BANKING. The history of banking in Cleveland is closely linked to the city's economic growth and to national economic history. It is a story of merger and consolidation: the two largest banks headquartered in the city in the mid-1990s, NATIONAL CITY CORP. and Key Corp., are both regional banks, the former primarily in the neighboring states of Kentucky and Indiana, as well as Ohio, and the latter in the East (Maine, New York) and West (Washington, Oregon, Idaho, Wyoming, Utah, and Colorado). Cleveland is also headquarters for Charter One, the largest thrift in the state. And the city is home to the Fourth Federal Reserve District Bank. Behind the emergence of Cleveland, in the 1990s, as a major regional banking center is a long history.

The first generation of Cleveland banks were formed prior to the Civil War when the city was no more than a frontier village. Most noteworthy of these were City Bank (1845), a commercial bank dealing primarily with businesses and business loans, and Society Bank (1849), a state-chartered savings bank dealing primarily with individuals, savings accounts, and residential loans.

In 1863, during the Civil War, the National Banking Act created a national banking system to fund the Civil War. One of the first banks in Cleveland to become a nationally chartered bank was City Bank in 1865, which issued its own bank notes until the 1920s. (Commercial Bank of Albany, parent to modern day Key Corp., also became a national bank in this era.)

By the turn of the century, Cleveland was a major industrial city with key industries in steel and coal and as supplier to the emerging auto industry in Detroit. State laws were modified, under a push from Cleveland industrialist MARCUS A. HANNA, among others, to make it easier to form trust companies, leading in 1894 to the creation of both Guardian Trust and Cleveland Trust Banks. Within 20 years, Guardian boasted the largest office building in Cleveland, the New England Bldg. on Euclid Ave., considered at the time one of the finest banking buildings in the country. Cleveland Trust, first in the city to adopt the "branch" bank method of expansion, had 53 branches within the city and was the 6th largest bank in the country by 1924. Union Trust was the 3rd major trust bank organized in Cleveland at the turn of the century, and by the early 1930s was one of the largest in the nation outside New York City.

Cleveland had large immigrant populations from southern and eastern Europe. The Bank of Cleveland was started as a private bank by STANLEY KLONOWSKI, Polish immigrant businessman, in 1913. Later (ca. 1920) it was reorganized as the Bank of Cleveland, the oldest ethnic bank in the city, claiming to be the first Polish-American bank in the U.S. (This family bank was purchased by National City in the 1970s and reputedly was almost 100% liquid, meaning it had few outstanding loans, part of the conservative banking strategy of its founder.)

Cleveland, chosen as a Federal Reserve city in 1914, was one of only 12 cities in the country so honored. When Democratic Pres. Woodrow Wilson first signed the Federal Reserve Act, both Cleveland and nearby Pittsburgh were contenders as choices for the location of the new Fourth Federal Reserve District bank. Historians believe politics was a determining factor: Pittsburgh was a strongly Republican city dominated by Mellon banking interests, while Cleveland then was a Democratic city. Mayor NEWTON D. BAKER nominated Wilson in 1912 and later served as his secretary of war. In addition, ROBERT J. BULKLEY, another Cleveland Democrat, was an influential Congressman (1910-14) on the Banking and Currency Committee which created the Federal Reserve. Rapid economic growth in Cleveland and the fact it had never had a national bank failure were also key elements in the choice of Cleveland as a Federal Reserve city.

The CLEVELAND FOUNDATION was established in 1914, the same year the city obtained its Federal Reserve status. FREDERICK GOFF, president of Cleveland Trust, was instrumental in creating the foundation, the nation's first community-based foundation. In 1931 additional local banks besides Cleveland Trust also became trustees of the foundation, which in the 1990s boasted assets of half-a-billion dollars.

While Cleveland had over 100 banks at the turn of the century, by the end of the 1920s, as a result of mergers and acquisitions, there were only 16 banks left. Most banks had been acquired in the interval by one of the three emerging Euclid Ave. "giants." Cleveland Trust, on the southeast corner of Euclid and 9th, acquired 15 banks. Union Trust, directly across the street in the northeast corner, acquired 36. And Guardian, less than a block away on the avenue on its northwest side, acquired 8. Ninth and Euclid was now the heart of the city's financial district, and Union Trust was the largest bank outside New York City. Cleveland in the 1920s was also the first city in the U.S. to have a bank founded and operated by women. This was the state-chartered Women's Savings & Loan begun in 1922 by CLARA and LILLIAN WESTROPP of Cleveland. Suffragists both, they wanted to expand women's rights by opening up the world of finance to women as a career.

