Building the Empire State. Brian Phillips Murphy

      At its core, a bank is an organization that lends money and extends credit to people on the basis of its assets and their ability to repay obligations. Those assets could be money—piles of gold and silver coins, say—or anything with a recognizable value as collateral. For example, land banks, sometimes called country banks, accepted mortgaged real estate as a form of capital, enabling landlords to turn their normally illiquid holdings into paper banknotes. Money or commercial banks, by contrast, preferred coined money that was called specie. Not surprisingly, cash-rich and land-poor merchants favored money banks to the land banks desired by landlords.

      Organizationally, banks could be wholly private enterprises. A simple contract drawn between two partners who loaned money at interest could be considered a private bank. Incorporated and joint-stock banks were composed of shareholders who each held fractional ownership in the institution, which they could buy and sell. The owners did not need to know each other because the institution itself was governed by a stable set of rules and regulations and administered by an elected board of directors and hired staff.

      A joint-stock company that received an incorporation grant gained rights and legal privileges that distinguished it from other companies lacking such a useful instrumentality. A corporation possessed a fictitious legal “person-hood” that allowed its directors and shareholders to sue and be sued in court as a single entity and to hold common property as shares changed hands and membership on the board of directors rotated. An incorporated bank might also operate on a larger scale than an unincorporated joint-stock sibling because it enjoyed a privilege of limited liability, protecting shareholders from being responsible for debts incurred by the bank above the amount of their investments. An unincorporated partnership that went bankrupt could haunt generations of heirs and descendants, but the failure of an incorporated bank wiped out only its shareholders’ equity investments in the enterprise; their other assets were shielded from legal claims. Incorporated banks, then, possessed advantages that other commercial enterprises and unincorporated institutions did not. With those privileges, however, came an enormous amount of discretion; bankers chose who they would do business with, making those banks desirable for investors and well-connected borrowers but resented by those left on the sidelines. This aspect of banking became far more intense if a bank’s charter was exclusive, giving it a monopoly within a city or state by barring the creation of competing institutions.

      A bank’s principal function in this period was to provide a sound medium of exchange: called banknotes, these were pieces of bank-printed money that could be redeemed on demand for gold or silver, making it a very safe and desirable form of currency.

      In contrast to banks that developed in the mid-nineteenth century and are familiar to twenty-first-century readers, banks in the early republic served the interests of commercial firms rather than individual consumers by providing financiers, businesspeople, and merchants with access to credit and capital. Without satellite branches, banks typically conducted business