From Drafts to Checks: The Evolution of Correspondent Banking Networks and the Formation of the Modern U.S. Payments System, 1850–1914


  • We acknowledge the helpful suggestions of Howard Bodenhorn, Stanley Engerman, Kenneth Garbade, David Humphrey, Naomi Lamoreaux, Jamie McAndrews, Gary Richardson, Scott Redenius, William Roberds, Hugh Rockoff, Jean-Laurent Rosenthal, William Silber, and Richard Sylla. We also benefited from discussions at Business History Conference meetings, the Columbia Business School Macro Lunch Seminar, Federal Reserve Bank of New York Economics Seminar, conferences at the Federal Reserve Banks of Atlanta and Kansas City, and at departmental seminars at Colorado State University, New York University Stern School, Stanford University, University of California-Berkeley, and UCLA. Finally, we thank Rachael Barza, Michelle Beck, and Nadia Zaets for their research assistance; James Quinn and Caitlin Warbelow for their GIS expertise; and the Provost's Office of Barnard College for its financial support.


Checks remained local payments instruments throughout virtually the entire nineteenth century. Their significant use in interregional transactions dates only to the 1890s. We explain their lagged spatial diffusion by the evolution of centralized payments institutions to coordinate transactions among myriad banks, not real technological changes to “annihilate” distance. The pivotal institutions were large correspondent banks, especially in New York. After the Civil War, New York funds constituted a national settlement medium, and the concentration of bankers’ balances in New York yielded liquidity and other externalities smoothing the flow of check payments.