Unscaled by Taneja Hemant Maney Kevin

Author:Taneja, Hemant,Maney, Kevin
Language: eng
Format: epub
Publisher: Hachette Book Group
Published: 2018-03-27T04:00:00+00:00

In the early twentieth century scaling up banks was difficult. Money was physical—paper currency, coins, gold bars. It couldn’t be transferred to another town by wire but had to be stored in a safe, counted, and handed out through a teller window. Ordinary people didn’t have credit ratings or a financial paper trail, so bankers preferred to lend money to customers they could know or easily learn about, probably within a short distance of the bank’s office. Most businesses were small and local—the international corporation was still in its infancy. Farms were also family owned and small—not corporate-owned megafarms. Banking matched its environment. Most banks remained local, personal, and small. Although a few large banks, led by J. P. Morgan, were emerging, finance before World War II was generally a handcrafted business.

In the 1950s and ’60s computers changed that by turning money into information. Recalling its history, the Federal Reserve Bank of Atlanta noted that in the late 1950s most banks were still running on mechanical tabulating machines, absent the electronic information of computers. “A visit to the check-processing department of a high-volume office like Atlanta or Jacksonville would mean walking into a room in which 70 to 85 women sat busily clicking away at gray, 36-pocket IBM 803 proof machines, punching in payment amounts and bank identification numbers with one hand and, with the other hand, picking up checks one at a time from a stack and pushing them into a slot,” the bank says in A History of the Federal Reserve Bank of Atlanta 1914–1989. “A skillful operator could handle 1,200–1,500 checks per hour.”

In 1963 the bank installed an IBM 1420 computer, which could process more than forty times the output of a human operator. Such developments led to economies of scale—a bank could achieve bigger margins by conducting more business with fewer employees, and a bank that could afford a computer or two could offer better deals to customers, undercutting smaller handcrafted banks.

Around the same time, corporations gained momentum and came to dominate the US economy. Banks scaled up to match their needs for capital and financial transactions. In 1950 Diner’s Club offered the first universal credit card, then in 1958 American Express and Bank of America introduced credit cards as well. These new inventions enabled mass-market lending to consumers by using information about money and credit transmitted by telecommunications wires as a substitute for more intimate knowledge of each applicant. All this technology allowed a bank to serve standardized products to greater numbers of people and businesses. Economies of scale kicked in, and bigger banks became a better business model.

Yet one impediment kept bank scaling in check: regulation. Through the 1970s much of the federal regulation of the financial industry was still based on the pre–World War II business model—before computers, corporate hegemony, or credit cards. That changed in the 1980s, when legislation lifted a series of limits on banks and other kinds of financial institutions. The impact was dramatic. According to a Federal Deposit Insurance

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.