating as a division of the chemical
company, the bank practiced very conservative banking and catered to the city’s
merchants. It was managed by a
tight-knit group of insiders, which may explain why, for the first 25 years of
its existence, it paid no dividend and no interest on deposits. In a city where banks were abundant, it must
have enjoyed some special kind of mystique to retain the loyalty of
depositors. In 1851 the bank was
separated from the manufacturing company to operate solely as a bank, and from
then on, like most New York banks, it grew through a series of mergers while
surviving periodic panics and depressions.
Then, in 1954, it merged with the Corn Exchange Bank, thus creating the
bank I patronized, the Chemical Corn Exchange Bank of New York.
And the Corn Exchange Bank? Founded in 1852 to operate in connection with
the Flour and Grain Exchange, it engaged primarily in grain, provision, cotton,
and coffee trades. Unlike the Chemical
Bank, it paid a steady dividend from an early date. In 1894 it moved into its new headquarters on
William Street, a sleek 11-story building of granite and limestone that a
guidebook of the time called “immense and elegant,” and that the New York Times hailed as “a noble
monument to the thrift and industry of the bank.” Significantly, the new building was located
between the Cotton and Produce Exchanges.
Five years after its merger in 1954 with the Chemical Bank, the bank
dropped the word “corn” from its name, thus erasing the last trace of its
commodity-linked origin.
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| Aaron Burr, Alexander Hamilton's nemesis. Very much an eighteenth-century gentleman, and handy with a dueling pistol. |
And today?
In 1996 Chemical Bank acquired Chase Manhattan Bank, a venerable
institution dating back to its founding in 1799 as the Manhattan Company by
Aaron Burr, who wanted to compete with the Bank of New York, founded in 1784 by
Burr’s arch rival and future dueling victim, Alexander Hamilton. As for the name “Chase,” it came into the
picture in 1877 with the founding of the Chase National Bank, named for Samuel P.
Chase, Abraham Lincoln’s Secretary of the Treasury during the Civil War and
subsequently Chief Justice of the Supreme Court, who in fact had no connection
with the bank. When Chase National Bank
merged with the Manhattan Company in 1955, the result was the Chase Manhattan
Bank, which the Chemical acquired in 1996, and in so doing took Chase’s name,
since Chase was better known abroad. But
the bank – whatever its name – was still a greedy gobbler and in 2000 completed
its acquisition of J.P. Morgan & Company and took the name J.P. Morgan
Chase, which is the entity that I now deal with daily.
If all these mergers and name changes
confuse you, think what I went through when confronted by one change after
another, often with a change of address for my local branch as well. And why did the final (to date) name change
include the name of J.P. Morgan (1837-1913)?
Because, I presume, John Pierpont Morgan was a titan of finance in his
own time and a name still remembered – whether esteemed or reviled – today. Just look at a photo or portrait of old J.P.,
his ample, mustached form topped by a tall silk hat, his eyes capable of
a fierce look of scorn that could pierce you to the core. And he had a temper. Sensitive about a skin condition that gave his nose a purple tint, he was quick to take a cane to any photographer who tried to photograph him.
When the Panic of 1907 broke out and the major New York banks were on the verge of bankruptcy, Morgan
rushed back to the city, summoned the nation's leading financiers to his mansion, and forced them to devise a plan to quell the panic. And when a major brokerage firm was threatened with a collapse that would have precipitated a hundred other failures and possibly the collapse of the entire financial system, he got President Theodore Roosevelt to promise immunity from antitrust action and then orchestrated the brokerage firm's rescue.
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| Wall Street during the Panic of 1907. The building fronted by columns is Federal Hall (1842), then a U.S. Sub-Treasury building with millions in gold and silver in its vaults. A statue of George Washington (1882) stands in front. Soerfm |
Only Morgan could have quelled the panic, thanks
less to his vast fortune than to his prestige and the domineering gaze of those
piercing eyes; he was a man to whom you didn’t say no. Since old J.P., then seventy, would probably
not be around for the next crisis, bankers and politicians got together
to create the Federal Reserve System in 1913, the very year of Morgan’s
death. The Fed is still with us,
garnering both praise and blame much as Morgan did in his lifetime. What would he think today of the bank that bears
his name, a bank that lost at least $4 billion and probably much more in a bad
trade in 2012? How that look of scorn
would impale Jamie Dimon, the bank’s CEO!
