Module 13 Lesson 2
Timeline of U.S. Banking History
1. First Bank of the U.S.
In 1971, the first national bank of the U.S. was chartered, signed into effect by George Washington. It collected fees and payed for the needs if the federal government. It was largely unsuccessful and ultimately shut down by state banks, because they felt it gave too much power to the national government.
2. Second Bank of the U.S.
In 1816, the U.S. tried to have a second national bank to replace the first. This one failed because it gave the state banks too much power, and it couldn't charter any new banks. It was unable to control the state banks' creating and issuing their own currencies. Andrew Jackson did not approve of it, despite the Supreme Court declaring it constitutional.
3. Printing Currency During the Civil War
During the Civil War, there was so much debt and lack of coins that the first paper money, called Demand Notes, was printed for the U.S. in $5, $10, $20 values. A year later, in 1862, Legal Tender Notes entered the system, and more closely resembled the appearance of the money we use today. The government kept inflation down by taxes. Small "coin notes" for 5¢, 10¢, 25¢, and 50¢ values were also issued, and bartering in the South was still common.
4. The 1863 National Banking Act
The 1863 National Banking Act allowed banks to be created either by a state charter or a federal charter, which became termed as "duel banking." This means that each bank would be monitored under the laws of either the state or national government it was chartered by, separate from the jurisdiction of the other.
5. The 1913 Federal Reserve Act
The Act created the first semi-functional U.S. national bank. Planned first by a committee of bankers headed by Nelson Aldrich, Representative Carter Glass and Henry Parker Willis under President Woodrow Wilson finalized a workable plan for a national bank. Wilson signed it into effect on December 23, 1913.
6. Banking During the Great Depression
After the Stock Market Crash of 1929, there was no money for banks to lend and most loans went sour. It is debated whether the failure of banks caused the Great Depression or it was the other way around, but almost half of all the banks in the U.S. by 1933 were shut down. President Franklin D. Roosevelt froze all banks for four days in the March of 1933, passing the Emergency Banking Relief Act on March 9th, effectively saving at least 1,000 banks from being closed down.
7. Glass-Steagall Banking Act
In 1933, President Franklin D. Roosevelt signed the Act into effect. Its purpose was to separate commercial and investment banking by no longer allowing commercial banks to purchase stock and investing banks were not allowed to to have overlapping power or common ownership (at the time this was seen as the best financial decision). The most important part of the Act was the creation of the Federal Deposit Insurance Corporation (FDIC), which although severely controversial at the time, bettered the security of customer's deposits and insured that they would get $2,500 of their money back if their bank failed (this amount was raised all the way up to $250,000 as of the present).
8. Banking During the 1970s
During the 1970s, Congress became less strict on banking restrictions. Because of this, there was high inflation and high rates. Powerful banks dominated politics and competed for smaller banks to buy. The events of the 1970s built up to the banking crisis in the 1980s.
9. Banking During 1982
The banking industry essentially collapsed in the S&L Crisis of 1982. The high-risk investments and loans allowed by savings and loan institutions, along with the irresponsible banking decisions in the 1970s, built up to crisis. Tons of banks failed, leading to the FDIC having to give out tons of money to compensate for the customers' loss. The debt was almost $200 billion, and the FDIC had to take over the S&L institutions.
10. The 1999 Gramm-Leach-Bliley Act
The Act was good in that it allowed banks to have more control over their banking, insurance, and securities through the full disclosure of their information policies and protection of client's personal information; however, it did also create less competition, allowed the formation of universal banks, and reduced privacy. Its approval repealed the Glass-Steagall Act's restrictions.