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Two Views of Banking
Federalits vs Antifederalists
Federalists believed that a centralized banking system was nedessary for the US to develop healthy industries & trade;National Bank
Antifederalists supported a decentralized banking system , states would establish and regulate all banks within their borders -
First Bank of the US
Federalist bank
Uses: hold $$ that gov. collected in taxes; help gov. carry out power to tax, borrow $$ in public interest, & regulate interstate and foreign commerce; issue representative $$ in the form of bank notes; ensures that state chartered banks held sufficient gold and silver to exchange for black notes should demand arise
Only functioned til 1811 -
Chaos in American Banking
The states started charting banks after the first bank's charter expired. Different bank issues, different currencies, and bankers always faced the temptation to print more $$ than they had gold and silver to back. Merchants had to keep lists of which gold/silver were redeemable. -
Second Bank of the US
It was also limited to a 20 year charter. At this time people still opposed the idea of bankig, but this bank helped people trust a little more. Nicholas Biddle was the banks president in 1823. Since President Jackson opposed the bank strongly, he vetod the renewal of the renewal of the bank in 1832. So the bank was a "fail." -
Free Banking Era
From 1837-1863 is the "Wildcat Era." People used banks at least three times more before this time. Some banks were fraud and others were ones where "wildcats" lived. State-chartered banks, private banks, railroads, stores, churches and individuals were all allowed to issue currency. Money was not worth the same value in every bank. Many notes were counterfeits. -
Currency in North and South
The US Treasury issued the first papr currency since the Continental. The name of the currency wasn't money, but "demand notes" but were called "greenbacks," because they were printed with green ink. Currency was used to raise money for the Civil War. -
Unifying American Banks
The US gov. enacted reforms to gain trust in the currency. The reforms were called the National Banking Acts. These Acts gave the federal gov. power to charter banks, power to require banks to adequate gold and silver reserve to cover their bank notes, and the power to issue a ingle national currency. This helped stabilize the country's money supply. -
The Gold Standard
The gold standard is a monetary system in which paper money and coins are equal to the calue of a certain amount of gold. The gold standard set a definite value for the dollar so that one ounce of gold equalled about $20. The gold standard also made it where the gov. could issue currency only if it had gold, the gov. could issue currency only if it had gold in the treasury to back the notes. It brought back trust and confidence in banking. -
Federal Reserve System
The Federal Reserve System was an Act established to serve the nation's first true central bank. A central bank is a bank the can lend to another bank in time of need. The system created 12 regional Federal Banks chartered by national gov. These were called member banks. Also, all of the federal reserve banks were superised by a Federal Reserve Board. Short term loans were another new "invention." Federal Reserve Banks allowered member banks to borrow money to meet short term demands. -
Great Depression
The Great Depression was the severe economic decline that began in the 1929 lastinng more than a decade. Basically the stock market crashed and everybody lost their money to the banks. During the 1920s, banks loaned large sums of money to many high risk businesses. Many businesses couldn't prove the banks back, and the $$ the bank gave the businesses was other people's money. Therefore when people came to get their money back, they couldn't because the bank didn't have any. -
Banking Reforms
President Roosevelt declared a national bank holiday and closed banks on March 5, 1933. After awhile, banks began to re-open. Congress soon passed hte act Federal Deposit Insurance Corporation, insuring customer deposits if a bank fails. Gold was no longer a form of money either. The only currenct became fiat money back by the gov. decree. -
The Savings and Loan Crisis
Deregulation, high interest rates, inadequate capital, and fraud were all causes of the savings and loan crisis. Some loan were just bad and risky loans, and other times institutions made large loans to businesses that had little chance of succeeding resulting in fraud. Some long-term loans had way too high of an interet rate. It would take too long to pay the loan off and the S&L had to pay out high interest rates to their depositors. -
Recent Trends
The Glass-Steagall Act paved the way for banks to sell financial assets like stocks and bonds while establishing new privacy rules for customer data. It ended in 1999.
