Why was America's First Bank Aborted?

Abstract

In 1686 the leadership of Massachusetts became involved in the first operational bank scheme in America. In 1688 this note-issuing bank was mysteriously aborted at an advanced stage. I suggest a new, simple explanation for the bank's demise. The bank's notes were supposed to be backed mostly by private land in Massachusetts, but a new royal governor invalidated all the land titles. This episode demonstrates the importance of clearly defined and enforced property rights for the development of financial institutions.“After showing him an Indian deed for land, he said that their hand was no more worth than a scratch with a bear's paw, undervaluing all my titles, though everyway legal under our former charter government.”1Joseph Lynde

Property Rights Under Administrator-Dictators: The Rise and Fall of America's First Bank

“…Graham threatened that all the rich would be targeted for all their lands. Four days after the prosecution started, as a record number of colonists rushed to petition for confirmation of their land titles, Blackwell announced that the bank scheme was aborted because the partners wished to withdraw (Goldberg 2011). Four months later, the Glorious Revolution in England deposed James II.…”

“…Dominion courts could not be expected to be too friendly to their former dictator. Moreover, the bank was supposed to handle all payments in its own paper money rather than with scarce coin, and the plan was to actively discourage repayment of its loans in coin (Goldberg 2011, p. 214). Sitting in England or another colony, Andros would have had no use for the bank's notes.…”