CHAPTER 1

A BRIEF HISTORY OF BANKING

There is no certainty as to when banking In England, the safekeeping of precious

began, but the act of exchanging various coins or objects was entrusted to gold-

AL
forms of payment dates from prior to the smiths, who had the only safe storage vaults
third millennium BC (Heathcote 2000, p. or boxes. Their customers knew that was

RI
9). The first banks were likely temples, how the goldsmiths kept safe their valuables
where people could exchange items such as and began to ask if their own could be kept

TE
cattle, implements, or precious metals, be- in the smiths’ vaults as well. Written re-
fore the use of coins. When coins of pre- ceipts allowed both customers and the gold-
cious metals began to be used as payment, smiths to know what was stored at a given

MA
“money changers” were those who under- time. Soon, customers, and then the gold-
stood the relative value of various coins and smiths, began to exchange these written
could provide the means for a desired ex- receipts, instead of the actual stored items.
change. Thus began an early form of monetary note
D
Banking then declined in medieval Eu- (Moore 1987, p. 9).
TE
rope because of religious opposition to The practice became so commonplace
“usury,” which is the collection of interest that in 1694 the Bank of England was char-
added to a loaned amount. The Renaissance tered by the government and allowed to is-
GH

brought a revival of banking, most promi- sue its own notes, early forms of paper
nently in Italy where Marco Polo had intro- currency. This originally private bank was
duced a trade route to the east, and with later to become England’s Central Bank
RI

that, its exotic products. In the fourteenth (Mayer 1987, p. 27).

century, the famous banking houses in
PY

Venice and Florence brought about the BANKING IN THE UNITED STATES
modern practice of banking as it came to be Banking in the United States developed rela-
known. In fact, the English bank derives tively late. The economy in colonial America
CO

from the Italian banco, meaning was principally agricultural, and credit was
“bench”⎯the tables where early banking extended to farmers by merchants in cities
transactions occurred (Mayer 1987, p. 26). such as Boston or Philadelphia. These mer-
As trade increased and more people trav- chants then bought on credit from their
eled greater distances to exchange goods, the British suppliers, and when the harvest came
need for an accurate means of monetary in, the whole chain was paid off. Because
measure increased as well. Coins soon be- the British credit system was cut off during
came difficult and unwieldy to carry in large the Revolutionary War, the need for indige-
numbers, and the need for an alternative nous banks became clear. Several of the
resulted in the creation of paper money, colonies had previously established “land
which was first used in China (Williams banks.” These issued notes to make loans
1997, p. 149). against land, but they very soon experienced

1
A BRIEF HISTORY OF BANKING

쑺 First Bank of the United

States, Philadelphia,
Pennsylvania, 1797; attributed
to Samuel Blodgett. Greek
temple–inspired architecture
was selected for many early
bank projects. Historic
American Buildings Survey.

problems with over-issue and depreciation Economic complications resulting from

of their notes. The few that did not fail were the War of 1812 prompted Congress to cre-
closed by the British Colonial administra- ate the Second Bank of the United States in
tion in 1741 (Kohn 2004, p. 134). 1816, also with a twenty-year charter. The
In 1781, the Bank of North America was building was designed by William Strickland.
chartered within the Commonwealth of Continuing political differences resulted in
Pennsylvania, to help finance the Revolution- President Andrew Jackson’s veto of the ex-
ary War, but for another ten years there was tension of that charter in 1836. From then
no nationally chartered bank. In 1791, Con- until the Civil War era, free banks could be
gress granted the First Bank of the United established by anyone who could provide a
States a twenty-year charter at the behest of minimum capital outlay and deposit speci-
Alexander Hamilton, the first Secretary of the fied amounts, in the form of bonds, with a
Treasury. The bank building’s design was at- state agent. With such minimal restraint,
tributed to Samuel Blodgett, although this however, many of these failed, often because
has been questioned (Belfoure 2005, p. 16). of defaults on the states’ bonds they were
The early colonial banks—which had since holding. By 1860, eighteen of the then thir-
become state institutions—were then com- ty-two states had enacted “free charter” laws,
peting with the First Bank of the United and these contributed significantly to the
States. They objected to its continuation, and westward expansion of the country.
in 1811 Congress failed to renew its charter. For the most part, banks of this era were

2
 Banking in the United States

쑸 Second Bank of the United

States, Philadelphia,
Pennsylvania, 1820; William
Strickland. Simple Doric
columns were used here.
Historic American Buildings
Survey.

