Timeline of the Banking Industry

Eman Ordonez

1791: First Bank of the U.S.

The Bank of the US received a charter in 1791 from Congress signed by President Washington. This bank collected fees and made payments on behalf of the federal government. Eventually, the bank went away because state banks opposed it because they thought it gave too much power to national government. The First Bank of the United States was needed because the government had a debt due to the Revolutionary War, and each state had a different form of currency.

1816: Second Bank of the U.S.

The second bank of the US was chartered in 1816. The Second Bank was plagued with poor management and outright fraud. The Bank was supposed to maintain a "currency principle"- to keep its deposit ratio stable at about 20%. Instead the ratio bounced around between 12% and 65%. It also quickly alienated state banks by returning to the sudden banknote redemption practices of the first bank. Various people that opposed it were so enraged with the Second Bank that there were two attempts to have it struck down as "unconstitutional".

Civil War (Printing Currency)

To pay for the war, the Confederate government issued a lot of paper currencies— at least 70 different types of currency, totaling more than 1.5 billion dollars, which was an extraordinary amount of money at that time. As governments struggled to meet expenses by printing more and more money, the amount of paper money was far beyond the value of the goods available to be bought. Making things even more confusing, state governments issued their own currencies. None of this paper money could be redeemed, or traded for, gold or silver. The Confederate government had no gold or silver to make coins. Instead, Confederate paper money was like a loan.

1863 National Banking Act

The National Banking Acts of 1863 and 1864 were attempts to maintain some degree of federal control over the banking system without the formation of another central bank. The Act had three primary purposes: (1) to create a system of national banks, (2) to create a orderly national currency, and (3) to create an active secondary market for Treasury securities to help finance the Civil War.

1913 Federal Reserve Act

The Federal Reserve Act called for a system of eight to twelve mostly autonomous regional Reserve Banks that would be owned by commercial banks and whose actions would be organized by a committee appointed by the President. The Federal Reserve System would then become a privately owned banking system that was operated in the public interest. Bankers would run the twelve Banks, but those Banks would be supervised by the Federal Reserve Board whose members included the Secretary of the Treasury, the Comptroller of the Currency, and other officials appointed by the President to represent public interests.

1930s Great Depression

As the economic depression deepened in the early 1930s, and as farmers had less and less money to spend in town, banks began to fail at alarming rates. During the 1920s, there was an average of 70 banks failing each year nationally. After the crash during the first 10 months of 1930, 744 banks failed – 10 times as many. In all, 9,000 banks failed during the decade of the 30s. It's estimated that 4,000 banks failed during the one year of 1933 alone. By 1933, depositors saw $140 billion disappear through bank failures. When a new president, Franklin D. Roosevelt, was inaugurated in March 1933, banks in all 48 states had either closed, or they were only allowed to reopen if they proved they were financially stable. FDR's first act as President was to declare a national "bank holiday" – closing the banks for a three-day cooling off period. The most memorable line from the President's speech was directed to the bank crisis – "The only thing we have to fear is fear itself."

Glass-Steagall Act

The Glass-Steagall Act was an act the U.S. Congress passed in 1933, which did not allow commercial banks to participate in the investment banking business. The Act was passed as an emergency measure to solve the failure of almost 5,000 banks during the Great Depression. The Glass-Steagall lost its effectiveness later in the decades and was finally repealed in 1999. Apart from separating commercial and investment banking, the Glass-Steagall Act also created the Federal Deposit Insurance Corporation, which guaranteed bank deposits up to a specified limit. The Act also created the Federal Open Market Committee and introduced Regulation Q, which prohibited banks from paying interest on demand deposits and capped interest rates on other deposit products.

Bank Secrecy Act of 1970

The Bank Secrecy Act of 1970 requires financial institutions in the United States to assist U.S. government agencies to detect and prevent money laundering, illegally obtained money. Specifically, the act requires financial institutions to keep records of cash purchases of negotiable instruments and file reports of cash purchases of more than $10,000, and to report suspicious activity that might signify money laundering, tax evasion, or other criminal activities.

Savings & Loan Crisis of 1982

The savings and loan crisis of the 1980s and 1990s (commonly called the S&L crisis) was the failure of 1,043 out of the 3,234 savings and loan associations in the United States from 1986 to 1995. The Federal Savings and Loan Insurance Corporation (FSLIC) closed or otherwise resolved 296 institutions from 1986 to 1989 and the Resolution Trust Corporation (RTC) closed or otherwise resolved 747 institutions from 1989 to 1995. A savings and loan or "thrift" is a financial institution that accepts savings deposits and makes mortgage, car, and other personal loans to individual members. By 1995, the Resolution Trust Corporation (RTC) had closed 747 failed institutions nation-wide, worth a total possible value of between $402 and $407 billion, with an estimated cost to American taxpayers of $160 billion. In 1996, the General Accounting Office estimated the total cost to be $160 billion, including $132.1 billion taken from taxpayers.

Gramm-Leach-Bliley Act of 1999

The Gramm–Leach–Bliley Act (GLBA allows banks to have more control over banking, insurance and securities. With the bipartisan passage of the Gramm–Leach–Bliley Act, commercial banks, investment banks, securities firms, and insurance companies were allowed to consolidate. Furthermore, it failed to give to the Securities And Exchange Commission (SEC) or any other financial regulatory agency the authority to regulate large investment bank holding companies. The legislation was signed into law by President Bill Clinton.

Bibliography

"First Bank of the United States." Ushistory.org. Independence Hall Association, n.d. Web. 26 Apr. 2015.

"Second Bank of the United States (1816-1836)." N.p., n.d. Web. 26 Apr. 2015.

"6.5 Paper Money in the Civil War." Paper Money in the Civil War. N.p., n.d. Web. 26 Apr. 2015.

"National Banking Acts of 1863 and 1864." N.p., n.d. Web. 26 Apr. 2015.

"Federal Reserve Act (1913)." N.p., n.d. Web. 26 Apr. 2015.

"Bank Secrecy Act." Wikipedia. Wikimedia Foundation, n.d. Web. 26 Apr. 2015.

"Gramm-Leach-Bliley Act of 1999 (GLBA) Definition | Investopedia." Investopedia. N.p., 13 Aug. 2006. Web. 26 Apr. 2015.