The Banking Industry of the US

by Julia McNeill

The times and changes in banking from 1791-1999

Throughout the course of human history, many notable changes have been made throughout many areas in our normal lives. One of the monumental areas that has undergone such change is the banking industry. This flyer will guide you through the times and changes made in banking from 1791-1999.

1791: Bank of the US

In 1791, the Bank of the United States received a charter from Congress signed by President Washington. The purpose of the bank was to collect fees and make payments on behalf of the federal government. However, it soon failed because the state banks opposed it. Why? The state banks believed that the national bank gave too much power to the national government.

February 1816: Second Bank of the US

The Second Bank of the US was chartered in 1816 by President James Madison, and was modeled on the First Bank of the United States by James Hamilton. From its infancy, it had run itself dry without pursuing any actions that could have helped save it. As a result, it failed to regulate state banks or charter any other banks. This, of course, led to failure just like tits predecessor.

Civil War (1961-1865): printing currency

During the Civil War, the government had to find a way to pay for the expenses, which led to the Legal Tender Act of 1862 and the National Bank Act of 1863. Before the Legal Tender Act, each bank could print its own paper money (as long as it had its worth in gold), but with this act, the government started printing money called "greenbacks" that was not backed in worth. As a result, this led the government to be more than 40 times than it was at the started of the Civil War, with the national debt now raised to $2.6 billion.

1863: National Banking Act

The National Bank Act of 1863 led to a nationwide banking system that loaned money to the government in order to pay for the Civil War. This was to try and reestablish some government control back over the banking system without having to create another national bank. (Of course, this reason was due to the failed actions of the failure caused by the original two banks of the US.) As a result of the act, banks were able to have a state or a federal charter, which led to dual banking.

December 23, 1913: Federal Reserve Act

The Federal Reserve Act of 1913, signed by President Woodrow Wilson, gave the 12 Federal Reserve banks the ability to print money to help provide economic stability. This action was the result of investors becoming unsure about the safety of their deposits. With the power given to the Federal Reserve through this Act, the Fed became able to adjust the discount/federal funds rate, as well as buy and sell US treasuries. With the results that came from this decision, the Federal Reserve Act of 1913 became known as one of the most important Congressional Acts of the 20th century.

1930s: Great Depression

During the 1930s, the Great Depression caused banks to collapse. This was largely a result of the crash of the stock market in 1929. In response, Franklin D. Roosevelt declared a "bank holiday" where all of the banks closed. Consequently, the banks were only allowed to reopen if proven to be financially stable. The results of this period served to prove how vulnerable the stock market can be.

1933: Glass-Steagall Banking Act

The Glass-Steagall Banking Act of 1933 established the Federal Deposit Insurance Cooperation (FDIC). Also known as the Banking Act, it prohibited commercial banks from participating in the investment banking business. This act also ensured that if a bank goes under, you would still have your money.

1970s: Congress' banking legislation

During the 1970s, the most difference was Congress relaxing the restrictions on banks. This removal of "restrains", so to speak, was to provide competitive equality among all financial institutions in that time period. However, this was not the only act pursued by Congress on the topic of banking. Congress also passed the Fair Crediting Report Act (FCRA), which served to regulate the collection, sharing, and use of customers' credit information. This basically led to the beginning of people receiving copies of their credit reports to be informed of and review when negative information is added.

1982: High risk banking pitfalls

In 1982, Congress had allowed Savings & Loan Banks to make high risk loans and investments. However, this proved to be a huge error, costing both citizens and the government to suffer. Investments went bad, banks failed, the federal government had to give investors their money back, and the federal government ended up $200 billion in debt. This led to the Federal Deposit Insurance Cooperation taking over the Savings and Loan banks.

Nov. 12, 1999: Gramm-Leach-Bliley Act

The Gramm-Leach-Bliley Act of 1999 (GBLA), also known as the Financial Services Modernization Act of 1999, repealed and replaced part of the Glass-Steagall Act of 1933. This act allowed banks to have more control over banking, insurance, and securities. However, this also led to certain drawbacks, such as less competition and the reduction of privacy (caused by more sharing of information).