(A personal note: The Panic of 1907 affected many people far
from Wall Street, including my mother’s family.
Her father, a judge in Indiana, suffered losses to the extent that he
sent his elder daughter, my mother, out to get a job. At the tender age of eighteen she became a
schoolteacher in a little one-room rural elementary school, teaching children
of all ages while boarding with a farm family nearby. The older boys were good at arithmetic; she
barely kept a page or two ahead of them.
Fortunately, in winter one of them would get to the school ahead of her
and the others, and light a fire in the wood-burning fireplace. This went on for two years; my mother learned
a lot, not all of it in textbooks; it was a maturing experience.)
To see how the need for a bank might
arise, let’s have a glance at the Bull’s Head Tavern, the city’s cattle market
in the 1830s, located at the corner of Third Avenue and 24th Street,
on the northernmost edge of the city. New
York was growing fast, and its residents had a great appetite for beef, to
satisfy which drovers made overland drives of cattle from as far away as Ohio,
often spending eight weeks on the road. On
Sunday evening in late spring the drovers would bring their herds in, drive
them into the pens, and tumble into bed, sometimes three to a room and two to a
bed. Then, on Monday morning, the tavern
yard would be jammed with hundreds of cattle, urged this way or that by
running, shouting, prodding cattle boys, while butchers and drovers haggled
over the price of the critters, the whole scene unfolding to the music of whinnying,
lowing, grunting, bleating animals. By
afternoon butchers were leading their purchases away, and drovers who had done
well would be standing their friends to drinks at the bar, while others
complained of “the meanest market” and proclaimed themselves “dead broke.”
But
what were the drovers to do about the money due them, when there was no bank up
there on the fringe of the city, and they didn’t want to wait a week until the
butchers paid them? Substituting for a
bank was Dan Drew, an ex-drover who was now the proprietor of the Bull’s Head
and a very smart fellow when it came to money.
Setting himself up as a collector, he cashed the drovers’ bills on the
butchers and held the money in an account for each drover, and for this service
charged one percent. In addition, any
guest with a large amount of cash – a drover who had just been paid, or the
winner in a game of chance – might deposit the funds with Drew, who deposited
them in an iron safe in the brick wall of the taproom. Everyone knew Dan Drew and trusted him, so he
became their banker.
This makeshift system worked for a while,
but as the city grew and grew, and more and more droves came in, the need for a
bank – a real bank with safes, where large sums could be deposited and loans
negotiated – became apparent. And when
Drew left the Bull’s Head and set himself up on Wall Street, that need
intensified, since his successors at the Bull’s Head might know more about
cattle than banking.
The solution was the founding of the
Butchers’ & Drovers’ Bank in 1830, the very year Drew came to the Bull’s
Head. The bank was founded by members of
the cattle trade, but it was located far downtown at the corner of Grand Street
and the Bowery in the settled part of the city, so the drovers must surely have
preferred to deal with Drew at the Bull’s Head.
But the bank endured and, like all New York banks, went through a series
of mergers that repeatedly changed its name and left little trace of its
origins as an institution founded to cater to butchers and drovers. The currency it issued has become a
collectors’ item today.
Nineteenth-century New York was the busiest
port in the nation and the entire Western hemisphere. From its harbor to foreign ports went grain
from the Midwest, cotton from the South, flour from mills in the hinterland, tobacco
from Virginia, and naval stores (tar, pitch, and turpentine, used in building
and maintaining wooden ships) from the pine forests of North Carolina. To its harbor came textiles and iron goods (knives,
pots, scissors, hammers, nails) from England; silks, ribbons, laces, brandy,
and wines from France; gin from Holland; marble and olive oil from Italy; raw
sugar, molasses, and rum from the Caribbean; tobacco and cigars from Cuba;
silver from Mexico; coffee and cowhides from Brazil; tea and chinaware from
China; and ivory and palm oil from the Guinea Coast of Africa.
