Private Banks

The term "private banks" is misleading in American financial history. Virtually all of the banks in the United States were privately owned—even the First and Second Banks of the United States, the nation's "national" banks, sold 80 percent of their stock to private individuals. Apart from a few state-chartered banks owned exclusively by the state governments (the Bank of the State of Alabama and the Bank of the State of Arkansas, for example), all of the financial institutions in the United States were privately held. The confusion arose in the chartering process. If states chartered the banks, they were usually referred to as "state banks," even though they were not owned by the states. Alongside these chartered banks, however, existed another set of privately owned banks called "private banks." The chief difference between the two lay not in ownership, but in the authority to issue bank notes, which was a prerogative strictly reserved for those banks receiving state charters.

Private bankers ranged from large-scale semibanks to individual lenders. The numbers of known private bankers only scratch the surface of the large number of businesses engaging in the banking trade. Some of the larger nonchartered banks even established early branches, called "agencies," across state lines. They provided an important contribution to the chartered banks by lending on personal character and by possessing information about local borrowers that would not be available to more formal businesses. Private bankers also escaped regulation imposed on traditional banks, largely because they did not deal with note issue—the issue that most greatly concerned the public about banks until, perhaps, the 1850s. "Private banking" continued well into the early twentieth century.

Bibliography

Helderman, Leonard C. National and State Banks. Boston: Houghton Mifflin, 1931.

Schweikart, Larry. "Private Bankers in the Antebellum South." Southern Studies 25 (Summer 1986): 125–134.

———. "U.S. Commercial Banking: A Historiographical Survey," Business History Review 65 (Autumn 1991): 606–661.

Smith, Alice E. George Smith's Money: A Scottish Investor in America. Madison: State Historical Society of Wisconsin, 1966.

Sylla, Richard. "Forgotten Men of Money: Private Bankers in Early U.S. History." Journal of Economic History 29 (March 1969): 173–188.