The History of the Banking Industry

Timeline

1791 Bank of the US

The First Bank of America was needed to help pay of debts from the Revolutionary War. The First Bank's charter was drafted from Congress in 1791 and signed by President Washington. The bank collected fees and made payments on behalf of the federal government. In 1811, the bank was voted for abandonment because state banks opposed it and they thought it gave too much power to national government.
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1816 Second Bank of the US

The Second Bank of America was charted for the same reasons as the First Bank of America. The War of 1812 had left major debt and rates of inflation were increasing rapidly. In 1816, President Madison signed a bill authorizing the bank with a 20-year charter. However the bank failed due unregulated state banks or charters any other bank. Also, state banks were issuing their own currency.
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1862 Printing Currency in The Civil War (1861-1865)

One year before the Civil War, America was had $64.8 million in debt and that debt continued to increase after the war started. To pay off debt, the government created the Legal Tender Act of 1862. It allowed the government to print paper money known as greenbacks and sell $500 million in bonds to raise money.
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1863 National Banking Act

After the Legal Tender Act was passed, the National Bank Act of 1863 was passed. It allowed a nationwide banking system that loaned money to the government to pay for the war and a national system of paper money and coins. Banks could have a state or federal charter, which is known as duel banking.
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1913 Federal Reserve Act

In 1913, the U.S Congress enacted the Federal Reserve Act, which later created the Federal Reserve System (the Fed). The Fed serves as the central bank for America and is ran by a Board of Governor. There are twelve total regional Federal Reserve banks. The act established banking systems of both private and public organization.
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1930’s Great Depression

The Great Depression in the 1930's was set off by the Stock Market Crash of October 1929. That year, 650 banks failed and 1,300 failed following year. Soon after this people lost trust in banks and ruched to secure their money by withdrawing. However, large depositors would all withdraw at once. This was known as bank runs. Banks only held fractions of deposits at cash in one time and lend out the rest to borrowers or purchase interest-bearing assets like government securities. Whenever bank runs took place, banks would liquidate loans and sell assets to produce the necessary cash. Due to this, banks suffered many loses that were detrimental to their solvency. Banks run lasted till 1933. Some were mainly started from rumors of banks not able or willingness to pay out funds. After this, FDR declared a “bank holiday” where banks closed and were only allowed to reopen if they proved they were financially stable.
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1933 Glass-Steagall Banking Act

The Glass-Steagall Banking Act was passed in 1933 and repealed in 1999. The act was passed to prohibit commercial banks from participating in the investment banking business. It was also a cautious measure to take during the Great Depression to ensure that if a bank goes under, citizens would still have their funds. At the time, over 5,000 banks were failing. The protection became known as the Federal Deposit Insurance Corporation.
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1970s The Great Inflation

During the 1970s, the stock market was still suffering and few people dealt with it. Unemployment was rising to double digits and economic growth was weak. Unemployment was combated with easy-money policies of the American central bank, however they caused high inflation. The central bank, under different leadership, reversed its policies, raising interest rates to some 20%. Interest rates caused distressed in many industries, such as housing and cars, which further caused the inability to afford cars and homes. This were major causes for inflation. The great inflation was blamed on oil prices, currency speculators, greedy businessmen and avaricious union leaders. Though is has been proven that monetary policies, which financed huge budget deficits, was a cause. The great inflation, and the recession that followed, wrecked many businesses and hurt countless individuals. Congress relaxes restrictions on banks
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The S&L Crisis Of 1982

Congress allowed S&L banks to make high risk loans and investments. Those investments went bad, causing banks to fail terribly. The federal government had to give the investors their money back which led to $200 billion debts. The FDIC took over the S&L soon after this.

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1999 Gramm-Leach-Bliley Act

This act allowed banks to have more control over banking, insurance and securities. However, this allowed for less competition between banks. It could also lead to the formation of an universal bank and a reduction in privacy.
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