C11S3_ The Development of Modern Banking

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					 C11S3: The Development of Modern
              Banking
• Main Idea:
  – The Federal Reserve System serves the monetary
    needs of the federal government and controls the
    monetary system.
 C11S3: The Development of Modern
              Banking
• Key Terms:
  – Central bank
  – Commercial bank
  – Federal reserve note
  – Thrift institutions
  – Mutual savings bank (MSB)
  – NOW accounts
  – Savings and loan association (S&L)
 C11S3: The Development of Modern
              Banking
• The Federal Reserve System
  – Called the Fed for short
  – Was the nation’s first real central bank
  – Works like a corporation that other banks can
    purchase shares of
  – Controlled by a chairman, who is appointed by the
    president
 C11S3: The Development of Modern
              Banking
• The Federal Reserve System
  – Banking During the Great Depression
     • Banks were not very stable
     • Multiple withdrawals at a time could cause a run on the
       bank, the bank’s reserves were depleted
     • As the Great Depression worsened in 1933, president
       Roosevelt declared a bank holiday to close the banks
       and let them recover
 C11S3: The Development of Modern
              Banking
• The Federal Reserve System
  – Federal Deposit Insurance
     • FDIC was created by the Banking Act of 1933
     • FDIC guarantees your money is safe in the bank, up to
       $200,000
     • If the bank fails, the gov’t pays you back
 C11S3: The Development of Modern
              Banking
• Other Depository Institutions
  – Most normal checking accounts are Demand
    Deposit Accounts (DDA) that allow you to write a
    check and get money out whenever
  – Savings Banks
     • Mutual savings banks used to be owned by depositors
     • Became savings banks when they sold stock to raise
       money
     • NOW accounts became very popular as people wanted
       interest on their checking accounts
 C11S3: The Development of Modern
              Banking
• Other Depository Institutions
  – Savings and Loan Associations
     • Invested deposits into home mortgages
  – Credit Unions
     • Member owned banks that offer benefits
 C11S3: The Development of Modern
              Banking
• Crisis and Reform in the 1980s
  – After the Great Depression, financial institutions
    were heavily regulated
  – Deregulation occurred in the 1980s
     • A scandal with Savings and Loan institutions created
       bank distrust
     • 1989, congress passed the Financial Institutions
       Reform, Recovery, and Enforcement Act, which
       abolished the savings and loan industry
     • Today, the housing crisis is a similar situation
 C11S3: The Development of Modern
              Banking
• Chapter 11 Quiz in 10 minutes
• With a partner, complete “Reviewing the
  Facts” 1, 3, 6, 8-10 on page 308

				
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