35 B Babson, Roger Ward (1875–1967) statisti- cian and stock market analyst Babson was born into a well-established New England family. His father was a successful dry-goods merchant who did not believe in the principles of higher education. He was undisciplined as a youth and was a member of a street gang for a brief period before obtaining his high school diploma. He then attended MIT because it provided a “techni- cal education,” which was more acceptable. After graduating in 1898, he went to work for a Boston stockbroker. He was soon fired for his overly analytical methods and independent spirit. After working for himself briefly in New York City, he returned to Massachusetts to work for another Boston broker. He then established Babson’s Sta- tistics Organization with $1,200 in 1904. The company was later known as Babson’s Reports. The original company was one of the first to accumulate and analyze business statistics and sell the service to subscribers. It was so success- ful that he was able to diversify his interests after several years in business. Following the Panic of 1907 on Wall Street, Babson, already wealthy because of his service’s success, expanded it to include stock market reporting and advice. The service included busi- ness and stock market predictions and made Bab- son very well known in investment circles. He was one of the few market analysts to accurately predict the stock market crash of 1929 although many on Wall Street did not agree. In the 1920s, statistical analysis was not universally accepted. Many Wall Street bankers did not accept that business conditions were anything less than ideal before the crash and continued to believe in a rosy future even after 1929. In addition to his analytical services, Babson was also interested in public service. He served in Woodrow Wilson’s administration as an assis- tant secretary of labor and advocated joining the League of Nations. Later in life, he ran for presi- dent on the National Prohibition Party ticket in 1940. But he was best known for his stock mar- ket services. In addition to his service, Babson also wrote on financial matters in regularly scheduled articles. From 1910 to 1923, he wrote about business and other matters as a regular columnist for the Saturday Evening Post. He also contributed to the New York Times and to the newspapers owned by the Scripps Syndicate. He eventually formed his own syndicate, the Pub- lishers Financial Bur eau, to distribute his writ- ings to papers across the United States. His 36 Baker, George F. reputation was enhanced in the late 1920s when he began predicting a strong stock market reac- tion to the speculative bubble. After the crash, his reputation grew, and he became one of the most sought-after market analysts. During his lifetime, Babson authored 47 books, including his autobiography, Actions and Reactions. His writings covered a wide array of social and economic topics in addition to his sta- tistical and forecasting work. He founded Babson Institute (today Babson College) in Massachu- setts in 1919 and was also instrumental in estab- lishing Webber College for Women in Florida, in part because of his wife’s support for women’s education. His success opened the field to a wide array of newsletters and market analyses that cre- ated an industry of information services sur- rounding Wall Street and business cycles. See also STOCK MARKETS. Further reading Babson, Roger W. Actions and Reactions. New York: Harper & Brothers, 1949. Smith, Earl. Yankee Genius: The Biography of Roger W. Babson. New York: Harper & Brothers, 1954. Baker, George F. (1840–1931) banker Born in Troy, New York, on March 27, 1840, Baker went to live with relatives in Massachusetts when his family moved to Brooklyn and his father became a newspaperman. While living with rela- tives, the young boy noticed that an uncle did no apparent work, preferring to live off interest income instead. From an early age, he, too, decided that he would live off interest despite his middle-class background. After attending the Seward Institute in Florida, a private school, Baker became a clerk in the New York State Banking Department. While working there, he became familiar with a New York banker, John Thompson, who invited him to join in a new banking venture established dur- ing the Civil War in New York City. The new institution was established in order to participate in the sale of T REASURY BONDS during the war through the national banks newly created by the National Banking Act. The bond program was run by Salmon Chase, secretary of the Treasury, who used Jay Cooke & Co. as his primary selling agent. The First National Bank of New York was established on Wall Street in 1863, and the young Baker bought shares in the company with his savings. He became its cashier and a board member in 1865 and quickly began to work his way to the top of the bank’s management. During the Panic of 1873, the bank’s president, Samuel Thompson, feared for the bank’s survival, and Baker decided to begin buying his stock, having faith that the bank would weather the storm. As a result, he became the major figure at the bank, and in 1877 he became its president. In the early 1880s, firmly established, Baker began buying shares in various railroad compa- nies. He specialized in buying and selling compa- nies after helping reorganize them and earned a George F. Baker (LIBRARY OF CONGRESS) Bank Holding Company Act 37 good deal of his fortune in that manner. He also had extensive holdings in other banks and insur- ance companies. By the turn of the 20th century, he held directorships in 43 banks and corpora- tions, making him a charter member of what became known as the “money trust” in New York banking circles. He was also the largest share- holder in the U.S. STEEL CORP. after it was organ- ized by J. P. Morgan in 1901. He remained a close associate and confidant of Morgan. He retired from active management of the bank in 1909 but remained as its chairman. Because of his banking connections and affiliation with Morgan, he became a star witness at the Pujo hearings con- ducted by Congress in 1911, investigating what was known as the “money trust,” the close rela- tionships among New York bankers and their role in allocating credit and capital. During World War I, Baker helped Benjamin S TRONG of the New York Federal Reserve Bank manage operations in the money market, which included determining how much call money would be made available to the stock market. In 1916, he was indicted along with others for loot- ing the New York, New Haven, and Hartford Railroad, but the charge was ultimately dis- missed when his attorney proved that while he attended directors’ meetings, he usually slept through most of them and took no part in their deliberations. Unlike many other bankers, Baker kept some distance between his bank and the securities business directly, establishing an untarnished reputation that earned him the hon- orary title the “Dean of Wall Street” during the 1920s. At his death, his estate was valued at $75 million, making him one of the richest bankers in the country. He also gave substantial sums to many colleges and universities, including the Harvard Graduate School of Business Adminis- tration. His son, George F. Baker Jr., succeeded him as chairman at the bank, which was a major New York City institution before later merging with the National City Bank. After other MERG- ERS, it is a part of Citigroup today. See also CITIBANK;MORGAN, JOHN PIERPONT. Further reading Chernow, Ron. The House of Morgan: An American Banking Dynasty and the Rise of Modern Corporate Finance. New York: Simon & Schuster, 1990. Logan, Sheridan A. George F. Baker & His Bank, 1840–1955. New York: privately published, 1981. Bank Holding Company Act Passed in 1956, the act was concerned with the nonbanking activ- ities of bank holding companies (BHCs), whereas the BANKING ACT OF 1933 (Glass-Steagall Act) had dealt with the relationship between commercial and investment banks. The TransAmerica Corpo- ration, a large California-based HOLDING COMPANY that owned the BANK OF AMERICA, was a major tar- get of the BHCA since it had banking operations, insurance underwriting, manufacturing, and other commercial activities. The purpose of the BHCA was to regulate and control the creation and expansion of BHCs, separate banks from non- banks within the BHC, and minimize the dangers of the concentration of economic power. The major provisions of the BHCA were: (1) The board of governors of the Federal Reserve System (FRB) was given authority to regulate and examine BHCs, (2) the ownership of shares in corporations other than banks was generally prohibited, (3) prior approval of the FRB was required for acquisitions involving more than 5 percent of the stock of the acquired firm, (4) BHCs could acquire banks only in their home state unless the laws of another state specifically allowed them to expand into the new state though existing interstate companies were not required to divest the banks they already held, (5) transactions between BHCs and their affili- ates were limited, and (6) the act reserved the rights of states to exercise jurisdiction over BHC activities. Although states did not have laws allowing interstate acquisition in 1956, they began adopting them in the 1980s and typically grandfathered companies such as Northwest Bancorporation in Iowa and First Interstate, which was operating in several western states. 38 Banking Act of 1933 The major loopholes in the legislation were the exemption of one-bank holding companies (OBHC) and the definition of a BHC as a company owning 25 percent or more of the stock of two or more banks. Without these exemptions, the law would have applied to many more financial organ- izations. Banks later exploited the OBHC loophole as a legal way for banks to acquire nonbanking businesses. The OBHC loophole was plugged by the BHCA Amendments of 1970. Many of the provisions of the BHCA are no longer in effect because they have been super- seded by passage of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, which allows bank acquisitions nationwide and interstate branching, and the Gramm-Leach- Bliley F INANCIAL SERVICES MODERNIZATION ACT of 1999, which allows organizations that can qual- ify as financial holding companies to enter upon any activities that are financial in nature (as opposed to closely related to banking under the original BHCA). During the period of DEREGULA- TION in banking during the 1980s and 1990s, and before the Financial Modernization Act was finally passed in 1999, the BHCA was the pri- mary tool employed by the FEDERAL RESERVE to allow liberalization in the banking system. More recently, its importance has faded as the financial services industry has entered a deregulatory stage while the Federal Reserve has adopted a more liberal policy of regulating bank holding companies. See also INTERSTATE BRANCHING ACT. Further reading Phillips, Ronnie J. “Federal Reserve Regulatory Author- ity over Bank Holding Companies: An Historical Anomaly?” Research in Financial Services 8 (1996). Shull, Bernar d. “The Origins of Antitrust in Banking: An Historical Perspective.” Antitrust Bulletin 41, no. 2 (Summer 1996): 255–288. Spong, Kenneth. Banking Regulation: Its Purpose, Implementation, and Ef fects, 5th ed. Kansas City, Mo.: Federal Reserve Bank of Kansas City, 2000. Ronnie J. Phillips Banking Act of 1933 (Glass-Steagall Act) The law passed during the first months of Franklin D. Roosevelt’s administration that defined the scope of American banking for the rest of the century. It was passed as a result of congressional hearings (the Pecora hearings) investigating the causes of the crash of 1929 and the banking and stock market problems of the 1920s and 1930s. An act of a similar name passed Congress the previous year relating to the gold reserves of the United States. The act defined the bounds of American banking. It listed the activities that a commercial bank could carry out while restricting others. Specifically, it effectively prohibited commercial banks from engaging in INVESTMENT BANKING, requiring banks that practiced both sides of the business to decide within a year which side they would choose. It did so through Section 20 of the law prohibiting commercial banks from being “engaged principally” in underwriting or trading equities, meaning that they could earn only a limited amount of their total revenue from equity related activities. The section effectively made dealing or investing in stocks impossible for commercial banks and precluded them from the investment banking business. The exclusion was aimed at the large New York money center banks, notably J. P. Morgan & Co., which traditionally had practiced a mix of commercial and investment banking and had holdings in insurance companies as well. The National City Bank and the Chase National Bank were also heavily involved in both commercial and investment banking and were the focus of the hearings and the new law. By excluding com- mercial banks from holding equity, the act made expansion into other related financial services difficult and in many cases impossible. The Banking Act also created deposit insur- ance through the FEDERAL DEPOSIT INSURANCE CORPORATION. Almost half of all American banks failed during the Depression, and several hun- dred per year were failing on average before the act was passed. As a result, many depositors banknotes 39 withdrew their funds at a crucial time, and many banks were short of funds for lending. The “money horde” was responsible for the diminu- tion of credit when unemployment was rising and capital expenditures waning, and the intro- duction of deposit insurance on a national scale helped restore faith in the banking system. There was much criticism of deposit insurance at the time, with some detractors calling it socialist or simply not necessary. But when the act passed, after a weeklong banking holiday, depositors began to return to banks. Also included in the act was Regulation Q (Reg Q) of the F EDERAL RESERVE, which allowed the central bank to set interest rate ceilings on deposits in order to prevent banks from entering a bidding war for savers’ funds. In the following decades, this provision protected banks from paying the market rate for deposits and effec- tively protected the banks’ cost of funds. Interest on checking accounts was also prohibited. These regulations lasted for more than 40 years. The major restrictions in the Glass-Steagall Act were lifted gradually over a period of years. In 1980, the DEPOSITORY INSTITUTIONS DEREGULA- TION AND MONETARY CONTROL ACT increased the amount covered by deposit insurance and per- mitted interest-bearing checking accounts. Reg Q was also phased out by the act and disappeared after the DEPOSITORY INSTITUTIONS ACT was passed in 1982. It was not until 1999, when the FINAN- CIAL SERVICES MODERNIZATION ACT was passed, that commercial banks were again free to own investment banking and insurance subsidiaries, although the Federal Reserve had been allowing the practice on a de facto basis since the early 1990s. In response to pressures from the market- place, Congress passed that act, effectively rolling back the major restrictions of the Glass- Steagall Act and creating a more liberal banking and investment banking environment. The Banking Act of 1933 was the most restrictive banking law ever passed. When com- bined with the McFadden Act of 1927, it created a peculiarly American style of banking found nowhere else. For decades, it was considered part of the “safety net” that protected savers and the banking system itself. See also COMMERCIAL BANKING. Further reading Benston, George J. The Separation of Commercial and Investment Banking. New York: Oxford University Pr ess, 1990. Kennedy, Susan Estabrook. The Banking Crisis of 1933. Lexington: University Press of Kentucky, 1973. Geisst, Charles R. Undue Influence: How the Wall Street Elite Put the Financial System at Risk. Hoboken, N.J.: John Wiley & Sons, 2005. W icker, Elmus. Banking Panics of the Great Depression. New York: Cambridge University Press, 2000. banknotes The issuance of banknotes was an integral part of commercial bank operations until the mid-20th century, when the FEDERAL RESERVE monopolized their issuance and circulation. The global history of banknotes can be divided into three periods. Paper money, made from the bark of mul- berry trees, was introduced in China sometime between A.D. 650 and 800. By about A.D. 1000 redeemable banknotes were issued by at least 16 different banks. Overissue led to inflation, which may have ultimately led to the downfall of the Sung Dynasty. Governments in later dynasties also issued paper money, though not necessarily banknotes, but the Chinese experiment with paper money lapsed between 1644 and 1864. In Europe, the earliest paper money was issued by goldsmiths who took in deposits for safekeeping and issued certificates of deposit that developed into currency. Modern banks first appeared in mid-14th-century Italy, but the Stockholm Bank of Sweden is often credited with having been the issuer of the first banknotes in Europe in 1661, redeemable in local copper coins or silver thalers. Banknotes were intro- duced to the British Isles by the Bank of England shortly after it opened in 1694 and by the Bank 40 banknotes of Scotland in 1695. Whereas the Bank of Eng- land’s first issues were certificates of deposit for gold issued in the specific amount of the deposit in pounds, shillings, and pence, the Bank of Scot- land almost immediately issued notes in round denominations between £5 and £100, a practice employed by the Bank of England only in 1745. A £1-note was first issued by the Bank of Scot- land in 1704. Given the poor state of the coinage in the late 17th and early 18th century, ban- knotes issued by reputable bankers became an attractive and convenient means of payment and constituted an important part of the money sup- ply. When coin shortages grew acute, Scottish banknotes were reputedly torn into quarters and halves and accepted as the equivalent of 5 or 10 shillings, respectively. Banks put their notes into circulation by giv- ing them to borrowers who took out loans. So long as the bank maintained a reputation for redeeming its notes, the public was willing to hold them because they were easier to transport and transact with than gold and silver coins of various quality and uncertain value. In holding a bank’s notes, the bank effectively received an interest-free loan from the note-holding public even while it earned interest from borrowers who circulated the notes on the bank’s behalf. Thus, both banks and the public benefited from the issuance of banknotes. Banks earned a return from issued and as-yet unredeemed notes, and the public experienced the reduced cost of trans- acting through barter or with coins of uneven quality. In addition, the replacement of ban- knotes for coins freed precious metals for use in alternative productive activities. The earliest paper money used in the New World was issued by the Massachusetts colony in December 1690 to pay troops recruited for an expedition against Canada. Although gold and silver, mostly of Spanish origin, circulated in the colonies, it was typically of low quality and in short supply. The money supply was regularly augmented by issues of paper money by colonial governments. During the American Revolution, the Conti- nental Congress issued paper money that rapidly depreciated in value during the wartime overissue and massive inflation. It was this wartime experi- ence that led the framers of the Constitution to ban the issuance of bills of credit (paper money) by the individual states. The federal government did not issue paper money again until the exigen- cies of the Civil War forced its hand in 1861. In the interim, banks supplied a large fraction of the U.S. circulating medium through the issuance of banknotes. As early as 1820, banknotes repre- sented about 40 percent of the U.S. money supply (coins + banknotes + deposits). Individual states provided corporate charters to joint-stock banks, which were given the authority to print and circu- late their own notes. Most states limited banknote issues to a multiple of a bank’s paid-in capital, but a few imposed explicit reserve requirements in terms of legal tender coins. One of the most interesting and remarked- upon periods for U.S. banknotes was the Free Banking Era (1837–63). During this era, 18 states allowed banks to issue notes limited only by the value of government bonds the banks were willing to deposit with a regulatory body as collateral and the banks’ willingness and ability to meet redemption calls in coin. The number of banks expanded rapidly to about 1,600 in 1860, each of which issued a half-dozen or