Cleveland's first Depression era failure was Standard Trust, liquidated in 1931, and the second was Midland Bank the following year. Local state-chartered banks with heavy real estate investments, particularly in the Van Sweringen brothers' new Terminal Tower complex, were among the first to feel increasing financial pressure in late 1932. (National banks, like National City and Central National, were then forbidden by charter to invest in real estate.)

Cleveland's worst run on banks occurred two weeks after Detroit's famous run in February 1933. The dark day for Cleveland was Saturday, 25 Feb. 1933. Union Trust and Guardian Trust lost half their deposits in one day.  Later, on April 27th, Cleveland Trust only managed to minimize its substantial losses with a dramatic appearance in the lobby of President Harris Creech, who stood on the counter reassuring the crowd of customers that the bank would honor all requests. At a meeting of the Cleveland Clearing House at midnight that Sunday, most banks agreed to restrict withdrawals to 5-10%. Three banks did not comply: National City continued to pay out 100 cents on the dollar; Society for Savings restricted withdrawals only on large accounts, and the Bank of Cleveland reputedly relied on $280,000 of Klonowski's personal funds to keep the small ethnic neighborhood bank open.

Franklin Roosevelt, inaugurated at the end of that week, the 1st Saturday in March, declared a National Bank Holiday, closing all the banks in the country. Four Cleveland banks were allowed to reopen in the first round of openings, although some local traditions say the first was Cleveland Trust. These four were the city's two national banks, National City and Central National, Society for Savings, and Cleveland Trust. Many other banks in the city reopened over the next few months, but two of the city's largest never reopened—Union Trust and Guardian Trust. A state banking investigation led to the conviction and imprisonment of J. Arthur House, president of Guardian, for illegal dealings. An investigation of J. R. NUTT, president of Union Trust, revealed no personal wrong-doing.

Politics was central to the resolution of the Cleveland banking crisis of 1933, according to local oral banking history. Cleveland Trust, allowed to reopen, reputedly had a powerful advocate in New Deal Washington in Democrat NEWTON D. BAKER, who, according to one account, arranged for a timely federal loan for Cleveland Trust in the midst of the holiday while all the banks were closed so that it could reopen. Others say it was a choice between opening Cleveland Trust or Union Trust, but not both; that the former had more local money invested in it and its permanent closure would hamper Cleveland's economy more than the permanent closure of Union Trust would. The latter, on the other hand, was a strongly Republican bank with ties to J. P. Morgan in New York City and to the strongly Republican Hanna family locally. (Marcus Hanna served as a Republican Senator and was instrumental in securing the presidential nomination for McKinley in 1896.) Only the previous fall, in 1932, Union Trust's President Nutt had served as finance chairman for Herbert Hoover's reelection. Some Clevelanders insist FDR wasn't about to reopen Union Trust for this reason. (Union Trust later paid off creditors and depositors at more than 100%, giving credence to the view that politics, not poor management and/or investments was responsible for Union Trust's demise. Nutt, to the day he died, insisted the closing of Union Trust in Cleveland was "one of the greatest crimes of 1933.")

Politics was also a factor in the handling of the assets of the closed Union Trust, then a big prize as the largest bank in the city of Cleveland. Corporate lawyer A. V. CANNON, one of the few Democrats on Union Trust's board, was instrumental in the city's obtaining funds for 175,000 unemployed in the Depression. He assumed the additional role, in the spring of 1933, of working to protect the saving deposits of thousands of Clevelanders with money in the two closed big banks, Guardian and Union Trusts. In April 1933 he went on radio station WTAM, at the top of the Union Trust building, to announce to the city that he would be chairman of a new national bank, to be created with assets from the two permanently closed banks. In the end, instead of creating a new bank, Cannon brought the large trusts from Union over to National City, until then a relatively small bank.

While 1933 was the worst year in banking history in the nation and in Cleveland, it was a banner year for little National City, which tripled its assets, obtained the RFC regulator of the closed Guardian Trust as its new president (Sidney Congdon), and the former head of the Fourth Federal Reserve Bank (L. B. Williams) as its new chairman. To do this, National City reorganized its board so that half were trustees from the old Union Trust, including Cannon and GEORGE HUMPHREY of Hanna Mining. (Cannon died unexpectedly a year later and the PLAIN DEALER ran a headline across the top of the front page because his death was considered important local news.)

New banks appeared in Cleveland in the late 1930s: Union Commerce occupied the same bank lobby as the old Union Trust, but was not the same bank although Union Commerce's new president had also been the RFC liquidator of Union Trust. National City unsuccessfully sought in 1943 to acquire Union Commerce to obtain its banking headquarters as more befitting a bank which saw itself as the true descendant of Union Trust. (Huntington Bank, based in Columbus, years later acquired Union Commerce and still occupies the old Union Trust building on the northeast corner of Euclid and 9th.) While Women's Savings and Loan closed in the Bank Holidays and paid 100 cents on the dollar, it reopened in 1935 with a national charter as the Women's Federal Savings and Loan, still owned and operated entirely by women. (In 1988 it was the 8th largest bank in Cleveland, prior to its acquisition by Charter One in 1993.)

