DEVELOPMENT OF US BANKING

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DEVELOPMENT OF US BANKING Powered By Docstoc
					     2          DEVELOPMENT
                OF U.S. BANKING
          2.1   Creation of a National Currency
          2.2   Banking Before 1913
          2.3   Banking in the Twentieth Century
          2.4   The Federal Reserve System


Slide 1
          Lesson 2.1
          CREATION OF A
          NATIONAL CURRENCY
  GOALS
          Identify different types of currency
          Explain how currency evolved through the
          early days of the United States to what it is
          today



Slide 2
WHAT IS CURRENCY?

     Money is a medium of exchange for people to
      use to trade things of value.
     Most people associate the word ―currency‖ with
      paper money.
     Strictly speaking, currency is all media of
      exchange circulating in a country.




Slide 3
CLASSIFYING CURRENCY

     Metallic currency—coins
     Paper currency—paper money and credit
      instruments
     Government currency—money printed by the
      government
     Bank currency—bank notes issued against
      reserves
     Deposit currency—checks

Slide 4
SHIFTING MEANINGS

     Before World War I
          Many countries had governments that did not issue
           paper money. In these countries, paper currency
           meant only notes issued by large banks.
          In the United States, currency meant the money that
           the government printed.
     After the war
          The idea of currency took on the broader sense used
           today.

Slide 5
COLONIAL CASH

     Some British-type coins were minted on
      American soil as early as the 1650s.
     Foreign money was more common.
          There was limited use of English pounds and
           shillings.
          The Spanish dollar called the real was the most
           popular.



Slide 6
CURRENCY IN THE UNITED STATES

      1792 Mint Act authorizes coins.
      1794 U.S. mint begins operation.
      1794–1830s Both foreign and U.S. coins in circulation.
      1863–1864 National Currency Act and National Banking
       Act establish standards and tax state bank notes.
      1864–1913 Problems with money supply persist.
      1913 Federal Reserve Act establishes banking system
       of today.


Slide 7
          Lesson 2.2
          BANKING BEFORE 1913
  GOALS
          Identify the reasons for the establishment
          and expiration of both the first and second
          Banks of the United States
          Describe the continuing problems that led
          to the Federal Reserve Act


Slide 8
THE FIRST BANK OF THE UNITED STATES

     Chartered in 1791
     Privately held with the U.S. government owning
      about 20%
     Performed functions of a central bank
     Charter expired in 1811




Slide 9
THE SECOND BANK OF THE UNITED STATES


    Chartered in 1816 for twenty years
    Regulated credit and the money supply at the
     expense of state banks
    Was weakened by opposition from President
     Andrew Jackson and the withdrawal of
     government funds
    Died when its charter expired in 1836


Slide 10
STEPS TOWARD CENTRAL BANKING

    State banks
    Private banks
    The Independent Treasury System




Slide 11
THE NATIONAL BANKING ACT OF 1864

    Enacted to stabilize the banking system
    Established the office of the Comptroller of the
     Currency to issue charters to national banks
    Helped establish a national currency
    Did not provide for ongoing monitoring and
     regulation of the credit and money supply
    Did not guarantee the safety of banks


Slide 12
           Lesson 2.3
           BANKING IN THE
           TWENTIETH CENTURY
  GOALS
           Explain why Congress established the
           Federal Reserve System
           Identify challenges that the banking
           system of the United State faced in the
           twentieth century


Slide 13
THE FEDERAL RESERVE ACT OF 1913

    Federal Reserve Act in 1913 founded a system
     of central banking that was both adaptable and
     flexible.
    A board of directors controlled district reserve
     banks.
    The original Federal Reserve Board
           Secretary of the Treasury
           Comptroller of the Currency
           Presidential appointees with ten-year terms
Slide 14
BANKS IN CRISIS

    The stock market crash in October 1929
    The Great Depression
    Buying stock on margin
    Bank runs




Slide 15
The Emergency Banking Act of 1933

    Also called the Glass-Steagall Act
    Separated commercial banking from investment
     banking to protect assets
    Required bank holding companies to be
     examined by the Federal Reserve
    Established the Federal Deposit Insurance
     Corporation (FDIC)


Slide 16
The Banking Act of 1935

    Expanded the monetary controls of the Federal
     Reserve
    Changed the structure of the Federal Reserve
     Board
           Removed the Secretary of the Treasury and
            Comptroller of the Currency
           Lengthened terms of board members



Slide 17
MODERN BANKING

    Basic banking system remained unchanged for
     the rest of the twentieth century.
    Federal Reserve and its chairmen became more
     independent.
    Inflation, recession, and modernization have
     changed banking dramatically.




Slide 18
INFLATION AND BANKING

    Inflation is a collective rise in the supply of
     money, incomes, and prices.
    Stagflation is a combination of a stagnant
     economy and high inflation.




Slide 19
DEREGULATION

     Laws were passed in the early 1980s to let banks
      compete more freely with other financial firms, opening
      doors to the services available today.
     Many savings and loan institutions (S&Ls) took
      advantage of new regulations to invest in commercial
      real estate and speculative loans.
            These S&Ls failed during the recession of the mid-1980s.
            When the Federal Savings and Loan Insurance Corporation
             (FSLIC) could not cover all the losses, the government
             stepped in.

Slide 20
THE REVOLUTION CONTINUES

    The basic structure of the banking system
     remains essentially as it was in 1913.
    The business of banking, with its rapid
     communication, its global information exchange,
     and its marketing focus, little resembles the
     banking industry of an earlier age.




Slide 21
           Lesson 2.4
           THE FEDERAL
           RESERVE SYSTEM
  GOALS
           Identify the organization of the Federal
           Reserve system
           Explain how the Federal Reserve
           influences banks and the economy



Slide 22
STRUCTURE OF THE FED


                 Chairman

            Board of Governors


           District Reserve Banks


              Member Banks

Slide 23
FUNCTIONS OF THE FED

    Act as government’s bank
    Act as the bank’s bank
    Monitor bank operations
    Establish and affect monetary policy




Slide 24
THE GOVERNMENT’S BANK

    Tax payments go to accounts in Federal
     Reserve banks.
    Government makes payments from these
     accounts.
    Federal Reserve is responsible for selling and
     redeeming various government securities.




Slide 25
THE BANKS’ BANK

    Serves as a reserve bank for other banks
    Processes payments between banks




Slide 26
BANK SUPERVISION

    Conducts bank examinations
    Supervises international banks
    Protects consumers




Slide 27
MONETARY POLICY

    Open market operations
    Setting reserve requirements
    Adjusting the discount interest rate




Slide 28