more differ- ent denomination banknotes. The diversity of banknotes during the Free Banking Era led to two problems: redemption of notes issued by faraway banks and counterfeit- ing. Redemption of notes that had traveled far from the issuing bank was often handled through interbank clearing relationships, whereby one bank would take in another bank’s notes on deposit and later return them to the issuing bank. The Suffolk Bank of Boston established a region- wide clearing system across New England. Less comprehensive systems were put in place in New York, Philadelphia, and other major cities. Even- tually, these clearing agreements developed into formal arrangements out of which clearinghouse Bank of America 41 associations evolved. In addition to formal inter- bank clearing arrangements, private brokers, known as banknote brokers, emerged who bought notes issued by faraway banks for coin or notes of local banks. It is believed that brokers set prices to reflect transportation and transac- tion costs, redemption risks, and a normal rate of return. In doing so they provided liquidity and monitoring functions. The counterfeiting problem is often thought to have been rampant. Several banknote brokers published weekly or monthly newspapers that reported all known counterfeits, with a typical issue providing descriptions of several dozen to as many as several hundred known and sus- pected counterfeits. In 1863, Congress passed the National Bank- ing Act, which effectively instituted free banking on a national scale. Between 1863 and 1936 any bank meeting federal guidelines could issue its own notes, subject to a number of regulatory con- ditions. To reduce transaction costs and counter- feiting, all notes were produced by the Bureau of Engraving and Printing, using a common design for all banks. The only features that differentiated the notes of one bank from another were the issu- ing bank’s name, its federal charter number, sig- natures of its officers, and the seal of the bank’s home state. Otherwise, the pattern was identical. The Federal Reserve Act of 1913 introduced a new currency—the Federal Reserve note—which remains the principal circulating currency in the United States up to the present. Since the first Federal Reserve notes appeared in 1914, the bank’s notes have changed in size and appear- ance and added colors other than green, begin- ning with the $20-note in 2003. In most developed countries, such as the United States, central banks such as the Federal Reserve have gained a government-mandated monopoly of the money supply. Scotland remains a notable excep- tion. Even up to the present, individual banks in Scotland issue their own currency. What lies in the future for banknotes? Some scholars contend that the I NTERNET is likely to generate media that resemble banknotes, other- wise known as virtual banknotes. PayPal, for instance, already acts like a deposit bank, and its transaction services are increasingly like those offered by the goldsmiths of a much earlier era. From here, it is only a short step to providers of on-line transaction services offering on-line cur- rencies that will circulate freely among buyers and sellers on the Internet. Further reading Bodenhorn, Howard. A History of Banking in Antebellum America: Financial Markets and Economic Develop- ment in an Age of Nation Building. New York and Cambridge: Cambridge University Press, 2000. ———. State Banking in Early America: A New Eco- nomic History. New York and Oxford: Oxford Uni- versity Press, 2003. Dillistin, W illiam H. Bank Note Reporters and Counter- feit Detectors, 1826–1866. New York: American Numismatic Society, 1949. Mackay , James A. Paper Money. New York: St. Martin’s Press, 1975. Quinn, Stephen F., and William Rober ds, “Are On-Line Currencies Virtual Banknotes?” Federal Reserve Bank of Atlanta Economic Review (Second Quarter 2003): 1–15. Howard Bodenhorn Bank of America California bank founded by A. P. Giannini (1870–1949) in San Francisco in 1904 as the Bank of Italy. The son of Italian immigrants, he established the bank with $150,000 in borrowed money in order to serve the retail immigrant community in the city. His reputation was enhanced quickly when he man- aged to stay open during the great earthquake and fire that struck the city in 1906, by rescuing the bank’s money, loading it in a horse-drawn vegetable cart, and taking it home with him. When other bankers refused to open their insti- tutions after the quake, Giannini insisted on opening and extended credit to customers based on a handshake and a signature. 