Financial History Issue 114 (Summer 2015) | Page 14

Banking in Boston

AN EARLY HISTORY

By David Grayson Allen
Commercial banks were not a part of
the Boston scene until after the Revolutionary War. The Massachusetts General
Court did not incorporate for another two
years the first local bank, which was called
the Massachusetts Bank, with authority
to hold “£50,000 and no more, in lands,
rents and tenements, and £500,000 and
no more, in money, goods, chattels and
effects [which] it was permitted to sell,
grant and devise, alien or dispose of.” Furthermore, the Massachusetts Bank could
carry on any form of banking or mercantile business it might find desirable. The
beginning of banking in Boston came at

Illustration of State Street in Boston, circa 1840.

a critical time because, as one account has
suggested, in 1790, about one-fourth of the
US population was “directly dependent
upon Boston as their financial and commercial capital,” and a part of the financial
strength and stability of the region was
due to the banking system, which would
continue to develop throughout the 19th
century.
Further amendments to the Massachusetts Bank’s charter included protection of
bank stockholders from the malfeasance of
its officers and employees, and a prohibition on the bank’s making loans at rates
in excess of 6%. The bank restricted loans
to $3,000 for an individual. No one was
allowed to owe the bank more than $5,000
at any one time or be liable as a promiser or
endorser of more than $7,500. Notes could
not be renewed, and those who failed to
meet the bank’s deadline were obligated to

12    FINANCIAL HISTORY  |  Summer 2015  | www.MoAF.org

sell them immediately and then denied the
ability to have any notes discounted for a
period of time, unless allowed to do so by
a unanimous vote of the directors.
Despite such restrictions, the Massachusetts Bank quickly became “unduly
profitable.” By 1791, the bank’s stock
was returning 16% on its par value. Such
results soon encouraged competition and
the establishment of a rival, Union Bank,
which was incorporated in 1792 with fixed
capital of $1.2 million, or almost five times
the amount of capital required when the
Massachusetts Bank was incorporated.
Between 1792 and 1815, as Boston changed
from a shipping to a commercial economy,
four other Boston banks were so chartered,
including Boston Bank — later called “Old
Boston” (1803), State Bank (1812), New
England Bank (1813) and Manufacturers
and Mechanics Bank 
— 
later Tremont