Banking on Earthquakes
What do earthquakes and banking have in common? The link is the 1906 San Francisco
Earthquake, which led directly to the founding of Bank of America. In a random
and admittedly unscientific survey of bankers and geologists,
more bankers knew the connection between the San Francisco earthquake and the
history of banking than did the geologists.
In 1906, A.P. Giannini had already retired from selling produce and begun working
in the banking business, moving from a savings and loan to establishing the
Bank of Italy in San Franciscos Italian neighborhood of North Beach. He
opened the bank with $150,000 in capital from friends and relatives, and it
had been open for barely two years when, on April 18, 1906, the major earthquake
Stories differ about whether the building that housed the Bank of Italy suffered
major damage in the earthquake itself, but the bank was directly threatened
by the subsequent fires that devastated much of downtown San Francisco. Giannini
saved his bank by filling a horse-drawn wagon with $2 million in gold and securities,
covering the valuables with vegetables, and rescuing the resources. The next
morning, he opened for business on a wharf on San Francisco Bay. Many of the
loans that were used to rebuild San Francisco came from these funds, as most
of the other banks were destroyed.
Giannini is credited with a number of important changes in the banking industry.
He believed deeply in the importance of lending money to working-class people,
a group that had been previously ignored by banks as not being creditworthy.
Gianninis Bank of Italy offered good rates, bilingual tellers and a welcoming
environment for farmers, small businessmen and immigrants.
The year after the San Francisco earthquake, his was one of the few financial
institutions that had enough gold and hard currency available to survive a citywide
run on the banks. He concluded that scale was important, and that large banks
were the key to the future, so he built a network of branch banks that is the
model we see today.
Giannini purchased Bank of America in 1929, largely because he wanted to acquire
the name. And nine years after Gianninis death, in 1958, his bank invented
the credit card (BankAmericard, which became Visa in 1975).
We learn geology the morning after
the earthquake, on ghastly diagrams of cloven mountains, up-heaved plains,
and the dry bed of the sea.
-Ralph Waldo Emerson
Of course, Bank of America has suffered some of its own seismic events in the
years since its founding. Acquisitions of banks without sufficient resources,
losses due to bad loans in Latin America, over-dependence on the petroleum industry,
and leadership changes all created shock waves that affected the bank. However,
despite the mergers, the bank represents a largely unbroken line from the geologic
event that dominated 1906.
The moral of this story is that everything is connected, and that geology has
driven the world economy in some unusual ways. Ralph Waldo Emerson wrote in
1860: Bad times have a scientific value. These are occasions a good learner
would not miss.
What had been, ever since our memory, solid continent,
yawns apart, and discloses its composition and genesis. We learn geology the
morning after the earthquake, on ghastly diagrams of cloven mountains, upheaved
plains, and the dry bed of the sea.
By New Years Eve 2006 and the conclusion of the San Francisco earthquakes
centennial year, well all know a lot more about the immediate and long-term
impacts of the event, including its contributions to the modern banking industry.
One place to watch is the 1906 Earthquake Centennial Alliance (1906centennial.org),
a collection of nearly 100 groups and organizations that is using the occasion
to highlight the history, the science, and the impact of the event, as well
as emphasizing planning and risk reduction.
And of course several books about the 1906 earthquake are in preparation now,
including one by Simon Winchester, author of The Map That Changed the World:
William Smith and the Birth of Modern Geology, published in 2001, and Krakatoa:
The Day the World Exploded, August 27, 1883, published in 2003 (see Geotimes,
October 2003). Scheduled for release in October 2005, Winchesters
new book gives examples of how the 1906 earthquake has shaped and continues
to shape our world today.
The establishment of Bank of America is just one of thousands of repercussions
of the 1906 event, and many of the results have been positive. One of these
is increased public interest in geology. As Emerson so accurately noted, we
do learn geology the morning (or century) after the earthquake.
Rossbacher, a geologist, is
president of the Southern Polytechnic State University in Marietta, Ga.
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