I mean administratively, not in terms of their business model or something like that. How did the banks keep track of people’s account balances? Did banks, e.g. in the 19th century, have big cartoon-style leather-bound ledgers with a line for each account, and each time money was paid in or withdrawn someone would cross out the old balance by hand and put in the new one? I guess banks still needed to have folders for each account where they would collect receipts and documentation for each transaction in case there were disputes.
How was that done? Did major banks with an extensive branch network have vast archives where these documents were collected in thousands of files? Or was that archiving done decentrally, in the branch office where the individual customer resided?
How was it done to check the account for cover when the client wanted to withdraw money, or a cheque was presented for cashing? Did the teller clerk politely ask the client to wait, send someone down to the archives to check the balance, and make the payment once he got that information? Sounds awfully complicated and time-consuming to me, especially if the transaction was to be done at another branch and that branch had to get access to account information kept elsewhere.
I understand that it was much less common for ordinary people to have bank accounts in, say, pre-WWII or the 19th century, but still major banks must have had thousands and thousands of accounts (most of them presumably merchants) with plenty of transactions happening every day.
As I recall it, the branch at which you held the account was much more important then than now. At your home branch, there were kept ledger cards and other rather Dickensian handwritten books which kept track of your account. If you wanted to withdraw substantial sums, you had to give some days notice, partly so they could get the cash together and partly so they could check the details of your account. Since your home branch was so important, the staff tended to know its customers by face - no banking by phone or machine in those days. So they had a pretty good sense of where your finances were at when you came in to make deposits. Since cash was so important in those days, and was what people got paid in, individual people tended to make deposits (including mortgage repayments) more often than withdrawals. Of course for businesses it might well be different.
If you wanted to do transactions at other branches (particularly withdrawals), you had to wait awhile for phone or mailed confirmation. Bank hours (at least where I come from) were quite short - 10.00am to 3.00 pm - because outside those hours, the staff had to manually update all the ledgers and accounts from the day’s transactions.
A big advance in portability was the cheque. This was essentially a withdrawal slip filled in and given to someone else so they could get the money, but rather than have to take it to your bank to get the money out, the recipient could deposit the withdrawal slip/cheque at their bank and the banks would do the paper shuffling for everyone. Of course it all took a few days, and there were opportunities for fraud, but generally it worked well enough.
Again as I recall it, another big advance in portability was the passbook. Essentially, this was the bank’s ledger of your account given to you to carry around. If you lost it, you were seriously screwed (although I think it was possible to reconstruct the contents with some effort). The books were printed, and entries were stamped and initialled in ways that meant that forgery was difficult in practical terms. But they meant you could go to another branch and get your money out without the need to check with the home branch.
Things worked. Just much more slowly than at present. As I said above, cash was more important. It was what you got paid in. It wasn’t as though your pay got automatically put into an account and you were forever going to the bank to make minor withdrawals as we tend to today from ATMs.
How did retail banks work before the advent of computers?
I dont even remember “branches” before computers, i.e., before the 1950’s. Where I lived, every little town had their own little bank, and I never even saw a bank branch office until the 1950’s/computer age. Anyways, most towns in the 1930’s or earlier were not really large enough to have more than the main bank home office.
OTOH, Yes, there were big national financial institutions like Wells Fargo and American Express that could move money around for customers, but didnt they rely on the wire/telegraph to transfer money from city to city/bank to bank? If you were out of town and wanted money from your local hometown bank, then you had to wire your funds from bank to bank. I remember people “wiring” money from town to town back in the 1940’s.
There was also a division of services (at least in New York State). Savings banks (S&L’s elsewhere) gave extra interest on savings, did not provide checking services, and provided mortgages. Commercial Banks paid a lower interest in savings, provided checking accounts (usually with a fee – a dollar or two a month and ten cents per check), and provided commercial and auto loans.
Most people had their savings in a savings bank, which used passbooks. As mentioned, this meant the customer had the record of transactions. Interest, BTW, was compounded and credited quarterly – if you withdrew money from savings on August 30, you’d lose any interest on the money you withdrew (OTOH, if you made a deposit on August 30, it would get a full months’ interest). Nowadays, banks compound continuously and credit you at the end of the month, so you do get interest for withdrawn money.
At the end of each day (banks closed at 3 except for Friday), the tellers would reconcile their accounts and send the information to the bank’s back office, where things would be credited. customers did not have instant access to their money – banks would often put a hold on checks for days or even weeks (if the checks were from another out-of-town bank). This let the banks process the checks – they had to be sent to the issuing bank for payment.
Branch banking was a matter of state law, not national law. Some states, Illinois in particular, limited banks to a single branch until 1967. Others allowed branches within the state. It was interstate banking that was completely prohibited, by the McFadden Act of 1927. This started to break down around the 1980s and was eliminated by law nationally in 1994.
Record keeping was done at your bank of, um, record. You had a bankbook for each account. The bank had accounts that recorded all transactions. It may have been a single ledger long, long ago, but by the 20th century, individual accounts would be kept. If you needed money at a branch, they would check your bankbook, or if necessary call and check your account.
That’s one reason banks kept “bankers hours” and closed at 3:00. It took the two extra hours every day to make sure all the accounts from all the transactions squared away.
