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Portfolio Management and Profitability in Early-Nineteenth-Century Banking*

Published online by Cambridge University Press:  11 June 2012

Donald R. Adams Jr.
Donald R. Adams Jr.
Affiliation:
Associate Professor of Economics, Southern Illinois University, Carbondale
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Abstract

Notwithstanding the importance of maintaining soundness, commercial banks in early ante-bellum America still strove to maximize profits, according to Professor Adams, who cites Stephen Girard's conservative private bank as an example. Using internal data from Girard's bank, of the kind that is seldom available for banks, he shows that a flexible policy of shifting from government and quasi-government securities, as they became scarcer, to business debt, both long- and short-term, kept bank profits from declining. So long as Girard lived, his bank remained fully competitive with the growing number of chartered institutions.

Type
Research Article
Information
Business History Review , Volume 52 , Issue 1 , Spring 1978 , pp. 61 - 79
Copyright
Copyright © The President and Fellows of Harvard College 1978

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References

1 Cameron, Rondo, ed., Banking and Economic Development (New York, 1972)Google Scholar.

2 See Redlich, Fritz, “American Banking and Growth in the Nineteenth Century: Epistemological Reflections,” Explorations in Economic History, X, #3, Spring, 1973, pp. 305–314CrossRefGoogle Scholar, and Richard Sylla, “Economic History ‘von unten nach oben’ and ‘von oben nach unten’: A Reply to Fritz Redlich,” ibid., 315-318. Also, Sylla, , “Forgotten Men of Money: Private Bankers in Early U. S. History,” Journal of Economic History, XXXVI (March, 1976), 173–197CrossRefGoogle Scholar; and Redlich, , “Note: The Role of Private Bankers in the Early Economy of the United States,” Business History Review, LI (Spring, 1977), 90–93.CrossRefGoogle Scholar

3 The Girard name was continued by a corporate bank, chartered in 1832, and survives today as one of Philadelphia's largest bank and trust firms.

4 Girard's bank became a Treasury depository in July, 1815 by order of Secretary of tbe Treasury, Alexander J. Dallas, his erstwhile advisor and confidant. This privilege was short-lived, however, since the Second Bank of the United States assumed all government accounts in early 1817.

5 A good illustration of this interdependence was the eastward flow of specie from middle Atlantic banks to New York and thence to Boston during the first half of 1814. In the process, correspondent banks called for the settlement of balances in specie, thus resisting the sale of earning assets except as a last resort. The result of this process was the general agreement by banks outside of New England to suspend all specie payments.

6 Simpson, Stephen, Biography of Stephen Girard (Philadelphia, 1832), 165Google Scholar.

7 Stephen Girard Collection, series III, reel 93 (December 31, 1829), hereafter cited as S.G.C., III, 93.

8 S.G.C., III, 94, #2, 110; #4, 116.

9 S.G.C., III, 91 #1454 (January 18, 1815).

10 S.G.C., III, 91 #1460 (January 23, 1815).

11 S.G.C., III, 91 #1476, #1477 (February 8, 1815).

12 S.G.C., II, 393.

13 Trescott, Paul, Financing American Enterprise (New York, 1963), 37.Google Scholar

14 Redlich, Fritz, The Molding of American Banking: Men and Ideas (New York, 1968), 49.Google Scholar

15 S.G.C., III, 94 and II, 393-394.

16 Girard used this stock to help capitalize his bank in 1812. It was not until 1827 that the final dividend of 1¾ per cent was paid on the stock of the First BUS.

17 The town of Girardville still commemorates the banker's involvement in this area of Pennysylvania.

18 Myers, Margaret, The New York Money Market, Vol. I (New York, 1931), 46.Google Scholar

19 Wildes, Harry Emerson, Lonely Midas (New York, 1943), 214.Google Scholar

20 S.G.C., III, 126, #114 (March 20, 1817).

21 S.G.C., III, 91, #199 (February 4, 1813).

22 S.G.C., III, 92 (January 17 and April 17, 1824).

23 S.G.C., III, 92 (January 29, 1824).

24 S.G.C., III, 92 (March 12, 1828).

25 S.G.C., III, 93 (Semptember 27, 1831).

26 S.G.C., III, 91 (November 30, 1816).

27 S.G.C., III, 92 (March 1, 1824).

28 S.G.C., III, 92 (October 24, 1824).

29 S.G.C., II, 248 (October 30, 1812).

30 S.G.C., III, 92 (July 21, 1823).

31 Simpson, Biography of Stephen Girard, 115.

32 Ibid.

33 Redlich, The Molding of American Banking, 63.

34 Simpson, Biography of Stephen Girard, 115.

35 Ibid., 116.

36 S.G.C., II, 248 (April 9, 1813).

37 S.G.C., II, 248 (April 9, 1813).

38 S.G.C., III, 93 (February 27, 1830).

39 Simpson, Biography of Stephen Girard, 114-115.

40 Among the chartered institutions it was common practice to commence operations when paid in capital was still far short of authorized capital and to operate under those conditions as well. Girard's stated capital, however, was fully paid in.

41 Martin, Joseph, A Century of Finance (New York, 1969), 97.Google Scholar

42 Schwartz, Anna J., “Gross Dividends and Interest Payments by Corporations at Selected Dates in the Nineteenth Century,” National Bureau of Economic Research, Trends in the American Economy in the Nineteenth Century, Studies in Income and Wealth, Vol. 24 (Princeton, 1960), 431–432, 442, 436.Google Scholar