The History of Banks

Mimi Walker

1791 Bank of the US

  • The Bank of the US received a charter in 1791 from Congress; signed by President Washington

    • Collected fees and made payments on for the federal government

    • State banks opposed it because they thought it gave too much power to the national government
    • The First Bank of the U.S. was dissolved

1816 Second Bank of the US

  • Second Bank of the U.S. was chartered in 1816

    • Didn't regulate state banks
    • Didn't charter any other bank
    • Consequently, the Second Bank of the U.S. failed

Civil War

  • During the Civil War, state banks were issuing their own currency

  • The Civil War marks the beginning of the Federal government printing paper currency

1863 National Banking Act

  • Allowed banks to have a state/federal charter (duel banking)

1913 Federal Reserve Act

  • Created the Federal Reserve System as the national bank
  • Granted the legal authority to use federal reserve notes

1930’s Great Depression

  • Great Depression during the 1930's caused banks to collapse

    • FDR declared a “bank holiday” where banks closed

    • Banks were only allowed to reopen after proving they were financially stable

Glass-Steagall Banking Act

  • Glass-Steagall Banking Act

    • Established the Federal Deposit Insurance Corporation (FDIC)

    • Protects citizens from bank failure
    • Ensures that if a bank goes under, you still have your money

1970’s

  • Congress relaxes restrictions on banks

1982

  • Congress allows the Savings and Loans Association (S&L) banks to make high risk loans and investments

    • Investments went bad

    • Banks failed in effect

    • Federal Government had to return money to investors

    • Federal Government debt: $200 billion

    • The FDIC took over S&L

1999 Gramm-Leach-Bliley Act

  • 1999: Gramm-Leach-Bliley Act

    • Gives banks the power to have more control over banking, insurance and securities

    • However, it may create:

      • less competition
      • formation of a universal bank
      • more sharing of information (reduction of privacy)