42 Bank of New York Not to be confused with a New York bank having the same name in the earlier part of the century, the bank remained primarily a Califor- nia institution. In 1919, Giannini changed the name of the institution to BancItaly Corp. and again in 1928 put it under the umbrella of a HOLDING COMPANY called the Transamerica Corp. so that it could expand nationally. He then bought the older Bank of America in New York and adopted its name. Because of subsequent laws forbidding interstate branching passed by many states and the M CFADDEN ACT, the bank conducted almost all of its business within Cali- fornia, although it was aided after 1927 by the size of the state, enabling it to have one of the largest branch networks of any bank in the coun- try. But other subsidiaries did operate on a national basis, although most of Transamerica’s activities were concentrated in western states. Giannini’s fame spread in California after making loans to the wine industry and the new MOTION PICTURE INDUSTRY in the 1920s. Prior to World War II, the bank made great inroads into consumer lending especially, being one of the first banks to offer customers con- sumer loans at relatively low rates when com- pared to other lenders. He was among the first bankers to offer auto loans and consumer loans to small customers. After World War II, the bank began to expand into other financial services and international banking. In the late 1940s, it was the largest bank in the country. But Transamerica was the target of many antitrust inquiries, and when the BANK HOLDING COMPANY ACT was passed in 1956 the empire was restricted to operations in California. In the mid-1960s, the Bank of America devel- oped the Visa card, a credit card that extended revolving credit to customers, unlike the estab- lished CREDIT CARDS that demanded full payment upon billing. The bank’s forays into international banking were less successful, and it was signifi- cantly exposed by many loans to less-developed countries in the late 1970s and 1980s, becoming one of the largest single lenders to Mexico before its debt crises began. It suffered a financial and organizational crisis as a result and had to have new management installed. In 1998, the bank agreed to merge with NationsBank of North Carolina to create the first coast-to-coast banking operation in the country. The name Bank of America remained although the merger was actually a takeover by Nations- Bank. In 2004, Bank of America acquired Fleet- Boston, creating the third-largest financial institution in the United States. See also COMMERCIAL BANKING. Further reading James, Marquis, and Bessie Rowland. Biography of a Bank: The Story of Bank of America, 1891–1955. New York: Harper & Bros., 1954. Johnston, Moira. Roller Coaster: The Bank of America and the Futur e of American Banking. New York: T icknor & Fields, 1990. Nash, Gerald D. A. P. Giannini and the Bank of America. Norman: University of Oklahoma Press, 1992. Bank of New York Founded in 1784, the bank is the oldest existing banking institution in the country. The bank’s charter was written by Alexander HAMILTON, who practiced law in New York City at the time. When he became the first Treasury secretary under George Washington, he began a series of borrowings for the government, and the bank was used as an intermediary. The bank did the borrowing, and the government issued warrants on the bank. The technique helped establish the credit of the United States at a time when few foreign investors were interested in doing business with the new government. From its inception, the bank was capitalized “in specie only,” meaning that its capital was money coined in silver or gold rather than land. Its first shareholders were New York business- men who intended that the bank be founded on a reputation for prudent management so the notes it issued would be backed by specific proportions of specie. The bank issued stock, one of the first companies in the United States to do so, and it Bank of the United States, The 43 was traded on the New York stock market, which was conducted out-of-doors along Wall Street. In 1792, it began loaning money to the Society for Establishing Useful Manufactures, which planned a group of factories to be built in Pater- son, New Jersey. It was also a lender to the two major canal projects, the Morris Canal in New Jersey and the ERIE CANAL in New York. Many of the steamship companies operating around New York also received loans from the bank. Most of the loans it originally made were short-terms, maturing in months rather than years. Its stock remains listed on the N EW YORK STOCK EXCHANGE today. Before the Civil War, the bank was a major clearing institution for gold trading and settle- ments. After the war, the bank provided loans to a host of infrastructure investments, including the RAILROADS and utility companies. Of crucial importance to New York City, the bank also pro- vided funds for its subway system, which opened in 1904. Before the BANKING ACT OF 1933 was passed, the bank merged with the New York Life Insurance & Trust Co. in 1922. It later merged with Fifth Avenue Bank in 1948 and with the Empire Trust Co., also in 1948, enabling it to strengthen its trust services even further. As COM- MERCIAL BANKING began to expand in the post– World War II years, especially in the late 1950s and 1960s, the bank established a HOLDING COM- PANY in 1969 and began to open branches around the New York metropolitan area. It also added an international office in London at the same time. The bank’s major acquisition was the Irving Bank Corporation in 1988, one of New York’s best-known banking institutions. In the 1980s, the bank became one of the largest clearers of federal funds in the country and a major factor in the funds clearance system. Its business remains primarily wholesale although it