Short Story of the Week: Bank of America

Crisis is often a catalyst for innovation.

In 1883, before he entered the banking industry, Amadeo Peter Giannini quit school in his early teens to work for his stepfather as a fruit and vegetable merchant in San Francisco. By the time he was just 31, Amadeo had already amassed a net worth of $300,000 ($9 million inflation-adjusted), was retired and married. 

However, Amadeo was never suited to live the life as a fruit merchant (despite his wild success). As someone who was described as “hot-tempered, egotistical, and often ruthless,” Amadeo was angered one day when he got “into a shouting match with the head of a local bank about its reluctance to make small loans to individual borrowers” (Zweig, The Wall Street Journal). Feeling bitter, Amadeo founded his own bank in 1904, the Bank of Italy.

At the time, most banks favored high net worth, high class, large institutional customers. For those who didn’t fit this criteria, banks viewed them “as credit risks not worth the paperwork.” Their options were limited. Some even resorted to using high-cost loan sharks. But Amadeo was about to change that. 

Housed in a converted saloon, Bank of Italy disregarded the status-quo of banking practices at the time and dealt exclusively with “little fellow.” The bank serviced and solicited (another banking taboo) hardworking immigrants, small farmers, and businessmen (all of whom were ignored by other banks) offering them savings accounts and loans. Amadeo would go door-to-door, convincing immigrants that their cash was safer in a bank earning interest than under a mattress accruing dust. 

The determining factor that Amadeo used to decide who received a loan was not a customer’s assets, but rather their character. “Within a year, deposits were soaring above $700,000 ($13.5 million in 2002 dollars)” (PBS.org). 

In 1906, tragedy struck: a massive earthquake ripped through San Francisco and started fires that would burn down the Bank of Italy. 

With some quick thinking, Amadeo trollied the bank’s money away in orange carts (to prevent looting) to store it in his home. While San Francisco was still burning and other bankers lost access to their overheated vaults, Amadeo created a makeshift bank on a wharf with a cardboard sign displaying, “OPEN FOR BUSINESS.” He offered loans to victims of the earthquake. Requiring his debtors to “raise half of what they needed elsewhere,” and loaning the other half, he often accepted handshakes and their characters as collateral (Zweig, The Wall Street Journal). 

It’s reported that every single loan was later repaid. 

With his eyes on becoming the biggest bank in California, then the United States, Amadeo needed to rise from the ashes of his burnt bank. By incorporating his philosophy of catering to little people in a radical new concept, branch banking, Amadeo quickly expanded across the state and grew to be its largest bank. He began purchasing stand-alone banks and reconverting them into branches, putting an end to the “independent bank” business model and providing essential services to many immigrant communities. Although regulators ordered him to stop purchasing branches, nothing could slow down his momentum (or his hatred of following others’ rules).

“We had money to sell and we went direct to the people to sell it.” Giannini said. “[Not just] to a favored few, [but] to all the people… Be ready to help people when they need it most. Get set to yank them out of a hole. The ‘glad hand’ is all right in sunshine, but it’s the helping hand in a dark day that folks remember to the end of time” (Zweig, The Wall Street Journal).

Amadeo believed that branch banking would protect his bank, which he renamed the Bank of America, from boom and busts across volatile industries. To bolster growth, Amadeo liked to do things himself. He “‘walked in rows beside farmers engaged in plowing’ to explain how banks make credit cheaper and more reliable. Town by town, he built the first statewide branching system in the nation” (Office of the Comptroller of the Currency).

Amadeo had made explosive progress. By 1921, Bank of America had 400,000 depositors. By 1927, it had 1 million depositors and was the 3rd largest bank in the US. During this time, Amadeo had made loans to everyone, from working class immigrants to promising projects like the filming of Snow White, the construction of the Golden Gate Bridge, and an oscilloscopes company called Hewlett-Packard. It was also because of his generous farm mortgage policies that the agricultural industry blossomed in central and northern California. 

Content with his growing empire, Amadeo retired in 1930.

But the timing for his exit couldn’t have been worse. The Great Depression was uprooting America and its financial institutions like a force unlike any other. 

Amadeo’s successor decided that Bank of America’s path to survival meant embracing new conservative policies. After learning of this, Amadeo ousted him and other rivals to reclaim the helm. Between 1929 and 1932, their deposits shrank by a third. 

In 1932, faced with the failure, Amadeo decided that survival depended on doing everything “by hand.” Over the course of three months, he traveled 26,000 miles and worked 14 hours per day talking to consumers, convincing them to make a deposit. He visited 410 branches and talked to hundreds of customers every day. One time, he drove three hours through a rainstorm to win back a consumer who had just transferred into another bank. 

After 41 days of starting his laborious last-ditch effort, conditions began to improve. From 1929 to 1934, Bank of America’s deposits only decreased by 33%, compared with average local banks who tightened credit by twice as much (Zweig, The Wall Street Journal). 

After weathering the Great Depression, Amadeo continued to work on the main floor of his bank, answering his own calls and speaking directly with dozens of customers a day. Upon his retirement in 1945, Bank of America became the world’s largest bank. 

Before he left, he told employees, “If I ever hear that any of you are trying to play the big man’s game and forgetting the small man, I’ll be back in here fighting” (Zweig, The Wall Street Journal). 

When he died, Bank of America had 500 branches and $6 billion in deposits. 

Hundreds of regular people attended his funeral.

Amadeo pioneered the concept of branch banking and paved the way for future banks to create themselves as we know them today. He survived two major crises and came back stronger than when he entered each of them. Yet, throughout it all, Amadeo’s thesis of helping out the little guys was unwavering, and proved to the world that his “populist lending” strategy wasn’t as reckless as once thought. 

Four years after his death, Bank of America’s average customer had $1,600 in checking accounts. The average balance at other banks (those that mainly serviced large institutions) was 20 times that, at around $32,000.

Although the Great Depression and San Francisco Earthquake of 1906 crises are far behind us, it’s important to remember that the best creations and innovations would be nothing without them. While the Coronavirus Pandemic will be remembered as a historic event rife with economic collapse and death, it also shouldn’t be forgotten that the next Apple or Airbnb is being created as you read this. 

Only time will tell which innovations will come out of this, but one thing’s for sure: our current crisis is giving birth to our future. 

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