During World War II, Cleveland banks were instrumental in making federally backed defense loans to local industries. Cleveland Trust emerged as the largest local bank in the 1940s and 1950s under the presidency of self-made millionaire GEORGE GUND. A product of the first graduating class of Harvard Business School, this Cleveland banker was honored by Harvard in the 1960s with two professorships in his name, including one in commercial banking. (According to local banking lore, a Brink's armored truck was seen following Gund's funeral cortege, with one onlooking banker joking, "I guess George is going to take it with him.")

In the 1950s, the local financial community achieved a national voice when Pres. Dwight Eisenhower appointed GEORGE HUMPHREY, long-time president of M. A. HANNA CO., and a prominent Cleveland bank director from old Union Trust and National City, to be his secretary of the treasury. Humphrey was known as a fiscal conservative. Cleveland bankers also played a role in the creation of Univ. Circle in the 1950s: today it is a 488-acre complex of the city's major cultural and educational institutions, the only such complex in the world. Also in the 1950s, the CLEVELAND MUSEUM OF ART received the $33 million LEONARD C. HANNA bequest, handled by Cleveland banks, making it one of the best endowed art museums in the nation. Society Bank became a major subsidiary of the newly created SOCIETY CORP., a bank holding company in 1958, possibly giving it an edge in timing on expansion through acquisitions on its two major rivals, National City and Cleveland Trust, which did not form holding companies until the early 1970s. It was then that Cleveland Trust changed its name to AmeriTrust to reflect its new focus beyond Cleveland.

In the 1970s Cleveland defaulted on its bonds, many held by local banks, especially by Ameritrust. There was some political antagonism to the banks because of the latters refusal to refinance to avert the default. Some city politicians charged the banks with racially discriminating in grants loans to local residents, particularly Ameritrust, although such a charge of "redlining" was never proved. On the other hand, National City's board minutes in 1934, when it first began residential lending, are undoubtedly typical of the practice of many local banks in restricting loans: National City established a written policy of discouraging loans not only to non-whites but to immigrants from southern and eastern Europe as well.

In the 1980s Cleveland banks began their regional ascendancy. National City acquired BancOhio (see BANCOHIO NATIONAL BANK), based in Columbus in 1984, in a hostile takeover (from BancOhio's management's point of view) but with the support of BancOhio's most powerful trustees, the Wolf family of Columbus. National City also acquired major banks in nearby Kentucky (1988) and Indiana (1992). Ameritrust expanded into Indiana, Texas, and Colorado, and Society acquired Centran Corp in 1985, making it the state's 3rd largest bank holding-company. The 1980s also saw the birth and demise of a minority-owned bank and the arrival in the city of Karen Horn, new chairman of the Fourth District Federal Reserve. Cleveland banking, with the exception of Women's Federal Savings & Loan, had been dominated historically by white males, by white Anglo-Saxon native males, to be more precise. Glass ceilings prevented the rise of immigrants, women, and minorities to the top. In a few cases, the latter responded by creating their own banks, for example the Klonowski bank for Polish immigrants and the Westropp sisters' bank for women. So the arrival of Ms. Horn was significant in that women first emerged at the top in Cleveland banking via the federal government's role in local banking.

The national savings and loan crisis of the 1980s, primarily in the southwest, affected some banks in Ohio. Charter One, initially privately owned and based in Cleveland, began acquiring some of these closed S&Ls, and is currently the largest such bank in the state. In 1991 Society Corp. competed with National City for the acquisition of Ameritrust, and Society won. This left Cleveland with two major banks, both among the oldest in the city, with historic reputations for integrity. In 1994, in a "merger of equals," the old Cleveland banking name of Society, dating back to antebellum days, disappeared for good in favor of the New York-based Key Corp. Cleveland was chosen as the new headquarters for the merged bank, known as Key Corp, 11th in the nation as a bank holding company and the largest bank based in Cleveland.

In conclusion, Cleveland first emerged as a major banking center in the early 1900s as a Federal Reserve City, and then in the 1920s with the success of Union Trust. In the 1990s it is a major regional banking center with Key Corp and National City headquartered here. Key Corp includes three of the city's most historic banks: Society, Cleveland Trust, and Central National. Key Corp also extends Cleveland's banking influence for the first time beyond the Midwest, to both the East and West Coasts.

Ellen N. Lawson Ph.D.

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