banking in the us (upload) - edl€¢ new deal: banking act of 1933 • also known as glass-steagall...
TRANSCRIPT
Banking In The United States: 1791 to 2017 Fall, 2017
First Bank of the United States, Second Bank of the United States, State & National Banking Eras
• What led to the development of your bank or banking system?
• What were some key historical and political events during the time of your banking system?
• Explain how and why they were significant
• What are some key details of your banking system?
• Explain how and why they were significant
• Why did your banking system end?
• What mistakes were made by politicians during this era? Is it similar to today?
First Bank of the United States
• First Bank of the U.S. chartered in 1791
• Constitution did not specifically authorise a bank
• Hamilton, a Federalist, pushed for bank
• Opponents argued it restricted economic growth
• Charter lapsed in 1811
Second Bank of the United States
• Inflation, financial difficulties during War of 1812 resulted in Second Bank of U.S. in 1816
• Bank had a 20-year charter
• Whig-Democrat class struggle of Jacksonian Era
• Jackson hated bank; vetoed charter renewal
• Federal oversight of banking ended in 1836
“Wildcat” Banking Era, 1837-1863
• All banks were state banks — no federal oversight of industry
• Increased need for financing led to easy bank charter requirements by states
• Banks issued their own paper currency
• Banks were susceptible to bank runs
• Origin of the term “wildcat” — banks in remote areas, some bounties for dead wildcats
The Struggle for Stability
• Congress passed National Banking Acts of 1863 and 1864
• Created system of nationally chartered banks
• Development of national currency (“greenbacks”) backed by government bonds
• Congress taxed state bank notes
• Financial panics and plight of farmers led to push for coinage of silver
• Government increased coinage of silver — Sherman Silver Purchase Act
• Repealed after Panic of 1893
• 1900: Congress passes Gold Standard Act, formally placing US on gold standard
Banks in the 20th Century
• Continued economic instability — nation needed a central decision-making institution
• The Federal Reserve Act
• Was a true central bank
• Central devision-making board and 12 regional banks
• Provided financial services to government, regulates money supply, makes loans to banks
• Created Federal Reserve Notes
• All nationally-chartered banks were to become members of the Federal Reserve System
Banks in the 20th Century: The Great Depression
• Great Depression
• Many banks failed due to bank runs
• New Deal: Banking Act of 1933
• Also known as Glass-Steagall Act
• Created FDIC, which insured bank deposits
• Separated commercial and investment banking
• Set example of increased regulation for roughly 50 years
• FDR Temporarily took nation off gold standard
Deregulation and the Savings & Loan Crisis
• Congress began to deregulate savings & loan associations in the early 1980s
• S&Ls were constrained by interest rate rules
• Goal was to allow them to increase profits
• Bank runs began in 1985
• Home State Savings Bank in Cincinnati was one of the first
• Problem: unsound real estate lending; government spent billions to bail out banks
• Congress created Office of Thrift Supervision (Department of the Treasury) to oversee savings institutions
• Moral hazard: a tendency to take risks because the costs are borne by a different party
Modern History of United States Banks
Into the 21st Century: More Deregulation
• Financial Services Modernization Act of 1999
• Also known as Gramm-Leach-Bliley, removed the last restrictions of the Glass-Steagall Act of 1933
• Further deregulation
• Banks, insurance companies, investment companies can now sell same products and compete with one another
• Did this create too-big-to-fail institutions? More moral hazard?
• Joseph Stiglitz: yes
• The role of deregulation in the subprime mortgage financial crisis is a matter of debate
More Reform: Dodd–Frank Wall Street Reform and Consumer Protection Act
• Bill is the biggest change to financial regulation since the Great Depression
• Signed by President Obama on July 21, 2010
• Response to recession
• Bill highlights
• Creates consumer protection group
• New capital and leverage requirements; ends bailouts, limited trading that banks can do
• Increases bank oversight by government
• Bill is over 2,000 pages long, we don’t really understand the effects...yet...
Summary• Order of events
• First Bank of the United States
• Second Bank of the United States
• Wildcat Banking Era
• National Banking Acts of 1863 and 1864
• Federal Reserve Act (1913)
• National Banking Act of 1933 (Glass-Steagall)
• Deregulation of S&L Industry, 1980s
• Financial Services Modernization Act, 1999 (Gramm-Leach-Bliley)
• Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank)