Banks were formed in increasing number nearly everywhere in the 19th century. They also moved on from their mercantile specialization to serve industrial clients as the Industrial Revolution took off. However, even towards the end of the century, the average worker or small business had little access to banking services. Lacking good collateral for loans or sufficient deposits to garner interest from banks, these prospective customers went unserved.
In the United States, a large immigrant population added an extra difficulty in introducing the public to banking services. Amadeo Peter Giannini, the founder of Bank of America, broke with the norms of American banking at the time to change that. In its early years, Bank of America did not look like a normal bank in America.
Amadeo Peter Giannini was born in San Jose, California in 1870. His parents were Italian immigrants to the United States. A. P. Giannini’s father left Favale di Malvare, near Genoa, in 1864, attracted to California, first by the gold rush there, and eventually by the opportunities offered in the state’s agricultural sector. Giannini’s father died when he was six and Giannini left school at thirteen to worked in his stepfather’s new wholesale produce business.
Starting from 1883, Giannini helped sell produce on a commission basis. He travelled the countryside buying the future output of farmers. Within his third year, the sums he was handling for this business were as large as $50,000 for each deal. Giannini became very well off. He was a partner in the company starting from 1889 and continued working until 1901 when he retired at age 31. Though Giannini already had a net worth of $300,000, more than $9 million in 2020 dollars, this retirement was not to last.
Entry into Banking
In 1902, Giannini’s father-in-law died and he took the responsibility of managing the estate which included banking business. This project returned Giannini to work. He became a director in a San Francisco bank serving the Italian community there. After a disagreement with his fellow directors, he left to start his own bank.
Giannini founded the Bank of Italy in 1904 in the Italian immigrant neighborhood of North Beach, San Francisco. In comparison to the prior bank, this one would serve a broader client base than was normal for banks at this time. The wholesale merchant turned banker also raised capital for the bank from a large group of investors, retaining only a small stake for himself.
The Bank of Italy would pursue an unconventional business model; it would be a bank for the masses. Giannini was focused on serving unbanked immigrants. The Bank of Italy made loans to small businesses not usually sought after by banks. He advertised actively to secure customers, again something not typical at the time. In broadening the clientele of the new bank, Giannini left hardly no community unappreciated. He partnered with the city of San Francisco to establish a savings bank for children. In 1921, he established a department at the bank focused on women. Giannini’s Bank of Italy built a network of branches when such a structure was unusual for banking firms in the U.S. As it happened, democratizing access to depository services and credit was good for business and the bank grew quickly.
Between 1904 and 1920, Bank of Italy shares would rise to twice their par value as dividends grew from 5% to 12%. By 1921, Giannini would manage a group which consisted of nine other banks besides Bank of Italy. The banking empire extended far beyond California; it included East River National Bank of New York City and a bank across the ocean in Italy.
Before achieving this, the bank did have to survive two exogenous crises soon after it was established. The first of these was the 1906 San Francisco earthquake, which killed more than 3,000 and caused a fire which destroyed much of the city. The city’s banks were forced to close, in many cases losing access, at least temporarily, to money, securities, and files. Like other banks, the Bank of Italy’s reserves were also at risk of loss to looting.
Giannini took $80,000 in the bank’s money out of the city hidden under crates of oranges before the bank building burned to the ground. Within one day of the earthquake, he sent a circular letter to his clients alerting them that a meaningfully fraction of their money would be available in cash for withdrawal immediately. The Bank of Italy restarted operations from a desk at the city’s wharf. The bank was reopened more quickly than competing banks.
During a trip to the east coast, Giannini came to anticipate what would become the Panic of 1907. So, the Bank of Italy spent the months before the panic building up reserves of gold. When the crisis came, the bank could issue its banknotes and receive deposits as it continued honoring redemptions of banknotes for gold, preserving the confidence its customers had in the bank. Meanwhile, other banks had to impose limits on redemptions; the Bank of Italy thrived where others failed.
