Abstract: Private Banking Networks and the Development of the Domestic Capital Market in the United States, 1840–1880
During much of the nineteenth century, the United States had a fragmented and decentralized commercial banking system. After 1836, with the demise of the nationally branched Second Bank of the United States, there were no chartered (incorporated) commercial banks that conducted banking operations across state lines. Given the increasingly national scope of markets in agricultural and manufactured goods, it was necessary for commercial banks to develop multi-state networks of banks to provide long-distance payments services. Banking networks are a good example of a group of firms "organizing themselves" to exploit opportunities for economic returns. This paper will focus on the networks developed by unincorporated, or private, banks, which have received less attention from the literature than the correspondent banking networks of chartered banks. I argue that private bankers' domestic networks were initally organized to exploit arbitrage opportunities in the payments system following the closure of the Second Bank of the United States. These domestic networks, together with the international networks of some of the major private banking houses, positioned the private banks for leadership in the development of the domestic capital market.