The seamen on the ships engaged in this
trade numbered in the thousands, and when, at the end of a voyage, they
received their pay, they needed a safe place to deposit it in a city whose
docks were overrun with gangs, and whose streets and horsecars were infested
with pickpockets. The Seamen’s Bank for
Savings was founded in 1829 to encourage thrift among seamen, who all too often
gambled their money away, spent it on liquor and whores, or had it stolen. The bank prospered, surviving the Panics of 1837 and 1857. In 1863, when it was
located on Wall Street, it had $9 million on deposit, which suggests that its
depositors included more than just seamen, though a substantial amount of the
deposits did indeed belong to seamen serving on ships throughout the world.
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| A run on the Seamen's Savings Bank during the Panic of 1857. The excited silk-hatted gentlemen don't look like seamen, which shows that, by then, there were other depositors as well. |
Savings banks were a new development in
the banking world. In New York City they
began when commercial banks and wealthy investors proved unwilling to buy the
bonds financing the construction of the Erie Canal, fearing loss of their
investment if the canal was a failure.
So in 1819 promoters of the canal founded the Bank for Savings in the
City of New York, which welcomed
deposits from ordinary working people and invested in Erie Canal bonds and
other government securities. The bank
was an immediate success and encouraged the organizing of more savings banks.
Savings banks came about because the existing commercial banks had been founded by moneyed gentlemen who dealt only with one another; leery of unfamiliar faces and the hoi polloi, they scorned the small deposits of ordinary people. To remedy this situation, savings banks were established to encourage
thrift among the working classes and provide a safe place for the earnings of
small savers. Usually the founders served as trustees,
overseeing the banks’ operations without pay and managing conservatively. The lack of competition for small deposits,
and the rapid industrial and economic growth of the Northeast, guaranteed the
success of the first savings banks and the founding of more, and the amount of
their deposits soared. An 1866 guide to
New York City lists thirteen such institutions, including the Seamen’s Bank for
Savings, the Mechanics’ and Traders’ Bank, the Merchants’ Clerks Savings Bank,
and the Emigrant Industrial Savings Bank.
This last had been organized in 1850 by Archbishop John Hughes and the Irish Emigrant
Society to protect the savings of newly arrived Irish immigrants and let them
send money to destitute relatives in famine-stricken Ireland. With the appearance of savings banks,
democracy came to the banking industry.
The Seamen’s Bank for Savings survived many more financial panics, including the Great Crash of 1929, only to founder in the
1980s, when soaring interest rates and ill-advised investments in
mortgage-backed securities resulted in heavy losses and the closing of the bank
by federal regulators in 1990, following which the Chase Manhattan Bank bought
its deposits, and the bank’s other assets were sold by the FDIC (Federal
Deposit Insurance Corporation) to repay its creditors. The Emigrant Industrial Savings Bank, on the
other hand, survives today as the Emigrant Savings Bank, a full-service bank
headquartered at 5 East 42nd Street in Manhattan.
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| The Emigrant today, a savings bank that made it big. |
Also listed among commercial banks in the
1866 guide was the Shoe and Leather Bank at the corner of Broadway and Chambers
Street, with a capital of $1 million. A
Shoe and Leather Bank? This, at first
glance, is as puzzling as the name of the Chemical Corn Exchange Bank, but of
course there is an explanation, or at least my guess at an explanation. Founded in 1852, the Shoe and Leather Bank
must have served the needs of merchants involved in the leather trade, which
was concentrated two blocks east of City Hall in a district known as the Swamp,
though the swamp that gave it its name had long since disappeared. Those merchants took dried or salted hides
imported from Argentina, Uruguay, and Brazil and tanned them into leather, the
value of the hides doubling in the process.
Much of the leather was then shipped to Boston to be made into boots and
shoes.
There was just one problem with this
lucrative business: it stank. To dry
them, the tanneries kept malodorous green hides hanging in the open for days,
and the stench, which carried far, was horrendous, perhaps surpassing the stink
of the city’s slaughterhouses. But tanneries
and slaughterhouses were confined to certain districts far removed from the
brownstones where the middle class lived snugly. Located farther uptown at Broadway and
Chambers Street, the Shoe and Leather Bank served depositors whose nostrils were
not offended by the tanneries, which is more than can be said for those unfortunate
enough to live near the Swamp.
