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
CREATION OF A
Identify different types of currency
Explain how currency evolved through the
early days of the United States to what it is
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
Strictly speaking, currency is all media of
exchange circulating in a country.
Paper currency—paper money and credit
Government currency—money printed by the
Bank currency—bank notes issued against
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
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
The Spanish dollar called the real was the most
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
BANKING BEFORE 1913
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
THE FIRST BANK OF THE UNITED STATES
Chartered in 1791
Privately held with the U.S. government owning
Performed functions of a central bank
Charter expired in 1811
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
Died when its charter expired in 1836
STEPS TOWARD CENTRAL BANKING
The Independent Treasury System
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
BANKING IN THE
Explain why Congress established the
Federal Reserve System
Identify challenges that the banking
system of the United State faced in the
THE FEDERAL RESERVE ACT OF 1913
Federal Reserve Act in 1913 founded a system
of central banking that was both adaptable and
A board of directors controlled district reserve
The original Federal Reserve Board
Secretary of the Treasury
Comptroller of the Currency
Presidential appointees with ten-year terms
BANKS IN CRISIS
The stock market crash in October 1929
The Great Depression
Buying stock on margin
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
The Banking Act of 1935
Expanded the monetary controls of the Federal
Changed the structure of the Federal Reserve
Removed the Secretary of the Treasury and
Comptroller of the Currency
Lengthened terms of board members
Basic banking system remained unchanged for
the rest of the twentieth century.
Federal Reserve and its chairmen became more
Inflation, recession, and modernization have
changed banking dramatically.
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.
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
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.
Identify the organization of the Federal
Explain how the Federal Reserve
influences banks and the economy
STRUCTURE OF THE FED
Board of Governors
District Reserve Banks
FUNCTIONS OF THE FED
Act as government’s bank
Act as the bank’s bank
Monitor bank operations
Establish and affect monetary policy
THE GOVERNMENT’S BANK
Tax payments go to accounts in Federal
Government makes payments from these
Federal Reserve is responsible for selling and
redeeming various government securities.
THE BANKS’ BANK
Serves as a reserve bank for other banks
Processes payments between banks
Conducts bank examinations
Supervises international banks
Open market operations
Setting reserve requirements
Adjusting the discount interest rate