 Doctors recommend that you eat banana peels, they are a good source of nutrition for you  If you search for askew in google, the content will tilt slightly to the right  In Greek mythology it was believed that redheads turned to vampires when they died  The founder of match.com lost his girlfriend to a man she met on match.com

Unit III: Financial Institutions Lesson 3

B: I can explain the role of financial institutions and compare and contrast the different types F: I can explain how certain historical events have influenced the banking system and other financial institutions

 Early on, banks were informal businesses that merchants managed in addition to their regular trade.  After the American Revolution, the new nation’s leaders decided that they needed to establish a safe, stable banking system. This led to a disagreement on how to organize the national banking system

ALEXANDER HAMILTONTHOMAS JEFFERSON  Federalists called for centralized banking  Alexander Hamilton was the Secretary of the Treasury and pushed for a national bank regulated by the federal government  Antifederalists, led by Thomas Jefferson, wanted decentralized banking  They favored a system in which states established and regulated banks within their borders

 In 1791 the Bank of the United States was set up.  It was the largest and most powerful bank in the US  It collected fees and paid the bills for the federal government. Antifederalists argued that the Bank was unconstitutional and that it did not benefit ordinary people, only the wealthy.

 The Bank functioned until 1811, when its charter ran out. State banks then took over for the Bank of the United States People no longer trusted the banks, causing chaos

 To eliminate the chaos, Congress charted the Second Bank of the United States in 1816  Stability was restored but many were still wary of the Bank’s powers. President Andrew Jackson vetoed the renewal in 1832  Jackson took all of the money out of the banks and put it in small state banks  These banks loaned all the money out to people who didn’t pay back their loans Led to the Panic of 1837

 As state-charted banks flourished once again from 1837 to 1863, the sheer number of banks gave rise to a variety of problems, including: Bank runs, panics, fraud, many different currencies Wildcat banks that were inadequately financed and had a high rate of failure

 During the war the north and south both printed money to pay their bills  Union money was fiat money nicknamed “greenbacks”- backed only by the government promising to pay it back  Banks in the Confederacy began to print so many bills they lost their value

 Congress passed the National Banking Acts of 1863 and 1864  They gave the federal government the power to: Charter banks Require that banks hold an adequate amount of gold and silver reserves Issue a national currency  In the 1870s the nation adopted the gold standard, which set a definite value for the dollar. The government could not print more money than it had in gold or silver

 Banks made many bad loans and people began losing trust in banks (Panic of 1907)  Too many people demanded their money from banks causing a bank run Bank run: A widespread panic in which many people try to get their paper money at the same time  This Panic resulted in the Federal Reserve System

 In 1913, the Federal Reserve Act established the Federal Reserve System, which reorganized the federal banking system to include: 12 Federal Reserve Banks that control regional districts The Federal Reserve Board Short-term loans Federal Reserve notes

 Look at the Letter and Number beneath the serial number A1: Boston G7: Chicago B2: New York City H8: St. Louis C3: Philadelphia I9: Minneapolis D4: Cleveland J10: Kansas City E5: Richmond K11: Dallas F6: Atlanta L12: San Francisco

 The Stock Market Crash of October 1929 led to the Great Depression where a failing economy led to people not able to pay back loans- results in bank runs  Created a bank holiday- all banks closed and could only reopen when declared safe

 President Franklin Roosevelt acted to restore the banking system in the 1930s by establishing the FDIC, which insured customer deposits if a bank failed. Insured up to $250,000 FDR also changed the American currency from the gold standard to being directly convertible to gold

 Subprime: loans made to borrowers with a bad credit history (more likely to fail to pay back the loan)  During the 1990s housing market boom banks began to take risks and make many subprime loans  Interest rates rose in 2006 causing many people to default on their mortgages, which led to foreclosures.

 Mortgage companies and banks lost millions, laid off thousands of employees, and the US was in its worst economic downturn since the Great Depression

 Countries, Companies, and people saving money  Was at $36 Trillion in the year 2000  Grew to $70 Trillion in 2006 because poorer countries like India, China, and Saudi Arabia became rich

 One hundred mortgage companies went bankrupt  Bear Stearns was forced to be sold/merge with JP Morgan Chase  Lehman Brothers declared Bankruptcy  Wells Fargo bought Washington Mutual  JP Morgan Chase bought Wachovia  Fannie Mae and Freddie Mac were on the hook for 5 trillion in mortgage assets and needs to be bailed out by the US Treasury

 Ability to purchase is down, therefore its harder to sell  Millions are out of jobs- unemployment rises  Stock Market begins to struggle as investments fall  National debts rise

 What type of money does the US use?  What are the six characteristics of money?  What are the three uses of money?  How is the money supply calculated  How is money really created in the US?

 What are the three main services of financial institutions?  What are the three types of loans?  What is the difference between simple and compound interest?  What are the five main types of financial institutions?

 Who were the leaders when debating over the First Bank of the US?  What led to the Panic of 1837?  What did the National Banking Acts of 1863 and 1864 do?  What was created after the Panic of 1907?  How is the Federal Reserve organized?  What did FDR create that insures your money in banks?