If you want to be a great banker, it helps to know a thing or two about the past. I say that because banking is first and foremost about avoiding the mistakes that have led to intermittent waves of bank failures time and again throughout history.
It's with this in mind that I drew up the following list of 10 books that, in my opinion, belong on every banker's bookshelf. They range from biographies, to case studies, to narratives that cover specific time periods and broader trends. Taken together, they provide an actionable, if not comprehensive, history of banking in the United States.
1. Panic on Wall Street: A History of America's Financial Disasters by Robert Sobel
If you want to understand banks, then you have to understand financial panics. And if you want to understand financial panics, Robert Sobel's book is the place to start.
In less than 500 pages, Sobel traces the history of panics from the Panic of 1792 through the downturn of the stock market in 1962. Along the way, he covers all of the major intervening cataclysms, including the Panics of 1837, 1857, 1873, 1893, 1907, and the Great Depression.
Combined with Charles Kindleberger's Manias, Panics, and Crashes as well as Carmen Reinhart and Kenneth Rogoff's This Time Is Different, these three books give bankers and investors a strong working knowledge of not only how to survive panics in the future, but also how to exploit them to one's advantage.
2. The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance by Ron Chernow
The Morgan family wasn't the first banking family in America, but it has unquestionably left the greatest legacy. And for good reason. In the decades after the Civil War, it slowly but steadily supplanted the Rothschilds and Baring Brothers as the most powerful financial institution in the world.
In the 1890s, the Morgan bank bailed out the United States and thereby allowed it to remain on the gold standard. Its eponymous chairman organized a consortium of lenders to stop the Panic of 1907. It helped finance both world wars. And in the financial crisis of 2008-2009, it heeded the government's call again by stepping in to save both Bear Stearns and Washington Mutual.
Today, JPMorgan Chase sits again atop the U.S. banking industry, with $2.6 trillion in assets on its balance sheet. Ron Chernow's seminal treatise explains how this came to be.
3. Fragile by Design: The Political Origins of Banking Crises and Scarce Credit by Charles Calomiris and Stephen Haber
The thesis of Calomiris and Haber's book is that the frailty of the U.S. banking industry is the direct result of a "grand political bargain" between bankers and various populist movements.
In the early years of the alliance, this led to a prohibition on interstate and branch banking. But after big banks took the place of small unit banks in the accord, this fueled the consolidation boom that spawned the likes of Citigroup and Bank of America.
Calomiris and Haber's book is excellent not only because it traces the legislative history of the industry, but also because it shines a light on the quid pro quo that has long existed between bankers and politicians. In exchange for the right to merge, for example, banks must show that they are sufficiently committed to their local communities by making loans to otherwise uncreditworthy borrowers.
Suffice it to say, this goes a long way toward explaining the forces behind the subprime mortgage bubble that fueled the financial crisis of 2008-2009.
4. Wriston: Walter Wriston, Citibank, and the Rise and Fall of American Financial Supremacy by Phillip Zweig
While J.P. Morgan defined banking in the years before the world wars, the latter half of the last century belongs in large part to Walter Wriston, the onetime chairman and CEO of Citibank -- now Citigroup.
Wriston led the charge in the bank industry as it abandoned its Great Depression-induced conservatism in favor of a global outlook that aligned with the United States' growing economic dominance around the world. He spearheaded the invention of certificates of deposits, pushed Citibank into the field of international finance, and was one of the most aggressive proselytizers of the notion of the financial supermarket.
In hindsight, there's no question that many of Wriston's innovations brought Citibank to the brink of failure on more than one occasion over the years. However, it would be a mistake to allow this point to cloud one's opinion of Wriston's monumental contribution to the evolution of banking in the United States.
For an interesting postscript, check out Tearing Down the Walls: How Sandy Weill Fought His Way to the Top of the Financial World ... and Then Nearly Lost It All, which covers a watershed moment in Citigroup's history after Wriston's departure. Wriston himself also wrote a book titled Risk and Other Four-Letter Words.
5. McColl: The Man With America's Money by Ross Yockey
If there's one person who, alongside Wriston, deserves to be crowned the most influential banker since World War II, it is Hugh McColl. Starting as an understudy of Addison Reese and Tom Storrs in the late 1950s at the once-tiny American Commercial Bank, McColl led the bank industry's push into interstate and branch banking.
Under he and his predecessors' lead, American Commercial Bank set off on a course that would reshape the bank industry. Over a four-decade stretch, McColl played an active role in dozens of mergers and acquisitions that culminated in the 1998 deal between NationsBank, as American Commercial Bank was later known, and Bank of America, creating the first coast-to-coast bank in the United States.
