THE SMALL, PRIVATE BANKER IN NEW YORK AND REGULATORY CHANGE, 1893-1933

This essay traces a movement in New York State in the late 19th and early 20th centuries to protect depositors in small, private banks. These depositors were often located in immigrant communities that did not possess the local level of capital to support a national or state-chartered bank. Small private banks, the only entities that often served certain poor areas, were less regulated than state-chartered or national banks, especially with regard to capital levels and quality of assets. The fact that bank managers possessed the ability and incentives to assume additional risk exposed depositors in these small private banks to an increased danger of moral hazard. implicitly recognizing this risk, state officials in New York after the Panic of 1893 began a movement that spanned three decades to reduce the incentives for moral hazard and increase the protection for depositors in these immigrant communities.