American BankingAmerican Banking

BankBank An institution for receiving, keeping, and An institution for receiving, keeping, and

lending money-near your homelending money-near your home

Two Views of BankingTwo Views of Banking

FederalistFederalist: believed in a centralized : believed in a centralized banking system, that could issue a single banking system, that could issue a single currency, manage federal funds, and currency, manage federal funds, and monitor other banksmonitor other banks

Two Views of BankingTwo Views of Banking

Anti-Federalist:Anti-Federalist: believed in believed in decentralizationdecentralization, where states would , where states would establish and regulate all banks within establish and regulate all banks within their borderstheir borders

The 1st Bank of the U.S. The 1st Bank of the U.S. (1791)(1791)

Hold tax moneyHold tax money Issued bank notesIssued bank notes Ensured state-Ensured state-

chartered banks held chartered banks held sufficient reservessufficient reserves

Help government Help government carry out its powers carry out its powers to taxto tax

The Free Banking Era The Free Banking Era (1837-1863)(1837-1863)

Wildcat banksWildcat banks banks located on the edge of settled landsbanks located on the edge of settled lands

FraudFraud Banks would issue bank notes, collect gold Banks would issue bank notes, collect gold

for customers and then disappearfor customers and then disappear Many different currenciesMany different currencies

state banks, cities, private banks, railroads, state banks, cities, private banks, railroads, churches, and individuals all issued churches, and individuals all issued currenciescurrencies

The Free Banking Era The Free Banking Era (1837-1863)(1837-1863)

Bank runsBank runs and and panicspanics wide spread panic in wide spread panic in

great numbers of great numbers of people would try to people would try to redeem their paper redeem their paper money money

The Later 1800sThe Later 1800s

The The Gold StandardGold Standard a monetary system in a monetary system in

which paper money and which paper money and coins are equal to the coins are equal to the value of certain amount of value of certain amount of goldgold

AdvantagesAdvantages set definite value for the set definite value for the

dollardollar government could issue government could issue

currency only if it had goldcurrency only if it had gold

Banking in the Early 20th Banking in the Early 20th CenturyCentury

The The Federal Reserve System Served as the nation’s first true central bank, Served as the nation’s first true central bank,

or bank that can lend to others in time of or bank that can lend to others in time of needneed

Member banksMember banks; banks that belong to the ; banks that belong to the Fed Fed

Banking in the Early 20th Banking in the Early 20th CenturyCentury

Federal Reserve Federal Reserve BoardBoard supervising boardsupervising board

Short-term loansShort-term loans borrow money in borrow money in

times of demandtimes of demand

Federal Reserve Federal Reserve notesnotes national currencynational currency

Banking in the Banking in the Great Great DepressionDepression

Severe economic Severe economic decline that began in decline that began in 1929 and lasted 1929 and lasted more than a decademore than a decade

Loaned large sums Loaned large sums to high risk venturesto high risk ventures

Most were unable to Most were unable to pay back loanspay back loans

Reforms after the Great Reforms after the Great Depression Depression

Federal Deposit Insurance Federal Deposit Insurance CorporationCorporation (FDIC) (FDIC)

government agency that insures government agency that insures customers deposits if a bank failscustomers deposits if a bank fails

restricted redemption for goldrestricted redemption for gold

Banking in the Later 20th Banking in the Later 20th CenturyCentury

The Savings and Loan CrisisThe Savings and Loan Crisis Deregulation Deregulation

resulted in competitionresulted in competition

High Interest RatesHigh Interest Rates too many long term loans at low ratestoo many long term loans at low rates

Bad LoansBad Loans Fraudulent loansFraudulent loans

Banking in the 1990sBanking in the 1990s

Banks allowed to sell financial assetsBanks allowed to sell financial assets Growing number of Bank mergersGrowing number of Bank mergers

Recessions of the 2000’sRecessions of the 2000’s

Housing Bubble BurstHousing Bubble Burst Fraudulent LoansFraudulent Loans Bail outsBail outs