Book contents
- Frontmatter
- Contents
- Acknowledgments
- Introduction
- 1 Vehicles for accumulating capital
- 2 Insider lending and Jacksonian hostility toward banks
- 3 Engines of economic development
- 4 The decline of insider lending and the problem of determining creditworthiness
- 5 Professionalization and specialization
- 6 The merger movement in banking
- Conclusion
- Index
- Plate section
5 - Professionalization and specialization
Published online by Cambridge University Press: 06 July 2010
- Frontmatter
- Contents
- Acknowledgments
- Introduction
- 1 Vehicles for accumulating capital
- 2 Insider lending and Jacksonian hostility toward banks
- 3 Engines of economic development
- 4 The decline of insider lending and the problem of determining creditworthiness
- 5 Professionalization and specialization
- 6 The merger movement in banking
- Conclusion
- Index
- Plate section
Summary
One of the most fundamental principles of good banking is that the bank should not furnish the capital for its customers to do business upon. The customer should possess his own capital, and require assistance from the bank only at certain seasons and for specific purposes.
David R. ForganAt the same time as the decline in insider lending made it more difficult for banks to assess the creditworthiness of their borrowers, it also made it harder for depositors and investors to evaluate the soundness of a particular bank. Because only a small proportion of loans now typically went to insiders, the identity of a bank's directors conveyed little information to the public about the contents of the institution's loan portfolio. Worse, the identity of the directors also conveyed little information about the quality of the bank's management team, for directors tended to lose interest in overseeing a bank once their need for its funds diminished. Indeed, by the last third of the nineteenth century, many directors had begun to neglect their formal responsibilities, failing to attend regular board meetings and delegating more authority to their executive officers. Attendance reached an all-time low at the weekly meetings held to scrutinize recent discounts. Only two of the seven directors of the Boylston National Bank of Boston, for example, were present for at least 70 percent of the board's meetings in 1880.
- Type
- Chapter
- Information
- Insider LendingBanks, Personal Connections, and Economic Development in Industrial New England, pp. 107 - 132Publisher: Cambridge University PressPrint publication year: 1994