The History of American Banking 1791 1837 The

The History of American Banking

1791 -1837: The First and Second Bank of the United States Federalists It is needed to promote healthy trade and business Anti-federalists Prevent bad banks/fraud Only those with money and status will get loans Issue representative money Tool of the rich

1837 -1863: Free Banking Era o. After Jackson’s Veto o. State Chartered Banks o. Fraud o. Bank runs o. Panics o. Many different currencies

Civil War Era o. Union needed money for war effort o 1861: Greenbacks n. First paper currency n. First use of Fiat Money inflation

1863 -1913: National Banking Acts o. Gave the federal government power to: n Charter banks n Require banks to hold adequate gold/silver reserves n To issue a single national currency

Gold Standard o Enacted in 1900 o Wanted to create a standard unit of account to facilitate international trade o As a result of the costs of World War and the Treaty of Versailles. . . by the 1920 s countries abandoned Gold Standard

1913: Federal Reserve System o Glass-Owen Bill o 12 Regional Banks o Federal Reserve Board (7 members) o Chairman of the Board – Ben Bernanke o Provide short term loans to member banks o National Currency – Federal Reserve Notes

Fiat Money o Money decreed to be of value from a government o Many governments still use gold reserves as a defense of their currency o Value of US dollar connected to value of Gold n Weak dollar – high gold prices

Evolution of Money… Type of Money Examples Advantages & Disadvantages Commodity Standard of value Medium of exchange Have value other than currency Legal Tender Store of value a medium of payment allowed by law Paper receipts Merchant exchange Bills of exchange Transaction accounts Checking accounts Fractional reserve banking Debit cards Fractional reserve banking Fluidity in the market place ? ? CREDIT, RISK, FRAUD…

The Great Depression o Bank loans – high risk o Default on loans o Market Crash o Bank Runs o New Deal o Federal Deposit Insurance Corporation FDIC o Banks closely regulated

1970 s – 1980 s: Deregulation o. Series of Acts to Deregulate Banking Industry o. Bank mergers o. Banks sell stocks and bonds

2007 -2008: The Great Recession o How would you characterize this period? Bank Failures Volatile stock market Fraudulent Accounts Overextension of Credit Default mortgages Accounting Practices

What Next? ? ?