A new age of banking begins
Bank of America Corp (NYSE:BAC) unveiled the world’s first large-scale electronic bank bookkeeping system, known as ERMA — the Electronic Recording Machine, Accounting — on Sept. 21, 1955. The system, built by the Stanford Research Institute, was designed to streamline check accounting — an important task, as Bank of America was at this point the world’s leading commercial bank in terms of check usage, and check usage was exploding.
Eight billion checks were written in the United States every year by 1952, up from 4 million a decade earlier, and bankers began anticipating that their customers would write 1 billion more checks each year from the mid-’50s onward. Checks had to clear through multiple banks to be completely processed, and about 69 million checks were in process in the American banking system each day by 1955. This volume placed extreme hiring pressure on banks, which typically employed as bookkeepers younger female workers who would either leave after marriage or simply burn out because of the drudgery. Many banks had to replace their entire bookkeeping staffs every year.
Enter ERMA, a pioneering digital solution dubbed “the greatest advance in bookkeeping in the history of banking” by Bank of America President S. Clark Beise. One system could handle the bookkeeping for 50,000 accounts, but since the system weighed 25 tons and contained roughly 190 miles of wiring, it was certainly not going to become a human worker’s desktop companion. Still, the machine’s advances in electronically readable text and its sheer speed of operation — capable of printing out 600 lines per minute — meant that, in Beise’s words, “80% of the time-consuming detail in servicing checking accounts” would be eliminated.
The machine’s successful trial run in 1955 led Bank of America to contract with General Electric to build 32 more ERMA systems for use across the bank’s 900 branches. By the mid-1960s, these systems processed 750 million checks per year, and the streamlining of Bank of America’s check processing allowed it to roll out another pioneering financial innovation: the first credit card, which launched in 1958.
Automation spread rapidly throughout the financial industry, and in the 1960s it would begin to have a profound impact on the NYSE Euronext (NYSE:NYX). Throughout much of that decade, daily trading volume steadily nudged upward, from roughly 3 million shares per day at the outset to more than 10 million as the decade ended. By the end of the 1970s, trading volume consistently reached 30 million shares per day, and it has generally continued to increase ever since.
The article The End of Investment Banks originally appeared on Fool.com and is written by Alex Planes.
Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more insight into markets, history, and technology.The Motley Fool recommends Bank of America, Goldman Sachs, and NYSE Euronext an owns shares of Bank of America, General Electric, and JPMorgan Chase.
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