When David Cowen called me two years ago, almost to the day, to ask if a history of bank mergers in the United States could be done, I more or less asked him how much time and money he had available. When he told me, I picked myself up off the floor and said, “yeah, I can do something with that.” Today, I’m very pleased with my response. A year ago, when I was entering almost 2,500 bank and bank holding company mergers for one of our larger banks into an Excel spreadsheet, I fear I would have given a different response, one laden with four letter expletives. But Dick, I think fully half of the Museum’s staff, various unsung heroes at Columbia University Press, and in a few cases bank archivists, did a wonderful job bringing all my work, which ranged from grueling to titillating, to heel. To do so, we had to answer questions like how do we truncate 100s or 1000s of mergers so they fit, not only legibly but elegantly, on a few pages, how do we find images for banks that literally no one involved in the project had ever heard of before the project began, and what does ahorro mean?
It means saving in Spanish and it came up because of the methodology we employed to bring the subject matter under control. In an ideal world, with a decade or two to work and a seven figure budget, the project would have traced the history of every bank, commercial, savings, and investment, to ever receive a charter in the United States. A few voluntarily wound up their affairs and some outright failed -- though not as many as you might think. We actually track the aggregate percentages of banks that failed annually from 1790 until 2010 in Table 5. Most banks, in fact, exited by merging with others and mostly in a series of waves driven by momentous economic and/or regulatory changes. Because we could not follow all of the nation’s hundred thousand plus banks forward through time, we opted for the next best alternative, which was to trace mergers backwards from banks still in existence today, much as genealogists do when constructing a family tree. Hence the first part of the book’s title. As there are still thousands of banks in operations in the United States today, writing the histories and recording the mergers of even that population would have taken too long. So we decided to take a page from the Federal Reserve, literally a webpage that unfortunately the Fed has since discontinued, and tackle the fifty largest bank holding companies in the United States as of 2013. I’m very happy that we chose fifty instead of just ten or twenty because the book shows that beneath the big banks that have become to varying degrees famous or infamous over the last few decades there remain sizable, quality institutions with histories just as long and just as interesting as the biggest, hoariest banks you can think of. Hoary just means old, by the way, but I tend to overuse it so the term was completely expunged from the book in editing.
Looking at the fifty biggest bank holding companies also took far us away from Wall Street and into our two newest states, Alaska and Hawaii, and two future states, Puerto Rico and Canada. Seriously, our big fifty also includes some big foreign banks with significant U.S. holding companies, world class banks headquartered in places like Spain and Scotland, and Germany and Japan, as well as our very financially stable neighbors to the North.
America’s largest 50 bank holding companies include some surprising institutions, including a bank started by the Mormon Church, a giant Dutch cooperative bank, and arguably the world’s best auto insurance company, which is also a mutual. Two other of the BHCs we cover began as insurers and three began their corporate existence as the credit arms of giant manufacturers. Two began as transportation companies and one as a water utility. Another seven started out in finance, though not as commercial banks, including two brokerages, two credit card issuers, two investment banks, and one finance company. That’s why the second part of the book’s title is American Finance instead of Wall Street or the U.S. banking industry.
Of course the real world is not as cut and dried as I’ve implied. With but few exceptions for mutuals and relative newcomers, all of the big fifty bank holding companies essentially have multiple points of origin. We did our best to stay with the main strands in the genealogical charts and in the narrative histories but it is not always easy to tell the difference between a merger and an acquisition, especially in older sources, which liked to use general terms like amalgamation instead. Even discerning the target from the acquirer can be difficult. For combinations that took place in recent decades, for example, the Federal Reserve database sometimes indicates that A acquired B while the FDIC database says with equal authority that B acquired A. And what to do when A definitely acquired B but then A changes its name to B? Dick, who has a memory like a steel trap for the full third of American history to which he has been a personal witness, thankfully called me out on at least one of those and we corrected it. But then there were cases where A acquired B and kept A its name but the executives of B took over A’s management. We discuss these subtleties in the narrative histories, of course, but they are not always easily or fully reflected in the genealogical charts or the listings of founding industry or date.
The narratives are so rich and plentiful that undoubtedly anyone with an axe to grind or a thesis to promote will find some support in the book’s 300 plus pages, but Dick and I did not come to any grandiose conclusions. Instead we posed a series of questions about economic and regulatory trends. If I had to pick out one underlying theme, though, I’d say that America’s banking system is like a rain forest but instead of providing the biosphere with biodiversity it provides the economy with let’s call it bancodiversity. America’s largest bank has assets roughly 1,000 times the value of the smallest bank in the study but it is arguably no more successful, unless one measures success solely by size. The fact is, a certain portion of America’s depositors and borrowers prefer the smaller bank to the bigger one and the competition makes them both better. If history shows us anything, it is that change is a constant. What works today may utterly fail tomorrow, so it is nice to have alternative models around to fall back upon when financial Armageddon strikes, as we know from recent events it can.
We also know from relatively recent events that Wall Street faces physical risks. Thankfully, our nation’s bancodiversity is geographic as well as cultural, organizational, and technical. America’s big bank human capital spreads from Portland, Maine to San Juan, Puerto Rico to Honolulu, Hawaii and from San Francisco to Minneapolis to Houston to Boston and surprising places in between, including Tulsa, Oklahoma; Des Moines, Iowa; Birmingham, Alabama; Columbus, Ohio; Bridgeport, Connecticut, and even my old stomping grounds in Buffalo, New York. Maybe an interest in bancodiversity is what induced the Fed to replace its top fifty bank holding company page with a page listing holding companies with assets greater than $10 billion, which throws big mutuals like Teacher’s Insurance & Annuity Association and State Farm into the mix as well.
Since we have gone to press, some real world changes have also taken place. American Express is struggling again, a recurrent theme in its history. Royal Bank of Scotland spun off Citizens, which is now Citizens Financial Group, Inc. and the nation’s 23rd largest BHC. Unionbancal changed its moniker to MUFG Americas Holdings Corporation and moved its headquarters to New York. M&T and Hudson City Bancorp still want to merge but find their marriage blocked by the Fed. And so forth.
This is all fodder, perhaps, for a second edition of this book but of course that will depend on how the first is received. I think every bank executive, regulator, financial policymaker, and financial journalist in North America and Europe should have a copy handy, but that’s just me. Thanks!