Even a glance at the history of early
banking in New York shows how inventive the first bankers were. If an industry or trade needed a safe place
to deposit funds and a reliable source of credit, they created a commercial
bank attuned specifically to the needs of those merchants. And if large numbers of ordinary workmen
wanted to deposit their wages in a safe place and earn a little interest in the
process, civic-minded citizens joined together to found a savings bank
addressed to the needs of those workers.
And most of these banks, being managed conservatively, prospered and
grew, and even survived the financial panics that gripped the nation about
every twenty years. Back then, bankers
could promote the well-being of the community and still make a decent profit
for themselves. There were a few crooks
from time to time, but most of the men in banking were honest. And today? See the note "Banking Today" below.
Relief for the right kind of bank: The New
York Times’s financial columnist Gretchen Morgenson, who covers financial
news from the point of view of small investors and shareholders, reports that
Thomas Hoenig, vice-chairman of the FDIC (Federal Deposit Insurance Corporation,
the agency that insures bank deposits), has proposed regulatory relief not for
the big banks that crave it and lobby for it, but for banks that rarely
fail. The banks he has in mind are the
vast majority of commercial banks that stick to traditional banking (old-fashioned,
boring banking) and go about it with sufficient capital reserves. The banks that would not benefit are the big banks involved in all kinds of
nontraditional, razzle-dazzle deals – the very banks that helped provoke the
crisis of 2008 and got bailed out at taxpayers’ expense. In other words, Mr. Hoenig’s proposal would
help Main Street, not Wall Street. His
proposal needs Congressional approval, so who knows if it will get it. But here at least is a suggestion for
financial reform not initiated and promoted by J.P. Morgan Chase, Citibank,
Wells Fargo, and the other usual suspects.
I wish it great success.
Banking today: Deutsche Bank has just agreed to pay a $2.5 billion fine to settle U.S. Justice Department accusations that it manipulated interest rates underpinning trillions of dollars in mortgages, student loans, and other debt. Similar guilty pleas from Barclays, J.P. Morgan Chase, Citigroup, and the Royal Bank of Scotland are expected by next month.
In 2012 HSBC Bank USA, a subsidiary of UK-based HSBC Holdings, agreed to pay $1.9 billion in fines to settle a money-laundering case brought by the Justice Department. I have often walked past its branch at West 11th Street and Hudson Street, but a short block from my apartment building, but I have rarely seen anyone in there, at best maybe one solitary teller way in back, and one lonely customer; otherwise, just empty desks and vacant teller windows. And last Saturday I saw no one at all in there, but then, it's closed on Saturday, usually a busy day for banks. A curious contrast with my own bank, a branch of J.P. Morgan Chase, which is usually thronged with customers and diligent staff: a receptionist, tellers, two Chase Private Client representatives, a mortgage banker, and others. So what gives with HSBC? And who would bank there, with so many other bank branches available nearby? Meanwhile its London-based parent outfit is contemplating moving its headquarters out of the UK, where stricter regulations following the 2008 financial crisis are making life unpleasant. Ah, those pesky governments again!
Redbuds: It's late April, when here in New York daffodils give way to tulips. This is also the time for redbuds, when the leafless branches of these little trees bear red buds that will soon open into pink flowers. Just yesterday I discovered three of them in the little park diagonally across from my building. This is their moment of glory, when their thin, reddened branches justify the name "redbud." Soon enough the flowers will come and go, and the leaves will come out, making the redbud just another nice little tree with nothing special about it. Tulips give blasts of colors; subtler, redbuds offer a delicate tracery of red. Enjoy redbuds now in the parks; the buds will soon be gone.
Redbuds: It's late April, when here in New York daffodils give way to tulips. This is also the time for redbuds, when the leafless branches of these little trees bear red buds that will soon open into pink flowers. Just yesterday I discovered three of them in the little park diagonally across from my building. This is their moment of glory, when their thin, reddened branches justify the name "redbud." Soon enough the flowers will come and go, and the leaves will come out, making the redbud just another nice little tree with nothing special about it. Tulips give blasts of colors; subtler, redbuds offer a delicate tracery of red. Enjoy redbuds now in the parks; the buds will soon be gone.
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