“None of us will back any promotion, even though the profits look big and sure. None of us will ever speculate in securities. We will keep clean, keep clear, and attend solely to the business of banking. Then, if any disaster or general business depression arises, we can concentrate our efforts for the benefit of those who have deposited their money with us or have bought our stock. We shall be out of the jam. … I’m not a trained financier; but I know these principles are sound. No bank ever met disaster through the legitimate losses of a sane banker!”Amadeo Peter Giannini in a 1921 interview with Thane Wilson, published in American Illustrated Magazine, August 1921
Bank of America
Starting in 1909, Giannini began growing his Bank of Italy by acquisition. The firm bought other banks, often ones that had run into trouble, and turned them into branches of the Bank of Italy. Giannini formed Bank of America of California in 1928 by acquiring another bank with a network of branches and incorporated it into his holding company, Transamerica Corporation, the future insurance firm. The Bank of Italy and Bank of America of California merged in 1930 and Giannini retired for the second time that same year. This time, like the last, only temporarily.
Bank of America was not only a bank for the common man. As a branch of a larger bank, a Bank of America branch in a given town could serve larger clients than could other local banks which were constrained by their available capital from financing the largest projects or companies. Giannini’s bank funded two engines of the state’s economic growth. First, there were the agricultural interests of central and northern California. Giannini here made use of his past experience as a produce merchant.
Second, the bank also served the film industry when it was still a novel business. In fact, Giannini created a division at the bank specific to serving the film industry. Eventually, Bank of America funded Walt Disney’s Snow White and The Seven Dwarfs, taking a risk on the creator’s first full-length animated film.
Bank of America had grown quickly in the lead up to the Great Depression. The number of depositors grew from 400,000 in 1921, already the most of any bank in the country, to over one million six years later. The worst of the crash came after Giannini had left. However, when his successor reduced the bank’s ambitions by lending more conservatively during the Depression, Giannini removed him and returned.
He reversed a fall in deposits, personally paying visits to vendors at San Francisco’s produce market at 5 a.m. to find or keep customers. Bank of America reduced credit during the Depression but less than other banks had. In this period, the bank even contributed substantially to the financing of the Golden Gate Bridge’s construction. In 1939, Bank of America owned half of the total number of loans outstanding in California.
Giannini retired again in 1934 but retained the role of board chairman of Transamerica until his death in 1949. By this point, Bank of America had grown to more than five hundred branches and possessed $6 billion in deposits, making it the world’s largest bank; this was accomplished despite the fact it was largely confined to the Western U.S., a concentration that had something to do with the company becoming subject to antitrust investigations that would not end until 1952. This scale had been achieved despite, or rather because of, a specialization in smaller deposits. The average account balance was roughly one-twentieth of that of other large banks.
Despite controlling the world’s largest bank, Giannini did not leave a mammoth estate on account of just how widely held Bank of America shares were and due as well to his philanthropy. He donated $1.5 million to the University of California, Berkeley in 1929 to create a school for agricultural research and funded a Chair of Italian Culture at the same university. He also established a foundation for medical research and educational scholarships. Giannini died with a net worth of less than $500,000, an amount that was actually less, after adjusting for inflation, than what he had when he entered the banking business decades earlier.
For most of its history, the banking system of the United States was highly fragmented, in part because of the size of the country and the relatively slow development of branch banking as a model for the industry. However, for most of this history, banks did have one commonality, they usually eschewed serving the mass market in favor of developing relationships with a select group of large clients.
Amadeo Peter Giannini’s Bank of Italy, the future Bank of America, would have been remarkable had it simply broke with one of these but it was an exception to both tendencies. This was no coincidence. In an era when banking left so much to be desired, making inroads among the masses who were unbanked was a path to achieving considerable scale.
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1. “A.P. Giannini.” Encyclopædia Britannica, 30 May 2023.
2. “Bank of America: The Humble Beginnings of a Large Bank.” OCC.Gov, 14 Mar. 2019.
3. Fruner, Sara. “Amadeo Peter Giannini, Founding Father of the Bank of America, ‘The People’s Banker.’” La Voce Di New York, 14 Aug. 2019.
4. O’Neill, William L. “The People’s Banker.” The New York Times, 6 Nov. 1994.
5. Wilson, Thane. “Look Ahead! Then Back Your Judgment to the Limit!” American Illustrated Magazine, Aug. 1921.
6. Zweig, Jason. “An Unlikely Hero for 1906, 1929…and Today.” The Wall Street Journal, 30 May 2020.