does maintain a retail banking operation and branches. Further reading Domett, Henry W. A History of the Bank of New York 1784–1884. New York: Bank of New York, 1884. Nevins, Allan, ed. History of the Bank of New York & T rust Co. New York: privately published, 1934. Bank of the United States, The The Bank of the United States (BUS) was actually two sepa- rate banks—the First BUS (1791–1812) and the Second BUS (1817–41). The First Bank, envi- sioned by Alexander Hamilton, the nation’s first Treasury secretary, received its 20-year charter from Congress in February 1791. The mixed (20 percent public- and 80 percent privately owned) corporation was capitalized at $10 million, which exceeded the combined capital of all state- chartered banks, insurance companies, and canal and turnpike companies of the time. Investors were permitted to tender newly issued federal bonds as payment for $400 shares in the bank, and this innovation helped to bring U.S. debt securities, which had only three years earlier sold at deep discounts, back to par. In doing so, the fledgling bank contributed to one of Hamilton’s most important achievements—restoration of the credit standing of the United States. In the first decade of its existence, the BUS served as a safety net for the federal government, standing ready to make loans when necessitated by low tax collections. It opened branches in New York, Boston, Baltimore, and Charleston in 1792, and later in Norfolk, Savannah, Washington, and New Orleans. By 1805, half of the bank’s capital was managed by the branches. Starting with the sale of 55 percent of its shares on the open market in 1796, the federal government reduced its dependence on the bank, and the bank shifted its focus toward business lending. In the first decade of the 1800s, the bank and its branches operated essentially as a large commercial bank. It never- theless would on occasion make specie loans to other banks when liquidity needs arose, and pro- vided some unofficial control over note issues by regularly collecting notes of state banks and pre- senting them for redemption. The establishment of a “national” bank had been a contentious political issue in 1790. At that time, those suspicious of the centralized power 44 Bank of the United States, The that such an institution might imply, led by Thomas Jefferson and James Madison, questioned its very constitutionality. By the time that the bank was up for recharter in 1811, these abstract issues were supplemented by a distrust of foreign ownership in the bank, which had exceeded 70 percent by 1809, and questions about its eco- nomic necessity in light of large budget surpluses. The latter arguments were pivotal in Congress’s defeat of the act to recharter by the vice presi- dent’s tie-breaking vote. President Madison, bound by his ideology at the time of the bank’s founding, privately supported recharter but remained publicly neutral. The defeat forced the bank to wind up operations in 1812. As the bank had consistent net earnings of 9 percent over its 20-year existence and had declared dividends of 8 percent regularly, its closing proceeded in an orderly and timely manner. State banks quickly arose in its aftermath to assume its commercial banking functions. The strains of financing the War of 1812, however, led Congress soon to reconsider the efficacy of a quasi-central bank. The Second BUS received a federal charter in 1816 with a capitalization of $35 million, and operated under this charter from February 1817 until March 1836. The Second Bank, like the First, was established to restore order to the cur- rency, but also to facilitate the holding and dis- bursement of the government’s funds by acting as its banker. Aside from overexpanding note issues shortly after opening and a near-suspension of specie payments in 1819, the bank assumed its role effectively until 1829, when rhetoric over recharter escalated between Nicholas B IDDLE, who led the bank from 1823 until 1839, and President Andrew Jackson. Jackson was “afraid of all banks” and the possibility of default on their note issues, and was suspicious of an institution in which individuals could profit by lending the public treasure. The smoldering conflict led Bid- dle to seek early recharter of the bank in the latter part of Jackson’s first term. When the recharter became a campaign issue in 1832, Jackson responded by vetoing the act on July 10, 1832. Upon reelection, Jackson ordered the removal of all government deposits from the Second Bank in 1833 and placed them with selected state- chartered (i.e., “pet”) banks. With its federal charter near expiration, the bank lost much of its regulatory zeal, allowing the pet banks to use the new deposits to expand note issues. With no impending threat of note redemption by the BUS, these issues combined with inflows of specie from abroad to produce a rapid inflation between 1834 and 1836 that ended in the financial Panic of 1837. In the meantime, the Second BUS obtained a state charter from Pennsylvania in 1836 and continued operations until 1841. As bank presi- dent and still the nation’s most influential banker, Biddle actively criticized Jackson’s 1836 policy of requiring specie payments for the purchase of public lands, mostly in the West, to curb specula- tion, and even made unsolicited and apparently unwelcome attempts to steer President Van Buren away from the impending crisis immediately after Jackson left office in the spring of 1837. In the aftermath of the panic, “Biddle’s Bank” used its resources and international reputation to engage in active speculation in the cotton market, and heavy losses from these activities contributed to a First Bank of the United States (NEW YORK PUBLIC LIBRARY) [...]