This is how the Tbilisi (Republic of Georgia) power company worked in the 2000 era. When we paid our bill it was recorded in a giant book and the receipt was cut out of our bill and then glued (with a paint brush and small dish of glue) into the Big Book.
When I was a kid my dad had his checking account in Salinas but the checks had our address which was a Watsonville address. His reason for doing this, When we shoped in Watsonville with the Watsonville address stores would not conside it an out of town check, And in Sallinas the bank was no out of town. It was hard to get an out of town check cashed. Also when we went to San Jose for back to school shopping it was cash because out of town checks were not accepted.
My understanding at the bank at the end of the day any deposits were added to your account then the checks that came in that day were substracted and you new account was recorded.
Depending on the bank interest was added to your account monthly, by the quarter, every 6 months, or once a year. When you came into make a deposit or take money out your pass book was updated.
Actually, banks have had computers for a long time. A computer was originally a person who did the computations and not a mechanical machine. Banks had thousands of these computers.
Most banks did not have branches, and those that did, the branches were fairly independent of each other. You could not simply go to Wells Fargo in Los Angeles and withdraw money from your Well Fargo account if your bank was in San Francisco. If you needed money, the Los Angeles branch would have to wire the San Francisco branch about your account information. The San Francisco branch would then withdraw the money from your account and wire the Los Angeles branch to go ahead and make a payment. The amount of money transferred from one branch to another would be reconciled at the end of the month.
Banks use to close at 2pm, so their workers could tally up the accounts and checks at the end of the day. At 4pm each day, all the local banks would meet in one location and exchange paper checks with each other. Bundles of checks would be swapped back and forth between the banks. Nonlocal checks would have to be mailed off or shipped off to various localities and it might take days, maybe weeks to get the result of those checks.
Bank accounts were kept on ledger cards with each account having its own cards. Each branch was responsible for its accounts. I don’t know if you remember savings passbooks. Those were little booklets that you had to take to your savings bank whenever you deposited or withdrew money from your account. In the 1920s, mechanical tabulators could calculate the accounts and type the amount on the ledger cards. This made the cards a bit easier to read.
In the 1950s, banks started becoming computerized and thousands of people were laid off. In fact, it may have been one of the causes of a recession in the late 1950s.
It’s hard to remember, but until the 1980s, banks could not have interstate branches and many states prohibited branch banking. I remember in Texas that all banks were local. In the 1980s, banks started to form holding companies which would buy out individual banks. Officially, each branch was an independent bank, and your AmericanBank account in Austin was no way connected to the AmericanBank in Dallas.
It wasn’t until the Clinton administration where many of the rules were relaxed and banks could start crossing state lines. It wasn’t until 2001 that banks no longer had to exchange their paper checks with each other in order to reconcile their accounts. That happened after September 11 when the skies were closed down for three days which meant the banks couldn’t get their checks from other banks in other cities. The Fed relaxed the rules temporarily, and then permanently.
My bank in Cameroon was not well-wired, and I imagine it operated much like older banks did. It kept accounts on computers, but those computers were not connected to any kind of network.
We used passbooks and checks- but most checks were used to pull money for your own account and they were not regularly used to pay other people. The bankers knew you, so if something didn’t seem right they would call you to authorize the transaction. Our bank was relatively large, and had maybe three branches in the region and one in the capital. If you wanted to take out money in another branch, you’d have to set up a transfer at your branch beforehand and it would take some time. I think these were done by telegram. Transfers between banks must have been possible, but I don’t think it was something individuals did. Anyway, going to the bank for even simple transactions took some time, so I usually pulled out a month’s worth of spending money at a time.
One thing to remember is that a lot of ordinary people did not use banks. Most transactions were on a cash-only basis and plenty of people were happy to cash their paycheck at the company bank and then hide the money under their mattress. Large amounts of money would be moved by wire transfer.
YOu can watch** “In the Heat of the Night”**, and see Gillespie go to the bank to find out if deputy Sam Wood made any large recent deposits or withdrawals, and see how the bank manager looks up how much money Officer Wood has and how much Wood deposited and when.
The bank had a duplicate record. By the time I got one, it was probably computerized to some degree (I remember presenting it and having them add several quarters worth of interest because I hadn’t made any transactions).
It was probably the same before that. Even today, banks have deposit slips which are sent to their back office for reconciliation. You’d fill out a slip for each passbook deposit or withdrawal, and it would be sent to their accounting department to update their records. If you lost the passbook, they’d be able to find out how much was in your account and transfer it to a new one.
Could someone give more detail on the computerization of banks in the late 1950s? Computers were expensive back then, possibly more than a small bank could afford, and the records would have to be punched in or otherwise entered at the end of the day. They certainly did not have terminals for all tellers then. I got my first passbook around 1958 in a banking for kids program. In New York, anyhow, there were plenty of branch office.
As late as 1969 I got paid by check for a summer job and had to go across Park Avenue to cash it at a branch of the bank it was written on. The UN had a branch office of Chemical Bank which allowed my father to deposit his check easily. No direct deposits back then.
Not a bank, but my mother was a bookkeeper, and at least once I helped her go over the ledger to find a small arithmetic error which was driving her crazy. Her company certainly couldn’t afford a computer in 1960 or so.