Timeline of the Banking Industry
By Robyn Jones
1791: The First Bank of the United States
On February 25, 1791 the US Congress chartered the First Bank of the United States. The first bank was to be chartered for a term of twenty years. The bank was a part of a three-part expansion of federal fiscal power and monetary power led by Alexander Hamilton, the first Secretary of Treasury. Hamilton held the belief that a national bank was needed in order to stabilize and improve the nation's credit and the handling of financial business. When the bank was first proposed in 1790 during the first session of the First Congress, there was widespread resistance. Opponents such as Secretary of State Thomas Jefferson and James Madison claimed that the bank was unconstitutional, and that it benefited merchants and investors rather that the greater population. George Washington was hesitant, initially, to sign the "bank bill" into law. To make a proper judgement he relied on the advice of cabinet members. Eventually, he became convinced and the bill was signed into law on February 25, 1791. Three Commissioners were then appointed on March 19, 1791 in order to take subscriptions for the new bank. The three Commissioners were Thomas Willing, David Rittenhouse, and Samuel Howell. In 1811 the bank's charter expired and was succeeded by the Second Bank of the United States.
1816: The Second Bank of the United States
The Second Bank of the United States was chartered for a twenty year term on April 10, 1816 by President James Madison. The main function of the bank was to regulate the public credit issued by private banking institutions through the fiscal duties it performed for the U.S. Treasury, and to establish a steady national currency. The main interests that opposed the revival of the bank was the Old Republicans and John Randolph of Roanoke. They argued that the Second Bank was unconstitutional and went against Jeffersonian agrarianism, state sovereignty, and the institution of slavery. In 1836 the bank became a private corporation and in 1838 the bank underwent liquidation.
1860's: Civil War Currency
The Civil War took a toll on both the Confederate and the Union side. This does not includes physical damage but financial damage as well. To pay for the war, revenue was made by increasing the supply of money. The North doubled its money supply, however, the south increased their money supply about twenty times. The Confederate created their own currency since they succeeded from the Union. Initially, the Confederate dollar cost 90¢ worth of gold (Union) dollars. By the end of the war the price of the Confederate dollar dropped to .017. This inflation was caused by the extreme increase in money supply.
1863: National Banking Act
Passed by a narrow 23-21 vote conducted by the Senate, the National Banking Act of 1863 was created to address the nations currency issue. In 1846, the Polk Administration created a U.S. Treasury system that moved government funds from private banks to Treasury branches in order to stabilize the economy. That, however, did not change the fact that there was no national currency. That is why the National Banking Act was created. The main purpose of this act was to create a single national currency and eradicate the problem of notes from multiple banks circling at once. The was to be done so by establishing national banks that had the power to issue notes that were backed by the United States Treasury.
1913: Federal Reserve Act
In the past, financial panics were quite common. Investors were constantly worried about the safety of their deposits. That is why in 1913, U.S. Legislation created the Federal Reserve that we have in place to this day. The purpose of the Federal Reserve was to create a stable economy through the creation of the Central Bank which would handle monetary policy. The Federal Reserve Act gave the 12 Federal Reserve Banks the ability to print money which would help to ensure economic stability.
1930's: Great Depression & Banking
After the roaring 20's party came the 30's hangover. With the hangover came also the Panic of the 1930's. The Panic of the 1930's was a financial crisis that led to a sharp decline in the money supply. This was extremely detrimental to the economy of America at the time considering that the 1930's was also a time of declining economic activity. In the Panic many banks collapsed. The explanation for the Panic was the contagious fear that spread through the citizens. The fear of losing invested money caused many to demand back their money. This caused a high, short-term demand for money, which could not be fulfilled.
1933: Glass-Steagall Banking Act
In 1933 the Glass-Steagall Banking Act was passed. The purpose of the act was to prohibit commercial banks from participating in the investment banking business. The Glass-Steagall act was sponsored by Senator Carter Glass (a former Treasury secretary) and Henry Steagall ( a member of the House of Representatives and chairman of the House Banking and Currency Committee). The Act was passed as an emergency measure in response to the failure of almost 5,000 during the Great Depression.
During the 1970's the Bank Secretary Act (aka Currency and Foreign Transactions Reporting Act) was passed. The Act required financial institutions in the United States to assist the government in preventing money laundering. Basically the government required banks to keep record of cash purchases and report suspicious activity. In the late 1970's the value of assets held in commercial banks insured by the Federal Deposit Insurance Corporation rose substantially.
During the 1970's and 1980's there had been a severe economic recession that effected many countries. This was partially caused by the saving and loans crisis in the U.S. This caused the closure of 296 institutions from 1986 to 1989. The United States, however, was one of the earlier countries to escape the recession. For the U.S. the recession lasted from July 1981 to November 1982.
1999: Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act, aka the Financial Services Modernization Act 1999 repealed part of the Glass-Steagall act. The main role the Gramm-Leach-Bliley Act held was to remove some of the barriers among banking companies, security companies, and insurance companies that prohibited and institution from acting as a combined investment bank, commercial bank, and insurance company.