Within the postwar financial regulatory system, state-level regulations—particularly interest rate limits—constrained the profitability of bank credit card plans. But differences in law among the states allowed motivated institutions to circumvent local laws using these mobile financial instruments. Eventually, banks themselves became mobile, placing irresistible pressure on states to eliminate local restrictions on consumer finance. The critical moment came when Citibank relocated its credit card business to Sioux Falls, South Dakota, in 1981. By examining this move in its longer context, this essay provides a new perspective on the rise of consumer finance in the late twentieth century, one that emphasizes strategic manipulation of local law by firms pursuing a national customer base.
IN MAY 1959, New York State Comptroller Arthur Levitt Sr. met with a group of financial executives at the downtown office of Goldman Sachs & Com pany. This was the first meeting of the new Investment Advisory Council, which Levitt had assembled to guide him as he transformed the state's $1.2 billion retirement portfolio. With the bankers' encouragement, he planned to sell the pension's extensive municipal bond holdings and to reinvest the receipts into corporate securities. The sell-off would have farreaching consequences for school districts across the state. Over the previous de cade, New York comptrollers had subsidized the construction of public schools by purchasing school bonds with pension funds. Following the advisers' counsel, the New York State Employee Retirement System (NYSERS) sold off most of its municipal bonds and increased its holdings of corporate bonds and stocks. This shift in investment strategy marked the Note: This essay began as a chance conversation in Firestone Library and has evolved into its pre sent form through the encouragement of numerous colleagues and friends. It has benefited from the sharp editorial work of the staff at Capitalism and the constructive feedback of anonymous reviewers. We would also like to thank
This study takes a step toward reconceptualizing the process of financialization, the reorientation of the US economy toward financial services that scholars view as a product of the 1970s economic shocks and subsequent regulatory liberalization. Instead, I argue that financialization was equally dependent on the gradual development of new financial technologies and business practices within the political and regulatory environment of the early postwar era. I do so by examining a cohort of small U.S. banks, which in the early 1950s began experimenting with a novel form of consumer credit: the charge account credit service. These plans allowed consumers to shop at a variety of local merchants using a single bank charge card. Bankers, though, developed charge account plans not as a conduit for consumer lending but as a business service, which enabled their small-merchant customers to compete with the credit plans offered by expanding department stores. In this way, charge account banking conformed with the 1950s political economy of finance, in which commercial bankers primarily lent to businesses and were still wary of consumer credit. Although they operated differently than the credit cards consumers know today, charge account banking plans were still a necessary first step toward this later financial technology, paving the way for commercial bankers to invest in unsecured card-based credit in the decades that followed.
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