... Action: The Story of the Better Business Bureaus, 19 12 19 62 New York: Association of Better Business Bureaus, 19 62 Jonathan J Bean Biddle, Nicholas (1786–1844) banker, legislator, and diplomat Born in Philadelphia, Biddle was the son of a Philadelphia banker Recognized as a child prodigy, he entered the University of Pennsylvania at age 10 and was scheduled for graduation at 13 Because of his age, he... devaluation as part of an economic 59 package designed to fight inflation The convertibility of the dollar was severed, and the currency began to decline in the markets After months of uncertainty, an international monetary conference, held at the Smithsonian Institution in Washington, officially ended the Bretton Woods system of fixed parities The old band of 1 percent was replaced by a new one of 2. 25 percent... America Chapel Hill: University of North Carolina Press, 20 01 Coleman, Peter Debtors and Creditors in America: Insolvency, Imprisonment for Debt and Bankruptcy 1607–1900 Washington, D.C.: Beard Books, 1999 Mann, Bruce H Republic of Debtors: Bankruptcy in the Age of American Independence Cambridge, Mass.: Harvard University Press, 20 02 Skeel, David A Debt’s Dominion: A History of Bankruptcy Law in America... for his 1 920 muckraking exposes of Ponzi The suit was dropped after Ponzi’s arrest and conviction Barron is widely considered the father of American financial journalism Many of his anecdotes and stories about the financiers of his period can be found in They Told Barron (1930) and More They Told Barron (1931) He also wrote several other books, including War Finance, As Viewed From the Roof of the World... HOUSE OF Further reading Black, David The King of Fifth Avenue: The Fortunes of August Belmont New York: Dial Press, 1981 Bowmar, Dan, III Giants of the Turf: The Alexanders, the Belmonts, James R Keene, the Whitneys Lexington, Ky.: The Blood Horse, 1960 Geisst, Charles R The Last Partnerships: Inside the Great Wall Street Money Dynasties New York: McGraw-Hill, 20 01 Better Business Bureaus 53 Better Business. .. as Ralph NADER and other advocates demanded stricter government control of business A separate critique of advertising’s corrupting influence on the public, particularly children, led to calls for the censorship of commercial speech Fearful of government control, the leading advertising associations joined the Council of Better Business Bureaus in establishing the National Advertising Review Board (NARB)... until 1999 The bank became the symbol of the fragility of the 46 bankruptcy financial system during the late 1 920 s and early 1930s, a period of thousands of bank failures See also NEW DEAL Further reading Werner, M R Little Napoleons and Dummy Directors: Being the Narrative of the Bank of United States New York: Harper & Bros., 1933 Wicker, Elmus The Banking Panics of the Great Depression New York: Cambridge... Andrew Jackson refuses to renew the charter for the Bank of the United States Nicholas Biddle, with the head and hoofs of a demon, runs to Jackson’s left (LIBRARY OF CONGRESS) that “I do not dislike your bank any more than all banks.” There was some animosity on the president’s part toward wealthy men of letters, of whom Biddle was the best example of his generation The animosity had a distinct downside... the money trust He also wrote Business, A Profession (1914), about the success of Filene’s Department Store in Boston Before World War I, Brandeis’s political leanings were seized upon by his opponents in order to portray him as an enemy of big business He opposed bankers’ control of the New England railroads He began a long legal battle against J P Morgan’s control of the New Haven Railroad that... Morgan was forced to divest control of most of the bank’s holdings He also became arbitrator in a strike by New York garment workers After seeing the plight of the workers, many of whom were Jewish, he became active in Zionist causes and remained so for the rest of his life He was the author of Woodrow Wilson’s economic platform in the 19 12 presidential elections and often tutored Wilson on economic matters . A History of the Bank of New York 1784–1884. New York: Bank of New York, 1884. Nevins, Allan, ed. History of the Bank of New York & T rust Co. New York: privately published, 1934. Bank of. the rest of the century. It was passed as a result of congressional hearings (the Pecora hearings) investigating the causes of the crash of 1 929 and the banking and stock market problems of the 1 920 s. Bruce H. Republic of Debtors: Bankruptcy in the Age of American Independence. Cambridge, Mass.: Har vard University Press, 20 02. Skeel, David A. Debt’s Dominion: A History of Bank- ruptcy Law