Banking in the United States
By Sean Whalley
1791 First Bank of U.S.
Chartered in 1971 and signed by George Washington the First Bank of the U.S. opened but closed in 1811 when Congress voted to end the charter.
1816 Second Bank of the U.S.
The Second Bank started off horribly and was finally fixed in 1823 when Biddle was elected Bank President. Twice cases made it to the Supreme Court trying to close the bank. Andrew Jackson refused to sign a renewal for the bank and let the charter run out in 1836. There was not a central bank in the U.S. after that until 1913 when the Federal Reserve was created.
Money and the Civil War
The Legal Tender Act of 1862 was created to help lower the $5.2 Billion dollars of debt the country was in. It allowed "greenbacks" to printed which is paper money not backed by gold and also the selling of bonds to raise money.
National Banking Act
In 1863 the National Bank Act was passed to create a system of national banks to help pay off the debt and created national currency.
1913 Federal Reserve Act
Signed in 1913 by Woodrow Wilson this act established a central bank system in the U.S. called the Federal Reserve which is responsible for keeping a stable economy and creating monetary policies. 12 Federal Reserve Districts controlled by the Board of Governors.
Banks During the Great Depression
Prior to the banks crashing the banks were lending out more money then they had. When people saw the banks were starting to fail they wanted to take out their money and found out that the banks didn't have any. To respond to this FDR held a "bank holiday" where the banks closed to collect themselves. This led to Reserve Requirements and the creation of the FDIC
Glass-Steagall Banking Act
This act passed in 1933 stopped banks from participating in the investment banking industry. The act was repealed in 1999 when it was no longer needed.
After 25 years of economic growth and over all stability things went went bad. Inflation rose from 3% to 6% and up to around 10% by 1981. Unemployment increased and the price of gas increased four-fold. Usually the problem is either unemployment OR inflation, the threat of both caused issues that had never been heard of and that could not be solved with the Phillips Curve.
11% unemployment in 1982 was something unheard of since the Great Depression. The 80's started off bad because the poor economy carried over from the 70's. The problem was solved when Mr. Volcker was made chairman of the Fed after serving as President the the Federal Reserve Bank NY. He made a policy that tightened the money supply and stuck to it even though things got a little worse before they got better. He got unemployment to go from 11% to 8% in a year and got inflation under control. There were several inflation scares in the 80's but they were managed quickly.
This 1999 act was passed to help modernize banking and to get rid of the Glass-Steagall Act. This act opened banks up to more services than they had under the Glass-Steagall Act such as brokerages, investments and insurance.