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Centralized banking system
The Federalists, led by Alexander Hamilton, believed that a centralized banking system was a key to promoting industry and trade. After President Washington appointed Hamilton secretary of the treasury, Hamilton proposed a national bank. -
Bank of United State
At first, the Federalists were successful in creating a strong central bank. In 1791, Congress set up the Bank of the United States, granting it a 20-year charter to operate.The Unites States Treasury used the Bank to hold the money that the government collected in taxes and to issue representative money in the form of bank notes, which were backed by gold and silver. -
The Second Bank of United States
To eliminate the financial chaos, Congress chartered the Second of the United States. Like the first bank, the Second Bank was limited to a 20-year charter. The Second Bank slowly managed to rebuild the public's confidence in a national banking system. -
Establishment of greenbacks
During the Civil War, both the Union and Confederacy needed to raise money to fiance their military efforts. In 1861, the United States Treasury issued its first paper currency called greenbacks. -
Free Banking
The fall of the Second Bank once again allowed the state-chartered banks to flourish. Between 1830 and 1837 alone, the number of state-chartered banks nearly tripled. Therefore, they did not keep enough gold and silver to back the paper money that they issued. Wildcat banks and Fraud also emerged. -
National Banking Acts
With war raging, the federal government enacted reforms aimed at restoring confidence in paper currency. These reforms resulted in National Banking Acts. These Acts gave the federal government power to charter banks, the power to require that banks hold adequate gold and silver reserves to cover their bank notes, and the power to issue a single national currency. -
Gold Standard
Despite the reforms made during the Civil War, money and banking problems still plagued the country. In the 1870s, the nation adopted a gold standard. It set a definite value for the dollar, so that one ounce of gold equaled about $20. Since the value was set, people knew that they could redeem the full value of their paper money at any time. -
Federal Reserve System
The Federal Reserve Act of 1913 established the Federal Reserve System, which served as the nation's first true central bank. The system created as many as 12 regional Federal Reserve Banks throughout the country. All banks chartered by the national government were required to become members of Fed. They were supervised by the Federal Reserve Board and allowed to borrow money to meet short term demand. -
Banking and the Great Depression
During the 1920s, banks loaned large sums of money to many high-risk businesses. Many of them were unable to pay back their loans. The 1929 stock market crash led to widespread bank runs as depositors in all parts of country rushed to withdraw their money. The combination of unpaid loans and bank runs resulted in the failure of thousands of banks across the country. -
The Savings and Loan Crisis
In the late 1970s and 1980s, Congress passed laws to deregulate, or remove some restrictions on several industries, contributing to a crisis in a class of banks known as Savings and Loans. -
Financial Meltdown and Bailout
Beginning in the 1990s, U.S banks decided to issue subprime loans to people seeking to purchase homes. Banks began to market these loans aggressively among people who did not qualify for standard loans. By 2005, subprime loans made up more than a quarter of all U.S mortgages. The situation reached a crisis point when many homeowners had trouble repaying their loan. -
Late 2008
By late 2008, the U.S economy was on the edge of a financial catastrophe. It was officially in a recession. Treasury Secretary Henry M. Paulson, President George Bush, and U.S lawmakers organized a $700 billion bailout of banks, automakers, and Wall Street financial firms. The money was used to help them avoid bankruptcy and restart the flow of credit to businesses and individuals.
