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Hamilton's proposal of a National Bank
Alexander Hamilton proposed a National Bank becuase he believed that a centralized banking system was necessary for the United States to develop healthy industries and trade. -
First National Bank was created
In 1791 the first National Bank was granted a 20 year license to operate. This bank proved successful in bringing order and stability to American banking. It's purposes were:
- Hold the money that the government collected in taxes
- help the government carry out its powers to tax, borrow money, and regulate interstate
- issue representative money in the form of bank notes
- ensure that state-chartered banks held sufficient gold and silver to exchange for bank notes should the demand arise. -
2nd Bank of the U.S.
Congress granted the Second Bank to be chartered in order to smooth down the chaos the first bank brought upon the nation. This bank proved more successful and rebuilt the public's confidence in National banking, however many still opposed the idea. -
Free Banking/"Wildcat" Era
This Free Banking Era occured from 1837-1863, this period was dominated by state-chartered banks. It was the result of the Second Bank falling once again. During these years the number of state-chartered banks nearly tripled and gave rise to many problems, including:
- Back runs and panics
-Wildcat banks
-Fraud
-Many different currencies -
Demand Notes
In 1861 the United States Treasury issued its first paper currency, the offical name fir it was "demand notes", however many people simply called them greenbacks becuase they were printed with green ink. -
National Banking Acts
The NAtional Banking Acts of 1863-1864 gave the federal governmnet three important powers:
- The power to charter banks
- The power to require banks to hold adequate gold and silver reserves to cover their bank notes
-The power to issue a single national currency -
The Gold Standard
The Gold Standard was adopted by the nation as a monetary system in which paper money and coins are equal to the value of a certain amount of gold. One advantage was that it set a definite vaule for the dollar, since that value was set people knew that they could redeem the value of their paper money at any time, thus making people feel more comfortable carring around paper money. Another advantage of the Gold standard was that it prevented the government from printing an unlimited # of notes. -
Panic of 1907
Since problems continued to grow in the National Banking system, many banks were forced to stop exchanging gold for paper money, since they lacked adequate reserves. Many long-standing banks failed and people everywhere lost their jobs since buissnesses didn't have access to money for investing in future porjects. The panic resulted in chaos within the banks, and distrust from citizens around the nation. -
Federal Reserve System
The Federal Reserve System was passed in late 1913, it served as the nation's first true central bank. It reorganized banking systems as:
- Member banks, which created up to 12 regional Federal Reserve Banks
- Federal Reserve Board
-Short term loans which allowed members to borrow money
- Federal reserve notes which created a national currency -
Great Depression
This economic decline known as the Great Depression began in 1929 and lasted for more than a decade. This depression was the result of many banks loaning to high-risk businesses that were unable to pay them back, and also farmers whose crop failures led to unpiad loans. To add on to this crisis situation, the stock market crashed which resulted in widespread bank runs. -
FDIC
Thhe FDIC stands for Federal Deposit Insurance Corporation, it's job is to insure customer deposits if a bank fails. -
Saving and Loan Crisis
The Savings and Loan Crisis resulted from deregulation, high interest rates, inadequate capital, and fraud. -
The Financial Institutions Reform, Recovery, and Enforcement Act
Congress passed the FIRREA act in 1989, this act abolished the independence of the savings and loan industry and transferred insurance responsibilities to the FDIC -
Glass-Steagall Act
in 1999 COngress repealed the 1933 Glass-Stealgall Act, this helped pave the way fpr banks to sell financial assets like stocks and bonds while also establishing new privacy rules for computer data.