designed in the classical Greek, Italianate, Office of the Comptroller of the Currency
1
French Second Empire, Victorian Gothic, or (OCC), the bureau that has authority over
English Queen Anne style. Then the work all national banks to this day. (See chapter 2
of Henry H. Richardson brought about a re- for a description of the duties and responsi-
vival of the eleventh-century Romanesque bilities of the OCC.)
style in the 1870s. Surprisingly, Richardson The new banks were required to back
only designed one bank, the Agawam Bank their notes with federal government securi-
in Springfield, Massachusetts, and it was not ties, and the numbers of new banks quickly
in the style for which he became famous. grew. Severe financial panics occurred, de-
His many other commissions, however, were spite these safeguards, in 1893 and again in
the inspiration for countless banks through- 1907. These led to the establishment of the
out the United States well into the early National Monetary Commission, which
twentieth century (Belfoure 2005, p. 104). then recommended passage of the Federal
2
In 1863, Congress enacted the National Reserve Act (1913).
Banking Act to finance the Civil War, and The Federal Reserve was then established
by 1866 there were 1,600 nationally char- in order to provide a central bank as the
tered banks, which accounted for 75 percent
of all bank deposits in the United States. 1. http://www.occ.gov (accessed September 15, 2007).
This act also brought about the first uni- 2. http://federalreserve.gov (accessed September 17,
form national currency and established the 2007).

3
A BRIEF HISTORY OF BANKING

lender of last resort, and to establish moni- tional Farmers Bank project, together with
tory policy for the entire country. (Chapter William G. Purcell, formed Purcell and
2 provides a description of the Federal Re- Elmslie, Architects. They produced several
serve and its responsibilities.) important bank projects, including the Mer-
chants Bank of Winona, in Minnesota
Louis Sullivan and the Prairie Style (Belfoure 2005, pp. 194–211). Completed
Louis Sullivan was already a noted architect in 1912, it was significant for its innovative,
when he designed his first bank project in Sullivan-inspired exterior.
1907, the famous National Farmers Bank in Frank Lloyd Wright, who produced
Owatonna, Minnesota. so many significant buildings in his long
Sullivan’s design philosophy of “form fol- career, designed relatively few banks. The
lows function,” which his even more architectural significance of the early
renowned protégé Frank Lloyd Wright also Prairie-style banks is acknowledged by crit-
espoused, influenced other, lesser-known but ics and historians alike, but unfortunately
significant architects of the upper Midwest. this design movement did not spread to the
These early twentieth-century architects be- rest of the country, where the majority of
lieved American architecture should cease banks continued to be designed in a classi-
copying the classical styles. George G. Elms- cal revival style. It was not until the late
lie, who had worked for Sullivan on the Na- 1920s that architects and their banker

쑺 National Farmers Bank,

Owatonna, Minnesota, 1908;
Louis Sullivan. Louis Sullivan’s
most famous bank is still
beautiful more than 100 years
later. Historic American
Buildings Survey.

4
Banking in the United States

쑸 Merchants Bank of Winona,

Minnesota, 1912; Purcell and
Elmslie. This plan is
remarkably similar to bank
plans that became popular
many years later. Some
branch facilities today are
reminiscent in their use of
lobby, teller, and desk space.
Illustration by the author, after
an image from Western
Architect, January 1915.

쑸 Merchants Bank of Winona,

Minnesota, 1912; Purcell and
Elmslie. The terra-cotta
ornament made popular by
Louis Sullivan is clearly visible
on the facade of this bank
building, perhaps the best
work of Purcell and Elmslie.

5
A BRIEF HISTORY OF BANKING

ket events led to the insolvency of numerous

banks across the country. Most hard-hit
were rural banks that had financed agricul-
tural loans, but banks in cities also faced
great hardship. Continuous “runs” were be-
ing made, wherein customers, fearing an im-
mediate collapse of their bank, lined up to
ask for their money to be refunded. These
difficulties led to the “bank holiday” of
1933, during which all U.S. banks were
closed for four days to allow for an evalua-
tion of remaining banks and to assure the
public of their solvency (Klebaner 1990, p.
138).
The events stemming from the Depres-
sion led to the establishment of the Federal
Deposit Insurance Corporation, which ini-
tially provided for $2500 in insurance for
each depositor, in case the insured institu-
tion became insolvent. This limit was later
increased to $100,000, until recently, when
a temporary limit of $250,000 was estab-
lished as a result of the nationwide financial
turmoil of 2008. It is expected to be re-
duced to $100,000 again at the end of
2009. The Great Depression also brought
about significantly more oversight by the
regulating governmental agencies.
Another effect of the Great Depression
was a change in the characteristic architec-
tural style of American banks. Although the
Depression did not end immediately, the re-
maining financial institutions eventually re-
clients would consider a more modern style gained their viability and a new outlook in
for bank design. design began to prevail. One of the early
modern banks was the 32-story Philadelphia
THE GREAT DEPRESSION Savings Fund Society building, built in
The stock market crash of 1929 marked the 1932. It was designed by William Lescaze
beginning of the Great Depression, which and George Howe and has been called
soon became a worldwide circumstance. America’s first “truly modern skyscraper”
Bank construction came to a halt, and mar- (Belfoure, p. 227).

