Financial History 25th Anniversary Special Edition (104, Fall 2012) | Page 36

The Girard Bank, located in the former Bank of the United States building, on South Third Street in
Philadelphia. The building still stands and is part of Independence National Historical Park.

underwriting the phenomenal sum of
money. Girard kept just over $1.2 million
in bonds for himself and retailed off the
rest at a tidy profit. The syndicate demonstrated that specialized private sector
firms were better at selling government
bonds than the government itself.
American investment banking was born,
the government received the funds it needed
to carry on the war, and investors received
a fair yield. Perhaps most importantly, the
episode exposed the chaotic nature of the
US wartime financial system. Most Americans, and even some anti-bank politicians,
saw the need for a new central bank.
Stephen Girard, a private citizen,
resuscitated the financial system and
brought to America a whole new type
of financial endeavor, investment banking. Indeed, the parallels between what

34    FINANCIAL HISTORY  |  Fall 2012  | www.MoAF.org

Museum of American Finance

On February 20, 1813, the Secretary
floated a huge $16 million bond issue. The
bonds matured in 12 years and offered a
6% coupon that with special enticements
effectively yielded investors 7%. The $16
million was a gigantic sum, the single largest bond issue in the nation’s history up
to that time. The Treasury was sanguine
because news from the war front was good.
The US had recently scored some naval
victories, credible reports of Napoleon’s
defeat in Russia were streaming in, and
peace talks with the British appeared to
be going well. But the bond issue flopped;
investors subscribed for only about 25% of
the sum offered, or $4 million.
Gallatin was in a bind. He was out of
money and out of time, so he was willing
to make a deal. European financier David
Parish promised to underwrite about $2
million. Added to the $4 million already
subscribed, about $10 million remained to
be sold. Gallatin then turned to Girard to
assist in underwriting.
Girard reiterated that Gallatin must
treat his bank on equal terms to the other
banks. If Gallatin agreed, then Girard
would join a syndicate with Parish and
wealthy New Yorker John Jacob Astor
that promised to sell $10 million in bonds.
Gallatin was desperate and knew the financial system needed this infusion. So he
agreed to Girard’s terms, which of course
also included a generous sales commission.
Girard and the rest of the syndicate upheld their end of the bargain,

Girard accomplished in 1813–1814 and
what investment banker JP Morgan did
to stave off the Panic of 1907 are striking.
Both were among the richest men in the
country, and both used their personal
credit, their professional reputation and
th Z\