American Banking History Timeline
Uncover the course of our nation's banking system
1791: The First Bank of The United States
After the American Revolution and disastrous articles of confederation period, the newly found United States government found itself in deep debt from the war. The idea of a central bank was proposed by Washington's secretary of treasury, Alexander Hamilton, and served as the first stepping stone for building a federal bank system. During the period preceding the bank's creation, state banks had issued their own currencies which came in the form of bills and coins. The bank held a capital stock of $10 million. It also included twenty-five directors who were made up of five government appointed directors and twenty privately appointed directors. Headquartered in Philadelphia, the bank branched out into five other major cities. The functions of the bank included holding deposits, making loans, issuing banknotes, and buying securities. The bank's charter only lasted 20 years due to the strong opposition to the bank from the anti-federalists who wanted a more agrarian based economy. The bank had proven to be useful in industry-based regions, and many entrepreneurs favored its presence.
1816: Second Bank of the United States
After the demise of the first bank in 1811, the War of 1812 made it evident that the federal government had limited means of financing the war. The country found that war debts once again required the country to create a federal bank. Like the first bank, the second bank headquartered in Philadelphia but with eighteen branches located in other major cities. The creation of the bank endured many setbacks since Madison, the president at the time, refused to create another federal bank due to not seeing it as necessary. Once the bank had been created, it carried a capitalization of $35 million, an amount considerably larger than the previous bank's stocks, however, the second bank would function similarly to the first bank. The bank did not meet up to the first bank's success and would not start performing adequately until 1823 when Nicholas Biddle became new bank's president. The second bank faced similar political opposition which ultimately led to its demise. President Andrew Jackson strongly opposed the Second Bank of the United States, leading him to veto its second charter in the July of 1832.
1860s: Printed Currency
The Confederate government at the time of the American Civil War issued its own paper money whilst aligned states had issued paper money as well. Confederate paper money essentially acted as a loan, lending money to another person or group in hopes of having it paid off later. While the Confederates experimented with their own form of paper money, the United States started to create their own unified, paper currency. Before the creation of a centralized currency, individual banks printed their own forms of paper money. Paper money was supposedly backed by gold owned by the federal government, but the federal government did not hold a substantial amount of gold at the time. This system proved to be extremely disorganized and costly as many banks failed even though the number of banks expanded throughout the early-half of the 19th century. The government reformed the banking system to fuel the war effort. First, the Legal Tender Act allowed the government to print paper money known as greenbacks at the time and sell $500 million in bonds. The newly created paper money could be used to pay taxes and buy store sold goods.
1863: National Banking Act of 1863
The National Banking Act was passed in 1863 to create a nationwide banking system that the government could borrow money from and a national system for printed currency. This had effectively started the unification the banking system. As said in the above section, the nation's banking system was plagued with insufficient state banks. The act incorporated national banks with the banking system, allowing the government to have a more hands on approach by giving them more jurisdiction. The act formed the Comptroller of the Currency under the Treasury Department to regulate national banks.
1913: 1913 Federal Reserve Act
The 1913 Federal Reserve act was passed under the Woodrow administration and created the present Federal Reserve system in the United States. The act was passed due to the repeated financial panics that constantly occurred. The Federal Reserve serves as the central bank of the U.S. The Federal Reserve modifies the amount of capital and interest rates. The Federal Reserve established twelve regional banks within the country. The actions by the reserve banks are determined by a President appointed committee.
1930s: Banks and the Great Depression
An economic soar brought new life to America in the 1920s, but as the 1930s begun, the States made an economic 180. In March of 1933, the commercial banking system collapsed. This was only four years after the stock market had crashed. This was a result of low interest rates being applied during the majority of the 1920s and the Federal Reserve's decision to heighten interest rates in 1928. When FDR came into office on March of 1933, he declared a national bank holiday. FDR implemented changes such as banks now being unable to buy stocks with money from depositors and companies who wanted to sell shares had to disclose financial information to potential buyers.
1933: Glass-Steagall Banking Act
Senator Carter Glass pressed for an act that better regulated inter-bank operations and provide safer usage of banking assets. Stegall called for bank deposit insurance to be amended to the act. The act formed the Federal Deposit Insurance Corporation, a government corporation meant to insure deposits made in banks. The act also created the Federal Open Market Committee, a component of the Federal Reserve Board tasked with directing monetary policy. National banks were also subdued to heavier regulations, having to report to the Federal Reserve three times annually. One final addition was Regulation Q, a mandate that denied interest being paid on checking accounts and allowed the Fed to place a ceiling on interest.
During the 1970s, economic hardships hit the stock market as many people loss interest in it. Not only that, but inflation plagued the country after a small period of economic prosperity. Congress had decided to deregulate banks during the decade. An oil crisis hit the world as oil prices sky rocketed due to Arab OPEC members embargoing oil over the tensions of the Yom Kippur War. This supplemented the inflating of the USD. To add to the damages, the stock market crashed in 1973 after the Bretton Woods system of dollars to gold had collapsed. In 1971, Nixon changed the dollar to gold exchange to a fiat system. These reforms were known as the Nixon Shock. Shortly after the switch, employment temporarily increased and inflation was temporarily stopped, however, this did not last forever and inflation continued to rise.
A savings and loans crisis occurred in the year of 1982. Congress put its faith into banks by allowing them to make high risk loans and investments. Depositors removed money from S&L institutions, putting them into money markets instead. Once the the ceiling for interest was removed, depositors made increasingly risky investments which would eventually fall flat and cause many banks to fail. This resulted in the government having to pay investors back while also burrowing the government in $200 billion of debt. The long lasting effects of this event caused congress to integrate the savings and loans industry with commercial banks. Today, many S&Ls and owned by banks while independent S&Ls are extremely rare. Banking and S&L charters are much more alike.
1999: Gramm–Leach–Bliley Act
The Gramm-Leach-Bliley Act repealed the Glass-Steagall Act of 1933, tearing down many of the restrictions and barriers previously placed by the 1933 act. The law was signed in 1999 by President Bill Clinton. Different aspects of banking such as investment, insurance, and commercial were continuously being integrated into one universal financial service industry. The previous Glass-Steagall Act contained lines that restricted certain types of integration, although, it did not completely restrict all kinds of integration. The Gramm-Leach-Bliley Act was passed to help facilitate the future of integration while some fear that this may lead to less privacy and less competition, but many bankers saw the act as a step forward for the industry.