6
 World War II and the Postwar Era

쑸 Manufacturer’s Trust, New

York City; SOM, 1954. This
bank became a design
pacesetter for the postwar
years in the United States.
Illustration by Dwain South.

쑸쑸 Philadelphia Savings Fund

Building, 1932; Howe &
Lescaze. The clean vertical
lines and ribbon windows
were well ahead of their time
in this building, considered
the first International Style
high-rise project. It was
placed on the National
Historic Register in 1976.
Historic American Buildings
Survey.

The National Credit Union WORLD WAR II AND

Administration THE POSTWAR ERA
In 1934 President Roosevelt signed into law American commerce and industry were
the Federal Credit Union Act, which autho- completely dedicated to the war effort after
rized the formation of federally chartered the Pearl Harbor attack, and almost all bank
credit unions in all states. The National construction was put on hold. The war
Credit Union Administration (NCAU) was years did provide bankers with an opportu-
established to charter and supervise the fed- nity to reconsider the kind of bank that they
eral credit unions. Backed by the full faith wanted and their customers needed.
and credit of the United States government, After the war, bankers were much less in-
the NCAU operates the National Credit terested in the old classical influences. Of
Union Share Insurance Fund (NCUSIF), the immediate postwar banks the most dra-
which insures the account holders of the matic was the Fifth Avenue branch of the
federal credit unions and many of the state- Manufacturers’ Trust designed by Skidmore,
3
chartered credit unions. Owings & Merrill (SOM) in New York City
3. http://www.ncau.gov/AboutNCAU/Index.htm in 1954 (Belfoure 2005, p. 248). An in-
(accessed October 29, 2007). house competition was held over a weekend

7
A BRIEF HISTORY OF BANKING

at SOM and the winner was Charles Evans Gramm-Leach-Bliley Act, which in essence
Hughes III, who designed a four-story overturned the strict banking laws enacted
building with a glass curtain wall that fea- in 1933. The earlier legislation had preclud-
tured the vault prominently visible from ed commercial banks from offering invest-
the street, a practice that is still favored by ment banking, insurance, and other services.
many bankers today. It remains to be seen what the long-lasting
effects of the 1999 act will be, given the
FROM THE 1960s TO THE PRESENT credit difficulties lately seen, which stemmed
Over the last forty years, banking has un- from the subprime lending and other prac-
dergone dramatic technological changes. tices that followed its passage.
Electronic banking, banking by phone, use A most significant operational change
of debit and credit cards, and the ubiquity was brought about in 2004 with the advent
of automated teller machines (ATMs) have of Check Clearing for the 21st Century,
revolutionized banking and financial insti- called Check 21. This law allows a new ne-
tution buildings. Other, less visible innova- gotiable instrument, called a substitute
tions in planning, equipment, and the check, which permits a bank to truncate the
delivery of financial services have also been original check and process the check infor-
made, and these are featured in the follow- mation electronically. This has had an enor-
ing chapters. mous impact on banking operations
The Bank Protection Act of 1968 and throughout the United States, with implica-
its amendment in 1991 have been signifi- tions for the design of financial institutions.
cant to bankers and their architects alike, The even more recent development of
because it spelled out in great detail the se- “remote deposit capture,” which allows
curity requirements for buildings and oper- merchants to combine the processing and
ations. The responsibilities it delegated to imaging of checks at the beginning of the
banks’ boards of directors, and thereby the payment cycle, rather than at the end, may
architects in their employ, became much have an even greater impact on banking and
greater as well. All agencies that regulate the the bank’s relationship with customers (Fisher
financial industry in the United States are 2006, p. 108). More will be presented in
subject to these requirements. This legisla- the following chapters about the physical
tion will be discussed in greater detail in requirements these changes have brought.
later chapters. (Chapter 9, for example, features a bank
Equally important were the regulatory workroom that has been recently converted
changes brought about in 1999 by the for use of the new Check 21 equipment.)