By John Steele Gordon
With the signing of the Treaty of Paris in 1783 that ended the Revolutionary War, the United States was recognized as an independent nation. But independence was about all it had.
The economy was in chaos with a near worthless fiat currency, the so-called continentals that the Continental Congress had issued to fund the war. By 1783, it took 167 continental dollars to buy one dollar’s worth of gold or silver. The coinage was a hodgepodge of British and foreign coins. Tobacco warehouse certificates were often used as currency in the South.
In colonial days the British had forbidden the establishment of banks and by 1783, only one bank had opened for business, the Bank of North America in Philadelphia. But it had been an immediate success, soon paying 18 percent dividends to its stockholders. New York merchants wanted a bank as well, to help revive the city’s economy that had been devastated by seven years of British military occupation and two great fires that had destroyed one-third of the city’s housing.
Among the leaders to establish a bank was Alexander Hamilton. Chancellor Robert R. Livingston, New York state’s highest judicial officer, wanted a bank whose capital would be mostly in land. Hamilton thought that idea was a “wild and impracticable scheme.” As land is notoriously illiquid, Hamilton feared that in a time of economic crisis, the bank would be unable to meet its responsibilities.
On February 23, 1784, Hamilton met with a group of New York businessmen at the Merchant’s Coffee House and they agreed to form a bank backed by gold, silver and notes — not land.
Hamilton was named one of the directors and spent the next three weeks single-handedly writing the constitution of the bank. As there was practically no American banking at that time, he had a free hand in designing its fundamental document. His work was widely copied as American banks proliferated in the next few years, making Hamilton not only a founding father of the country but of American banking as well.
But it took seven years before Hamilton could get the state legislature to grant a charter, as upstate interests feared downstate interests would use it to their detriment.
Operating as a private bank, the new Bank of New York would make the first loan, of $200,000, to the new federal government in 1789 at the behest of the first secretary of the treasury, who was of course Alexander Hamilton. So parlous was the financial situation of the new government that the money was needed just to pay the salaries of members of Congress and President Washington.
In 1792, the stock of the Bank of New York was the first one listed on the nascent New York Stock and Exchange Board (which, in 1863, changed its name to the New York Stock Exchange).
By that time, the city’s economy, thanks in part to its new bank, was quickly reviving. “Credit is again revived — and prosperity once more approaches in sight,” a city newspaper reported the following year. “Trade of every kind begins to be carried on with spirit and success.”
Always conservatively managed, the Bank of New York easily weathered the many financial panics of the 19th century that caused wave after wave of bank failure. In the 20th, it remained profitable throughout the Great Depression and even enlarged its deposit base.
Today, BNY Mellon (so called after a merger with the Mellon Bank of Pittsburgh) is the oldest bank in the country and the 13th largest, managing $50 trillion in assets.