To be clear, Ross Yockey's biography of McColl lacks objectivity, as fawning and otherwise irrelevant anecdotes about McColl are interspersed far too frequently throughout the book. Yet learning about McColl's role in the evolution of banking outweighs this, at times, annoying shortcoming.
6. The Continental Affair: The Rise and Fall of the Continental Illinois Bank by James McCollom
Although most people associate the concept of "too big to fail" with the financial crisis of 2008-2009, it first gained prominence with the downfall of Continental Illinois Bank and Trust, a Chicago-based wholesale bank that buckled under the pressure of a bank run in 1984. As opposed to letting it fail, however, the FDIC chose to nationalize it in order to prevent a more broad-based run on the industry at large.
The lesson that comes through in McCollom's book is that even respected and solvent banks are vulnerable to liquidity crises. While Continental Illinois had its fair share of troubles in the early 1980s, there were few who doubted its solvency until an unfounded rumor was published by Reuters claiming, falsely, that the bank was on the brink of bankruptcy.
The point, as I discuss at length here, is that it isn't enough for banks to focus on offensive growth strategies, they must also always be positioned to play defense in the face of rumors and other threats that aren't of their own making.
For a regulator's take on Continental Illinois' saga, check out Irving Sprague's Bailout: An Insider's Account of Bank Failures and Recues. And for a story about Penn Square Bank, which first triggered suspicion about Continental Illinois, check out Belly Up: The Collapse of the Penn Square Bank by Phillip Zweig.
7. The Greatest-Ever Bank Robbery: The Collapse of the Savings and Loan Industry by Martin Mayer
Aside from the Great Depression, the 1980s was the single-worst decade for banks in U.S. history. This was thanks in no small part to the savings and loan crisis, which decimated the once-thriving thrift industry.
Many books have been written about the savings and loan crisis, but I've found Martin Mayer's to be the most comprehensive. It walks readers through the economic forces that led to the crisis, the legislative response that exacerbated it, and the criminal conduct that added further fuel to the fire.
8. Roller Coaster: The Bank of America and the Future of American Banking by Moira Johnston
Every once in a while I come across a book that surprises me in both the quality of its writing and the comprehensiveness with which it covers the underlying topic. Moira Johnston's book is one of these.
While it's ostensibly a history of Bank of America since the departure of the founding Giannini family, Roller Coaster goes into exquisite detail about the origins of the forces that converged on the banking industry in the 1980s and early 1990s. Thus, for anyone trying to make sense of this pivotal but confusing period, or if you're interested in learning about the history of Bank of America, it's impossible to find a better book than this.
9. Last Man Standing: The Ascent of Jamie Dimon and JPMorgan Chase by Duff McDonald
Even though winners write the history books, I've found that very few great bankers either write their own books or have books written about them. It's hard to know why this is, though it probably has something to do with the, to many people, innately mundane quality of exceptional banking.
I'm happy to say that Duff McDonald's short biography of JPMorgan Chase CEO Jamie Dimon breaks this mold. In just over 300 pages, McDonald teases out the qualities that make Dimon one of our generation's ablest bankers.
The book covers Dimon's obsession with risk and expenses, his willingness and ability to operate counter-cyclically, and his incredible rise through the ranks as Sandy Weill's right-hand man up until the Weill-orchestrated merger of Travelers Group and Citicorp to form Citigroup.
10. After the Music Stopped: The Financial Crisis, the Response, and the Work Ahead by Alan Blinder
Say what you will about the devastating consequences of the financial crisis of 2008-2009, but there's no question that it triggered a tsunami of excellent books.
There are personal takes from former Treasury Secretaries Hank Paulson (On the Brink) and Timothy Geithner (Stress Test) and from former FDIC chairwoman Sheila Bair (Bull by the Horns). There are books that cover specific institutions like Kate Kelly's Street Fighters about the collapse of Bear Stearns, Greg Farrell's Crash of the Titans about Bank of America's acquisition of Merrill Lynch, and Kirsten Grind's The Lost Bank about the failure of Washington Mutual.
There are books about specific angles of the crisis, such as Gillian Tett's Fool's Gold, which covers the creation of credit default swaps, and Bethany McLean Joe Nocera's All the Devils Are Here, which goes into detail about the securitization industry. And finally, there are overarching takes on the crisis including Andrew Ross Sorkin's Too Big to Fail and William Cohen's House of Cards.
But at the top of the list for anyone trying to understand the crisis, is Alan Blinder's After the Music Stopped, which seeks to present the "definitive history of the crisis." While that's a tall order, and one that's perhaps impossible to fulfill, Blinder nevertheless does a masterful job at chronicling the worst financial crisis since the Great Depression.
John Maxfield has no position in any stocks mentioned. The Motley Fool recommends Bank of America. The Motley Fool owns shares of Bank of America, Citigroup Inc, and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.