Financial Districts

Financial districts are areas containing a range of financial institutions and agents and historically have been located in the central business district. The financial district is home to the institutions that control, manage, and regulate capital flows (such as banks, insurance companies, investment companies, stock exchanges, product exchanges, money dealers, and brokerage houses) and to ancillary industries that service financial firms (such as lawyers and accountants). Financial districts are nodes within cities where important financial functions are performed, most notably the issue and trading of stocks and bonds, taking of deposits and the making of loans, the maintenance of the payment system, and facilitation of international transactions.

The origins of the financial districts are to be found in the coffee shops and merchant countinghouses of the colonial city's business district. Functional separation of financial services was more by street than by district, and the colonial business district was small, unspecialized, and centered on the waterfront. From the late 18th century, however, the growing demands of a well-established commercial economy and an emerging industrial economy forced merchants and other economic elites to find new places for financial transactions to occur. Yet, even then, many merchants [Page 268]continued to conduct these activities in the market halls, coffee shops, and countinghouses strung along the waterfronts of America's small cities.

In the 70 years following independence, the various financial institutions combined with other businesses to form embryonic financial districts in American cities. The financial sector was transformed from a relatively unspecialized industry to a highly specialized one. In Philadelphia, for example, the London Coffee House was turned by local merchants into a financial exchange where insurance was bought and sold and information about the Atlantic shipping, business, and political worlds was exchanged in an increasing variety of centrally located venues. Similarly, specialized financial and insurance services clustered on Boston's State Street by the 1840s. Despite the growing concentration of financial and related firms into one part of the city, the financial district was not sharply etched into the urban landscape before the mid-19th century.

By 1900, the financial district had become a significant part of the central city. Wall Street, the country's first financial district, emerged in the first decades of the 19th century and became the home of a critical mass of specialized financial and ancillary activities. Greater specialization created the advantages of complementary and competitive linkages essential for the running of the city's financial industry and business community. By 1860, the major banks, the stock exchange, and other important financial institutions lined Wall Street, while other specialized financial firms spilled out into the surrounding streets. New York was not alone; embryonic financial districts also appeared in other large cities, such as Chicago, Boston, Philadelphia, and San Francisco. Economic growth in America's cities over the next 100 years fueled the growth of financial districts and ensured that large and elaborate districts grew out of the original cores. Although few districts would move dramatically over this period, they were not static. In Chicago, for example, the financial district experienced numerous moves but had stopped by 1910 when it was anchored to the Chamber of Commerce and the Chicago Stock Exchange. Despite increasing financial activity in midtown New York by the 1920s, most firms continued to be linked to the downtown financial complex.

...