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DEVELOPMENT OF THE U.S. BANKING SYSTEM

2.1 Creation of a National Currency2.2 Banking Before 19132.3 Modern Banking

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2.1

CREATION OF A NATIONAL CURRENCY

Identify different types of currency.Explain how currency evolved through the early days of the United States to what it is today.

GOALS

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Currency

TERMS

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WHAT IS CURRENCY?

Medium of exchangeSomething people use to trade things of valueAnything from grain to metal to money

CurrencyAll media of exchange circulating in a country

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CLASSIFYING CURRENCY

Metallic currency Paper currencyGovernment currency Bank currencyDeposit currency

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SHIFTING MEANINGS

Before World War I Many countries had governments that did not issue paper money.

Paper currency meant only notes issued by large banks.In the United States, currency meant the money that the government printed.

After the warThe idea of currency took on the broader sense used today.

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What is currency?checkpoint

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THE GROWTH OF AMERICAN CURRENCY

Colonial cashEnglish pounds and shillingsReal

A Spanish dollarPaper money

English or foreign bank notesPaper money issued by the Continental Congress

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CURRENCY IN THE UNITED STATES

1792 Mint Act authorizes coins

1794 U.S. mint begins operation

1864 National Banking Act Established standardsTaxed state bank notes

1913 Federal Reserve Act establishes banking system of today

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MORE THAN A MEDIUM OF EXCHANGE

Currency does more than serve as a medium of exchange.

Can provide recognition for individuals or events that are of national historical significance

Quarters commemorating each of the 50 states were issued between 1998 and 2008.

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What was the most common medium of exchange in Colonial America? When did the U.S. government begin to issue paper currency?

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2.2

BANKING BEFORE 1913

Identify the reasons for the establishment and expiration of both the First and Second Banks of the United States.Describe the continuing problems that led to the Federal Reserve Act.

GOALS

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Federal Reserve Act

TERMS

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BANKS IN THE YOUNG UNITED STATES

The First Bank of the United StatesDuration of charter

1791-1811Ownership

80% held by private investors and foreign governments20% held by U.S. government

The Second Bank of the United StatesDuration of charter

1816-1836U.S. government owned

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Why did the two first U.S. National banks fail?checkpoint

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STEPS TOWARD CENTRAL BANKING

The National Banking Act of 1864Comptroller of the Currency

Issued charters to national banksIssued national bank notes

Federal Reserve ActIn 1913, created a system to stabilize the banking system

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What was the purpose of the National Banking Act of 1864?

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2.3

MODERN BANKING

Explain why Congress established the Federal Reserve System.Identify recent challenges faced by the banking system.

GOALS

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Reserve liquidityGreat DepressionMarginBank runFederal Deposit Insurance Corporation (FDIC)

TERMS

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InflationStagflationRecession

TERMS

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A TRUE NATIONAL BANKING SYSTEM

ReservesPercentage of deposits that are set aside to help with liquidity drops

Reserve liquidityWays to convert the reserves readily into cash

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THE FEDERAL RESERVE ACT OF 1913

Central banking systemFlexible and adaptable

Board of directorsControlled district reserve banks

Member banks could borrow money to meet demand

Monitored and protected entire banking system

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BANKS IN CRISIS

Great Depression (1929-1939)Worst economic crisis of Western industrialized nations through the end of the twentieth century

MarginBuying a stock for a fraction of its price and then reselling it for a profit

Full purchase price of stock is not paidBank run

When many people try to withdraw their money at once

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THE BANKING ACTS OF 1933 AND 1935

Glass-Steagall ActSeparated commercial banking from investment bankingRequired bank holding companies to be examined by the Federal Reserve BoardFederal Deposit Insurance Corporation (FDIC)

Guarantees deposits against bank failuresBanking Act of 1935

Expanded the monetary controls of the Federal Reserve Board

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What brought about the creation of the Federal Reserve in 1913? What is a bank run?

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RECENT BANKING

Inflation and BankingInflation

A rise in general pricesStagflation

A combination of a stagnant economy, high inflation, and high unemployment

RecessionA decline in total production lasting a minimum of two consecutive quarters

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DEREGULATION

Early 1980sLaws passed to let banks compete with other financial firms

Mid 1980sGovernment intervention to assist failed S&Ls

Mid 2007Mortgage crisis

Emergency Economic Stabilization Act of 2008

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THE REVOLUTION CONTINUES

The Federal Reserve dropped interest rates multiple times

To stimulate the economyCheck21Mortgage crisisCredit crisisFederal intervention to rescue large financial institutions on the brink of failure

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Why is inflation a potentially serious economic threat? Why were banks deregulated in the early 1980s?

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