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Colonial Banking
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British Colonial Finance
Prior to sentiments of independence in the 13 colonies, the British main commercial bank, the Bank of England, was the only source of investments to new colonial projects. This wasn't very efficient because transactions were often lengthy, and exchanges were very difficult. It was hard to keep up with investments and gradually the bank itself became too old for the growing empire. -
Bank of England Failures
After the 7 years war (the French and Indian War), the British empire needed to finance its military expenditures and resorted to increased taxation on the colonies. This threw the entire financial system out of whack as early colonial currency became meaningless and colonists started thinking about breaking completely from the system. -
Bank of North America
The Congress of the Confederacy, (the early US provisional government), already started thinking about forming a national bank 5 years into the official war for American Independence. However, there was little agreement towards the power of this bank, and it was agreed to postpone the decision until later. -
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Early US Banking System
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First Bank of the United States
After a lengthy debate between federalists and anti-federalists in congress, Alexander Hamilton convinced President Washington to sign onto the bill. Opponents of the legislation included Thomas Jefferson, who believed that the bank would only serve the interests of those on the eastern seaboard, and not the growing class of western farmers. -
Expiration of the First Bank
After Alexander Hamilton left office, members of congress started to panic about the increasing debt the United States owed to foreign countries and its own citizens. It agreed to, instead of raising taxes, sell its bonds and investments in the bank and proceded to refuse to recharter the bank. The first bank was followed in 1816 by the second. -
Second Bank of the United States
The Jeffersonian "agrarian" era was largely over as the era of good feelings ushered in a period of industrialization and trade. In order to meet the requirements of industry, the United States returned to Hamilton's view of a central bank and accepted a new charter for the second bank. John C. Calhoun and Henry Clay were instrumental to ensuring a larger investment from the bank towards creation of manufacturing centers and factories. This centralist ideology swould become the Whig movement. -
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Free Banking Era
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"Killing" of the 2nd Bank
Jackson's rise to the presidency resembled popular support for western interests. Farming communities were increasingly nervous about the central bank's favoring the east. Jackson viewed the bank's finanical policies as a detriment to american values, unconstitutional, and a challenge to his authority. With popular support, he refused to renew the bank's charter. -
Panic of 1837
Right after Jackson refused to renew the 2nd bank's charter, there was a nationwide distrust of local banking facilities. People withdrew their money for fear of keeping their finances in weak banks during a competitive era. As a result, the United States fell into a 7 year recession and it became difficult to manage transactions. -
National Banking Act of 1863 and 1864
Lincoln, in the midst of the civil war knew that the country was divided along state, and financial lines. With the reunification of the states post-war, it would be difficult to manage the many different banks around the country. In 1863 and 64, Lincoln signed into law a system of national banks without creating an overal central bank. This encouraged the development of a national currency and eased the reconstruction period. -
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Post-Civil War Banking
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Gilded Age
As the United States industrialized rapidly in the late 19th century, much of the country was in need of more capital. Venture capitalists like Rockefeller, Vanderbilt, and JP Morgan were responsible for a lot of the strucutre of a new banking capital of the world in New England. -
Panic of 1893
Banking practices during the guilded age were largely suspected to be corrupt. A crop failure in South America led investors in the united states to pull their funds out of banks (which had placed a lot of money into the market). As a result, the growing railroad industry faltered and stocks fell around the country. The US's inability manage its money's worth led to a rapid deflation and unemployment. This encouraged congress to pass the Federal Reserve act of 1913. -
Free Silver Debate
A debate between increasing the monetary standard to include silver bullion pitted Democrats against Republicans. WIlliam Jennings Bryan, a populist democrat, was widely supported by low-income farmers from the midwest and west who needed a greater access to capital. The republicans, led by Mckinley wanted to maintain the gold standard. -
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Modern US Banking System
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Federal Reserve Act of 1913
Woodrow Wilson signed into law the 1913 Federal Reserve Act in response to the panic of 1893. The act created a central bank which would control monetary policy (solving the inflation problem during the Free Silver debate), and established 12 regional banks to control the flow of money in those areas. WIth a greater command over the growing economy, Wilson hoped that the United States could avoid a runaway recession. -
Great Depression
Worldwide economic depression that started in the 1930s and continued to persist throughout the decade and until world war 2. The depression offically began after a stock market crash in the United States, but many think that this was a symptom rather than a cause of the long period of economic decline. A failure of Federal Reserve regulation probably contributed to the loss of trust in financial institutions which ultimately led investors to pull out and cause a cascading effect. -
Emergency Banking Act
Franklin Roosevelt, upon ascending to the presidency, briely closed all banks. When the banks re-opened they were put under the treasury's supervision in order to repair public relations. By the end of 1933, smaller banks were merged with larger banks. -
Glass Steagall Act
A provision largely known as the banking act of 1933, the Glass Steagall Act separated commercial and investment banking and placed each category under specific regulation. -
Nixon Shock
The Nixon Shock was a series of economic changes that started during 1971. The most notable of these was a cancelation of the dollar's convertability to gold. This led to what is known as "Floating exhange rate fiat currency" which is not tied down to a specific material of worth. -
80s Deregulation
Overall, New Deal era regulations were gradually repealed, including the Glass Steagall act, which had been watered significantly. The era of Reagan included new federal reserve chairmen that largely took a more libertarian approach to controlling the flow of money and regulation of banking practices. -
2000s Financial Crisis
After a long-span of deregulation, banks started to once again return to unsafe loaning practices. Collapse of the US housing market in 2006 led investors to quickly pull out their funds from banks. Banks, which had failed to maintain a reliable fall-back amount were unable to pay back and many had to be bailed out. -
Dodd Frank Wall Street Reform Act
The largest banking reform act since the Great Depression, the Dodd-Frank act, adding many new rules, conducted studies and set up for periodic reviews on bank practices. President Obama signed the bill into law, putting into play a new series of regulations to prevent further financial meltdowns.
