03/07/2009 05:12 am ET Updated May 25, 2011

Bankers, Open Your Vaults!

Will it take an earthquake to shake American bankers from their new found windfall from the federal government? Congress approved the $700 billion TARP rescue plan months ago with the idea that these funds would help stimulate the economy by providing more capital to the banking industry which would ease credit to borrowers. But, these reluctant bankers took the first $350 billion and used it primarily for paying down debt and acquiring other businesses. In fact, just a couple of weeks ago, Bank of America asked for another $20 billion to help it digest the losses associated with its acquisition of Merrill Lynch. Maybe the bankers at B of A could learn a few things from a history lesson about the roots of their institution.

A.P. Giannini opened the Bank of Italy in a former San Francisco saloon in 1904 because, as a produce dealer, he found established banks unwilling to take on his or his farmers' business. But, less than two years after opening the bank, a sentinel event shook him to his core and helped define how what would become the Bank of America would approach lending to the masses as B of A popularized branch banking across the country.

In the early hours of April 18, 1906, Giannini was suddenly thrown out of bed by a violent upheaval in the earth that shook his San Mateo house to its foundation. He immediately made the trek north to the epicenter in San Francisco. His fears of what he would find in the city were exacerbated when he learned that he would not be able to travel his typical route via the railroad. The earthquake had wrenched the tracks from the ground making rail service impossible. He set off by foot, his only alternative. Along the 17 mile walk to San Francisco, Giannini encountered processions of wagons carrying frightened people fleeing the city who conveyed depressing stories of startling destruction in the city.

Fearing the worst, Giannini reached his bank and was startled to find that it had not suffered any major damage. Two of his employees had rescued the overnight cash, approximately $80,000 in gold and silver from the vaults and secured it inside their bank. Giannini was tremendously relieved, but only briefly, as the threat of fire was rapidly moving their way. He moved quickly and determined that they had about two hours to get everything out of there securely. The three men obtained two produce wagons to transport the Bank of Italy's money, books, and furniture out of the city back to Giannini's home in San Mateo.

Bank of Italy was one of the few that was able to provide loans in post-earthquake San Francisco when borrowers' thirst for capital was much like ours is today. Giannini was forced to run his bank from a plank across two barrels in San Francisco's rumpled streets. Giannini made loans on a handshake to anyone who was interested in rebuilding. Years later, he would recount with pride that every single loan was repaid. Giannini is credited as the inventor of many modern banking practices. In the depths of the Great Depression, he bought the bonds that financed the construction of the Golden Gate Bridge. During World War II, he bankrolled industrialist Henry Kaiser and his enterprises which supported the war effort. After the War, he visited Italy and arranged for loans to help rebuild the war-torn Fiat factories.

A.P. Giannini is probably rolling in his grave today as American bankers have treated the U.S. government as venture capitalists providing them "opportunity capital." Just a couple of months ago, the Gallup organization announced the results of their annual "Honesty and Ethics" poll of American professions. The only significant change from the prior year is that bankers have sunk to a historical low with only 23% of Americans considering them very honest or ethical (down from just 41% three years earlier). With nurses topping that honesty list, American bankers should realize that A.P. Giannini created a sort of capitalist triage on the streets of San Francisco in the earthquake aftermath which quickly allowed the Bank of Italy (soon to be called Bank of America) to earn somewhat of a monopoly in the early 20th century banking world.

Where is that kind of innovation and desire to lend today? American banks spend hundreds of millions of dollars in advertising to try and differentiate themselves from each other. But, in this time of crisis, when America would truly notice and applaud the banker that was in the streets trying to stimulate business, our modern day bankers are cowering in their very lonely vaults.


Chip Conley is an author and hotelier. He is the author of several business books including:
The Rebel Rules: Daring to be Yourself in Business (Simon & Schuster, 2001), Marketing that Matters: 10 Practices to Profit Your Business and Change the World (co-authored with Eric Friedenwald-Fishman, Berrett-Koehler Publishers, 2006), and his most recent book, Peak: How Great Companies Get Their Mojo From Maslow (Jossey-Bass, 2007).