Brown Brothers Harriman is Wall Street’s forgotten bank. As Zachary Karabell admits in the introduction to “Inside Money: Brown Brothers Harriman and the American Way of Power”, mention of the firm’s name today prompts some to wonder whether it still exists. Yet its public profile was not always subterranean. For the best part of two centuries, the partnership tracked the turbulent ascent of American capitalism. Though its power has ebbed, its story still holds relevant lessons. As so often, the financial dynasty started with an immigrant selling something more tangible than credit. Alexander Brown was an Irish linen merchant who decamped to Baltimore in 1800, subsequently dispatching his eldest son to Liverpool. The family made its fortune in the transatlantic cotton trade. By 1835, the firm accounted for a tenth of the estimated $100 million that flowed between the United States and Great Britain. Over time it switched from buying and selling commodities to the more lucrative business of trading on its name, issuing letters of credit for companies and individuals. When U.S. President Woodrow Wilson travelled to the Versailles peace talks in 1919, he carried a $10,000 note from Brown Brothers. The bank learned risk aversion the hard way. It almost failed in the financial panic of 1837, surviving only with an emergency loan from the Bank of England. As America industrialised it dabbled in railroads and transatlantic steamships but avoided dynasty-ending mistakes. “The House of Brown was forever steering a course between caution and too much caution,” Karabell writes. Unlike many family firms, it never put a dud heir in charge. By the beginning of the 20th century, Brown Brothers had become shorthand for an elite wielding immense financial and political power, in much the way that Goldman Sachs (GS.N) came to represent its industry 100 years later. This clout was particularly evident in Brown Brothers" influence in Latin America. A 1911 loan to the government of Nicaragua required the country to incorporate its central bank in the U.S. state of Connecticut, under the control of lenders including Brown Brothers. The family sank deep establishment roots on both sides of the Atlantic. Before he became the longest-serving governor of the Bank of England, Montagu Norman was a partner at Brown Shipley, the firm’s British offshoot. In the United States, Brown Brothers partners Averell Harriman and Robert Lovett helped shape American power during and after World War Two, devising the post-war international order before sliding into the quagmire of Vietnam. Brown Brothers’ Wall Street office was the launchpad for the political dynasty that propelled Prescott Bush to the U.S. Senate and his son and grandson to the White House. In 1930, in the wreckage of the Wall Street stock market crash, Brown Brothers joined forces with Harriman & Co, the creation of a brash railway tycoon. Though many bank mergers suffer from a clash of cultures, this union faced fewer risks. As Karabell points out, 12 of the firms’ 17 partners were graduates of Yale, and eight had been members of the elite Skull and Bones society. The story that merger discussions started on the train to a college reunion in New Haven may not be wholly accurate. Nevertheless, the combined bank survived. Its longevity owes much to the Glass-Steagall Act of 1933, which forced banks to separate lending from the business of underwriting securities. Brown Brothers Harriman chose the former, spinning off an investment bank which, following a series of mergers, became part of Drexel Burnham Lambert. That firm collapsed in 1990 amid insider trading investigations involving Michael Milken, its junk bond whiz-kid. Karabell tells the tale with vigour, bringing the leading characters to life while locating their exploits in America’s broader economic and political history. He does not shy away from darker episodes, acknowledging the cotton traders’ dependence on the labour of slaves, and exposing the casual antisemitism of some partners. At the same time, though, he dismisses some of the more elaborate conspiracy theories about Brown Brothers Harriman’s influence. In the last four decades, the bank’s path has diverged from the rest of the industry. While Goldman and Morgan Stanley went public, Brown Brothers Harriman remained a private partnership. It eschewed mega-mergers and vast bonuses. It also avoided the near-collapse and public bailouts endured by its erstwhile rivals in 2008. Today the bank provides important but specialised services, like serving as a custodian for fund managers. It generates about $2 billion in revenue and $500 million in profit a year. The revolving door with Washington, D.C. no longer spins. For Karabell, the bank’s low-key longevity points to an alternative, more sustainable path for capitalism. He is right that understated stability is a better model for the financial services industry than domination by overly complex, risk-taking behemoths. Yet American capitalism has also evolved. Financial and political influence is now at least as likely to emanate from the executive suites of giant asset managers like BlackRock (BLK.N) and Blackstone (BX.N). It’s hard to imagine the pendulum swinging back toward private partnerships. If it does, though, Brown Brothers Harriman will be ready. Follow @peter_tl on Twitter CONTEXT NEWS - “Inside Money: Brown Brothers Harriman and the American Way of Power” by Zachary Karabell was published on May 18 by Penguin Press.