The Banking Industry Timeline
By: Tyler Goller-Scott
The Beginning: 1791 Bank of the U.S.
Created as a result of the massive debt from the Revolutionary War. The first bank's charter was drafted by Congress and signed by President George Washington. The bank's charter lasted 20 years, during the time the bank collected fees and made payments for the federal government. The state banks opposed the national bank idea because they thought it gave too much power to the national government. In 1811, Congress voted to abandon the bank and its charter.
1816- Second Bank of the U.S.
The second bank was modeled after Hamilton's first bank of the United States, chartered by President James Madison. This bank was responsible for all transactions for the government, and twenty percent of the bank's capital was owned by the government. The other eighty percent was owned by the four thousand investors, one thousand of them being European. The second bank of the United States failed because it did not successfully produce a national currency that was stable. Additionally, it failed because it did not regulate state banks.
1861- Federal Government Begins Printing Currency
To pay for war expenses, the Confederate government began to print and issue paper currency. Seventy different types were created, totaling about 1.5 billion dollars. During the 19th century, the most common type of currency was gold and silver. The Confederates had no gold or silver, so they created paper currency as a promise to pay back in gold or silver. The problem was each bank, insurance company, and business issued their own type of currency. To make matters worse, once they began to lose the war, they also lost faith in their paper currencies. This caused massive inflation, making basic essentials like food hard to afford.
1863- National Banking Act
The national banking act of 1863 was designed to create a national banking system and a national currency. The act gave the government control and jurisdiction over the national banks, but no control over the state banks. Additionally, instead of hundreds of different types of currencies, one national currency was created. This allowed transactions to flow much more smoothly.
1913 Federal Reserve Act
The 1913 federal reserve act was very crucial in that it established the central (or national) bank. This act established economic stability because it gave the twelve federal reserve banks the ability to print money. By the central bank printing the money, it gave the government the control over money creation system. The picture below shows President Wilson signing the federal reserve act.
1930- The Great Depression Causes Banking Failures
In 1930, the stock markets began to crash. This caused hundreds of thousands of people to withdraw their deposits from the banks in fear of losing their money. With no money to lend people, banks could not help those that asked for loans. Plus, people could not afford to pay off the loans previously set up. This caused the banks to basically run out of enough money to stay operational. Gradually, banks began to reopen over the next few years, as long as they proved they would be financially stable.
1933- Glass-Steagall Banking Act
To restore confidence in the banking system after the great depression, President Roosevelt introduced the Glass-Steagall Act. The act established the Federal Deposit Insurance Corporation (FDIC), and ensured that if a bank went under the people would still have their money. The picture below shows President Roosevelt signing the act.
1970-1979- Government Relaxes Bank Restrictions
During the 1970's, the government allowed the banks more freedom. This resulted in the banks raising their interest rates on loans given out. The banks made more money, and the people had to pay more for their money advances. Obviously, the citizens did not approve of the government's relaxation towards the banks.
1982- Congress relaxes control over S&L Banks
In 1982, Congress allowed savings and loan banks to make high risk loans and investments. The investments went bad, causing the banks to go bankrupt. This caused the federal government to have to pay the investors their money back. This cost the government billions of dollars. The Federal Deposit Insurance Corporation took over the savings and loan banks.
1999- Gramm-Leach-Bliley Act
The Gramm-Leach-Bliley Act of 1999 allowed the banks to have more control over banking, insurance, and securities. A negative of this act is that it caused there to be less competition. In a way, the act formed a universal bank. Additionally, by giving them more control, the privacy level for the consumers was reduced. The act also repealed the Glass-Stegall Act by saying the banks could in fact offer insurance and investments as part of their normal operations. The picture below shows President Bill Clinton signing the act.