Changes in the Banking Industry

By: Kara Karle

1791 First Bank of the U.S.

It was the nation's first de facto central bank. It was chartered February 25, 1791. It was championed by Alexander Hamilton, America's first Secretary of the Treasury. In 1811 the bank was shut down because of the current Vice President, George Clinton, breaking a tie vote and voting against renewing the charter. Currently it is a historical landmark in our nation's capitol, Washington DC.
Big image

1816 Second Bank of the U.S.

This bank chartered by our second President James Madison, and was opened in Philadelphia, Pennsylvania in January of 1816. Its' goal 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 sound and stable national currency. It was the second federally authorized Hamiltonian National Bank, and it modeled the First National Bank. The bank struggled during the Bank War and eventually liquidated in 1841.
Big image

Printing Currency During the Civil War

When the South finally split from the North, they made every effort to become an independent nation including creating their own money to build a stable economy. In the beginning of the war the Confederacy taxed heavily on imports and exports, and relied on tariffs. With the eventual blockade of Southern Ports from the Union Navy there was no longer taxation to support the economy. Throughout this the Confederate dollars were still in print increasingly the more the economy struggled. In the beginning of the war the Confederate dollar was worth 90 cents, by the end .017 cents. The Confederacy not only failed on the battlefield, but suffered economic problems of high inflation and loss of confidence.
Big image

1863 National Banking Act

Designed to create a national banking system. It was passed to help sustain the economy during the hardships of the Civil War. At this point people could no longer convert bank notes into coins, because previously banks would exchange bills for gold or silver from the reserve. This act organized National Banks. National banks that were organized under the act were required to purchase government bonds as a condition of start-up. As soon as those bonds were deposited with the federal government, the bank could issue its own notes up to 90 percent of the market value of the bonds on deposit.
Big image

1913 Federal Reserve Act

The Federal Reserve Act gave the 12 Federal Reserve banks the ability to print money in order to ensure economic stability. In addition to this, the Fed had the power to adjust the discount rate and the federal funds rate and buy and sell U.S. treasuries. The Federal Reserve Act intended to create a Central Bank, that would regulate monetary policy.
Big image

Banking During the Great Depression

With the onset of the Great Depression many people demanded cash from their savings in the bank. Banks, which typically hold only a fraction of deposits as cash reserves, must liquidate loans in order to raise the required cash. This process of hasty liquidation can cause even a previously solvent bank to fail. Bank panics began happening back to back in the early 1930's, and the economy was miserably failing. The panics took a severe toll on the American banking system. By 1933, one-fifth of the banks in existence at the start of 1930 had failed.
Big image

Glass-Steagall Banking Act

This Act is one of the first enactments of Franklin D. Roosevelt's New Deal program. This Act segregated commercial banks from securities markets, established the Federal Deposit Insurance Corporation (FDIC) and enhanced the regulatory powers of the Federal Reserve over banks. It attempted to restore public trust in the deposit system and stem the rush to withdraw. The act also recognized inherent risks in securities markets, making it impossible for banks to serve simultaneously as brokerages.
Big image

Banking in the 1970's

In the 1970's came the crash of the Golden Age of Capitalism and came the new era known as Neoliberalism. This incorporates ideas from laissez-faire economic liberalism.

Advocates supported extensive economic liberalization policies such as privatization, fiscal austerity, deregulation, free trade, and reductions in government spending in order to enhance the role of the private sector in the economy. The '70's showed America the end of the Vietnam War, and the troops were brought home. Unfortunately this brought on a high unemployment rate. Also, the reduction of defense spending brought on a major economic slowdown. Nixon became the first president to increase deficit spending to stabilize the economy. In addition, he instituted a 90-day wage-price control that limited increases to prices and wages to stabilize inflation. Although the control did not fix the economy overnight, it was effective at preventing worsening economic conditions in the following years.

Big image

Banking in 1982

In 1982 the United States was in severe recession. The unemployment rates were through the roof, as high as 25% in some places. By 1983 thirty-three of the states had unemployment rates in the double digits, which hit the southern states the hardest. Each period of high unemployment was caused by the Federal Reserve, as it substantially increased interest rates to reduce high inflation; each time, once inflation fell and interest rates were lowered, unemployment slowly fell. Inflation was through the roof. The prime interest rate eventually reached 21.5% in June of 1982. Also during this time period banks were suffering deregulation. In July 1982, Congress enacted the Garn-St. Germain Depository Institutions Act of 1982, which further deregulated banks as well as reregulating savings and loans. The recession affected the banking industry long after the economic downturn technically ended in November of 1982. In 1983, another 50 banks failed, easily beating the Great Depression record of 43 bank failures set in 1940. The Federal Deposit Insurance Corporation had listed another 540 banks on the verge of failure during this time as well.
Big image

1999 Gramm-Leach-Bliley Act

The Act repealed part of the Glass-Steagall Act of 1933, removing barriers in the market among banking companies, securities companies and insurance companies that prohibited any one institution from acting as any combination of an investment bank, a commercial bank, and an insurance company. A year before the law was passed, Citicorp, a commercial bank holding company, merged with the insurance company Travelers Group in 1998 to form the conglomerate Citigroup, a corporation combining banking, securities and insurance services under a house of brands that included Citibank, Smith Barney, Primerica, and Travelers. Because this merger was a violation of the Glass-Steagall Act and the Bank Holding Company Act of 1956, the Federal Reserve gave Citigroup a temporary waiver in September 1998. The Gramm-Leach-Bliley Act passed in November 1999, repealing portions of the BHCA and the Glass-Steagall Act, allowing banks, brokerages, and insurance companies to merge, thus making the CitiCorp/Travelers Group merger legal. The Act further enacted three provisions that allow for bank holding companies to engage in physical commodity activities.

Big image