War-torn New York City was in shambles. Much of it had been burned down and bankrupted after seven years of British occupation during the American Revolutionary War. The city needed a spark to get back in business. On March 15, 1784, Alexander Hamilton provided that spark at a meeting of the board of directors for the Bank of New York. He convinced them to adopt the constitution that he had authored for the establishment of the bank. By June, the bank would be open for business.
The twenty-seven-year-old Hamilton was a champion of commerce in general and banking in particular. At age fifteen, on the island of St. Croix, he calculated international currency exchange rates and helped manage the import-export firm Beekman and Cruger.
While fighting in the Revolutionary War, Hamilton somehow carved out time to read books on economics, and he corresponded with the primary financier of the war, Robert Morris. They exchanged ideas on sound money backed by gold and silver. At that time, many of America’s founders were antagonistic toward banking. In contrast, Morris and Hamilton held that credit (money available for borrowing) and debt (money borrowed and to be paid back with interest) are excellent vehicles for establishing trustworthiness for businesses and individuals. They both maintained that banking was essential to America’s prosperity. As early as 1781, Hamilton wrote in a letter to Morris that banks “have proved to be the happiest engines that ever were invented for advancing trade.”1
Business leaders who understood finance knew that the ability to obtain capital on reasonable terms offered hope to the average man, who had few material assets at the war’s end. These same leaders knew that accessible credit was the best way to stabilize the postwar economy and political situation.
Hamilton devised a system of mutual benefits that would tie together the interests of the bank, its proprietors, the ventures they funded, and consequently, the nation at large. For instance, article seven of the bank’s constitution states: “[N]o Person shall be eligible to Serve in the Office of Director unless he be a Stockholder.”2 The specie-based (gold- and silver-backed) banking policy allowed for greater liquidity, putting the bank in a position to lend money to the new government. In 1789, the Bank of New York provided the United States with its first loan, which paid the salaries of U.S. congressmen and President George Washington. Within five years, New York would go from being a bankrupted vestige of British occupation (the official end of which was celebrated on Evacuation Day) to being the heart of the new nation’s financial and political life. Hamilton had set the foundation for the bank’s tremendous list of firsts and achievements. Consider the Bank of New York’s historic record:
- When the New York Stock Exchange opened in 1792, the Bank of New York was the first stock ever traded.
- The bank funded the Erie Canal and several steamboat companies.
- It gave the government financial backing during the War of 1812.
- The bank helped finance the Union Army during the Civil War.
- During America’s Industrial Revolution, the bank financed many major infrastructure projects, including utilities, railroads, and the New York City subway.
- During the early 1900s, it continued to expand and prosper; even during the Great Depression, its total deposits increased.
- In 2007, the Bank of New York and Mellon Financial Corporation merged. The current name—Bank of New York Mellon—honors two of America’s greatest financial minds and treasury secretaries (Alexander Hamilton and Andrew Mellon).
Today, the Bank of New York Mellon is the oldest existing bank in America. If we trace the steps of New York’s rise as the financial capital of the world, we must recognize that establishing the Bank of New York was a pivotal moment in history.
Here’s due credit to the industrious individuals who enabled Americans to bank on their own future.