Working Paper: NBER ID: w15135
Authors: Howard Bodenhorn
Abstract: Early American firms were shaped by contemporary social conceptions of appropriate horizontal power relations inside the firm and the Federalist era bank was shaped by these conceptions. The Federalist era debate on the corporation was much broader than how shareholders would treat with one another. Contemporary Americans who had no direct stake in the business corporation took great interest in its internal governance because rules for how the elite shared power within the corporation spoke to their attitudes toward sharing power in the wider civic polity. Was governance to be plutocratic or democratic? It was within this debate that the first banks were established. This debate influenced how banks were governed, which ultimately influenced how banks did their business. The political debates surrounding the establishment of the Bank of North America (1782) and the Bank of the United States (1791) defined these banks and nearly every bank chartered thereafter up to the mid-1830s and beyond. Specifically, the liberal Bank of North American charter that imposed few meaningful restrictions on the bank's operation, accountability or governance gave way to the Bank of the United States's more restrictive charter that sharply limited its operations, made it accountable to government, and defined many of its internal governance procedures. Subsequent state charters were more closely modeled on the Bank of the United States model than the Bank of North America charter.
Keywords: Banking; Federalist Era; Corporate Governance
JEL Codes: N21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Political debates (D72) | Governance structures of banks (G38) |
| Societal attitudes towards power sharing (P26) | Governance structures of banks (G38) |
| Establishment of the Bank of North America (N11) | Governance structures of banks (G38) |
| Establishment of the Bank of the United States (N11) | Governance structures of banks (G38) |
| Political debates (D72) | Charters of banks (G28) |
| Governance structures of banks (G38) | Operational practices of banks (G21) |
| Political debates (D72) | Operational practices of banks (G21) |