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California Banking in the Nineteenth Century: The Art and Method of the Bank of A. Levy

Published online by Cambridge University Press:  13 December 2011

Eugene N. White
Eugene N. White
Affiliation:
EUGENE N. WHITE is professor of economics atRutgers University and research associate of the NBER.
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Abstract

An 1890s loan book of the Bank of A. Levy permits a detailed examination of the lending operations of a private bank in California during the National Banking Era (1864–1914). This period has been intensively analyzed at the national and state level, but there are few studies of banks at the firm level. This unregulated bank was integrated into money markets and lent to a broad cross section of the community. Although the bank appeared to adhere to the real bills doctrine, it provided businesses with medium-term, uncollateralized financing. The bank priced risk carefully, offering rates equal to the lowest in the country to its best customers while charging extraordinarily high rates to borrowers deemed risky. In the absence of modern accounting, the bank's close scrutiny of borrowers' businesses and personal lives enabled it to fulfill a special intermediary role.

Type
Articles
Information
Business History Review , Volume 75 , Issue 2 , Summer 2001 , pp. 297 - 324
Copyright
Copyright © The President and Fellows of Harvard College 2001

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References

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19 It's Been A Great Hundred Years, 8.

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26 One contemporary Ventura bank officer remembered that the commissioners were “all political appointments, men without banking experience, and many of them could not even balance the cash.” Fairbanks, “Early Day Banks and Banking,” 6.

27 Doti and Schweikart, California Bankers, 57–61.

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33 In this period, liquidity meant that an asset would immediately be paid off at maturity, not that it was easy to market. White, “Were Banks Special?” 16–25.

34 For more details, see James, Money and Capital Markets, 59. It is interesting to note that Pacific and western banks had a high percentage of single- to double-name paper.

35 This type of one-day loan, known as a “call loan,” was common in England at least as early as the eighteenth century. These “call loans” should not be confused with “call loans” in the United States, which were loans of similar duration but collateralized by securities.

36 There were thirteen loans for which it was not possible to determine when the loan was repaid.

37 The average actual term of Levy's borrowed funds was 199 days in 1895.

38 James, Money and Capital Markets, 61.

39 Moulton, “Commercial Banking and Capital Formation,” 707.

40 James, Money and Capital Markets, 67.

41 For twenty-one loans, it was difficult to calculate the annual rate of interest, as interest was calculated “from date” or “from maturity.” Many of these loans had been purchased.

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56 Friedman and Schwartz, A Monetary History, 111. They date the end of the panic in August, but restrictions on cash payments were gradually lifted in September. The dummy variable includes this month, when bankers may still have been cautious. Levy's modal rate continued to be higher in October, a month not included in accounts of the panic. Including October in the dummy variable did not alter the results.

57 The variable and the square will indicate the shape of the yield curve.

58 Characterizing the dependent variable, the interest rate, as a continuous variable is not quite appropriate because there were only nine values. Thus, an alternate approach is to use a limited dependent-variable model, where interest rates are characterized as either high risk or low risk.

59 In the probit regressions, the transformed coefficients denoting the marginal effects are reported.

60 This pattern is expected for a serially correlated independent variable.

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64 One other loan for $100 had, as a second borrower, Adolfo Camarillo.

65 Levy's spelling of Spanish names was unconventional at times.

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67 Fairbanks, “Early Day Banks and Banking,” 15; and Jennings, “The Chinese in Ventura County,” 21.

68 Lamoreaux, Insider Lending, 157–65; and Wright, “Bank Ownership and Lending Patterns,” 40–2.