Bank of United States history

A New York bank, located in Manhattan, which failed in 1930 at the beginning of the Great Depression. At the time, it was the largest bank failure in American history and became one of the primary causes behind the banking reforms passed by Congress in 1933 in the first weeks of Franklin D. Roosevelt’s administration.

The bank was purposely named after the long defunct BANK OF THE UNITED STATES, although it omitted “the” from its name. Many of its offices and branches were decorated with flags, giving the impression that it somehow was an official institution. The bank was located primarily in Manhattan, with branches located mostly in working-class and immigrant neighborhoods. It had about 60 branches and several subsidiaries that served 400,000 depositors. The management of the bank used the deposits to help purchase the bank’s own stock in the market. When the stock market crashed in October 1929, the bank’s stock price fell substantially. Since the purchases were funded with customer deposits, it also wiped out many of the deposits as well.

Although the bank was a member of the Federal Reserve Bank of New York, the collapse came too unexpectedly for an effective bailout. Many of the major New York City banks refused to help stabilize it, adding to the resentment of the large banks that was building in the early 1930s. Initially, more than $300 million in deposits was lost, representing the savings of many workingclass and first-generation Americans.

New York banking authorities attempted to rescue the bank but were too late in preventing runs on its branches. Newspapers around the country published pictures of lines that formed outside the branches as anxious depositors lined up to withdraw their funds. The publicity led many depositors in other parts of the country to withdraw their funds from banks, adding to a national liquidity problem that developed, depriving banks of the funds necessary to make new loans. The superintendent of banks in New York was indicted for not acting quickly enough to prevent the problem. Eventually, he was exonerated and some of the deposits were partially reimbursed, but the crisis became the impetus for nationwide deposit insurance that was included in the BANKING ACT OF 1933.

The bank became the best-known failure of its day and paved the way for future legislation, although it was fraudulently managed and probably would have failed even without the market crash. Although the abuses of the bank were somewhat isolated, its problems did underline the risks to which customer deposits could be subjected by unscrupulous bank management. For that reason, the Glass-Steagall Act separated investment from COMMERCIAL BANKING when it was written, a separation that lasted until 1999. The bank became the symbol of the fragility of the financial system during the late 1920s and early 1930s, a period of thousands of bank failures. See also NEW DEAL.

Further reading

Werner, M. R. Little Napoleons and Dummy Directors: Being the Narrative of the Bank of United States. New York: Harper & Bros., 1933.
Wicker, Elmus. The Banking Panics of the Great Depression. New York: Cambridge University Press, 1996.