Branch banking allows ordinary people to utilize banks and theoretically makes banks safer since larger banks are less prone to catastrophic losses than smaller banks.
Amadeo Pietro “A.P.” Giannini started life as a fruit wholesaler. He built and sold a large business, decided he was too young to retire, then innovated an entirely new type of bank.
While in the fruit business he had routinely extended credit to farmers waiting for their crops to mature and decided to open a bank for ordinary people that could offer even small bridge loans, a new concept at the time. Giannini started the Bank of Italy when he was 34 years old, which was relatively well into middle-age for the time. He had no background in banking at all.
Giannini’s renamed Bank of America was a bank for ordinary people rather than the wealthy and elite. His bank was open longer hours and on weekends, recognizing that people were at work during normal banking hours. He also advertised both banking and loan availability, offending other bankers at the time who thought it gauche.
Giannini’s push to open ever-more branches, eventually spanning the entire US, was an innovation. At the time the belief was that a large number of small banks would prove safer, because if one was reckless customers would go elsewhere. Giannini argued the opposite, that large banks were safer because they could better absorb the risk of a bad decision. Further, because of their large size, they could take more risks and not worry that one bad deal would destroy the bank. In this regard, he arguably created the Too Big To Fail Bank.
Bank of Italy charged less interest than the small, independent banks. The Federal Reserve Prime Rate was 5%; small banks would charge 12%, Giannini would typically charge 7%. Giannini utilized leverage at a much higher rate than other banks.
In 1927, Giannini purchased 100 new banks giving him 276 branches in 199 localities and changed the name from Bank of Italy to Bank of America. Because banks were limited state-by-state at the time, he had to create a holding company for each state’s banks, the Transamerica Corporation.
Giannini died in 1949, aged 79, with an estate worth $489,278. By then, BOA was enormous, the large bank in the US. Many of his shareholders were worth much more. Historians say that Giannini had no interest in earning a large fortune for himself, only in building an enormous bank. When he died, BOA employees owned about 40 percent of the stock.