CHAPTER - MONEY AND THE BANKING SYSTEM Characteristics of Money Money and Banking in History Deregulation Click to play

Money FUNCTIONS - medium of exchange - standard of value - store of value Click to play

Money New Necessary Characteristics of Money Security Anonymous Portable Infinite duration Two-way Off line capable Divisible Wide acceptability User friendly

Money Commodity money Click to play

Money Representative money EARLY BILL OF CREDIT CHECKS BONDS

MONEY Fiat money

Money Currency

Counterfeit Cash By the end of the Civil War, between one-third and one-half of all U.S. paper currency in circulation was counterfeit. On July 5, 1865, the Secret Service was created under the U.S. Treasury Department. In less than a decade, counterfeiting was sharply reduced. In the past ten years the breakdown of denominations counterfeited has changed dramatically. The total of known $50 and $100 notes counterfeited has increased by sixty percent.

Money and the Banking System Section 2 US vs. States Rights Federalists Anti-Federalists Alexander Hamilton Thomas Jefferson

History of Banking First Bank of the United States year charter -Regulation of state banks -- Dollar as official US unit of currency (McCulloch v. Maryland, 17 U.S. 316 (1819) (USSC+) IMPLIED CONGRESSIONAL POWERS The US Supreme Court would be the umpire in the federal system, and states couldn't tax the national government and Congress has implied powers.) Lost charter in 1811 = (+) state banks (x3) - chaos b/c insufficient reserves

History of Banking Second Bank of the United States Restored order but distrusted and not popular w/ state banks year charter

First Historical Period of Banking Second Bank of the United States year charter ( x3 increase in state banks) First Bank of the United States (By x2 increase in state banks) Banking Crisis of economic recession

History of Banking Andrew Jackson - vetoed the bill extending the National Bank - one year later - Banking Crisis of 1837 (due to the absence of federal regulation provided by Bank of US)

Second Historical Period of Banking Dual banking system State Banks - chartered by states National Banks - chartered by Federal government Banking Acts of 1863 and to bring uniformity and stability back to the banking system Supreme national currency eliminated 1600 state bank currencies Gold Standard Act of paper money backed by gold - (repealed in 1934)

Third Historical Period of Banking Present To establish reform and regulation The Federal Reserve System to act as the nations central bank All national banks required to join 12 Fed Reserve banks across the country Independent of President - exercise monetary policy - Prime lending rate

Modern Banking Reforms New Deal - during Great Depression, FDR ordered nations banks closed and audited to discourage runs Banking Act of 1933 est. Federal Deposit Insurance Corp (FDIC) insures deposits up to $100,000 (also FSLIC for Savings and Loans) FDRBank Run Click to play

Modern Banking Types of Banks Commercial - the most number of financial services and accounts Savings and Loan - mostly home mortgages but many financial services Mutual Savings - small farmers and seamen’s banks in rural areas Credit Union - large businesses and labor unions, owned by depositors

Deregulation Section 3 Depository Institutions Deregulation and Monetary Control Act regional and national banks - flexibility in interest rates (+ competition) - SandLs get checking accounts - ATMs, Achs, POS terminals, debit cards, electronic home banking, digital cash Occurs when the government lifts some of its restrictions on an industry

Deregulation Section 3 Varied interest rates Open checking accounts, CD’s, card services, etc… by all institutions Allowed Internet Banking Increased reserves by all - No reserves are required on the first $6.6 million. Between $6.6 million and $45.4 million, deposits are subject to a 3% reserve. Above $45.4 million they are subject to a 10% reserve. Depository Institutions Deregulation and Monetary Control Act (1980)

Fun Fact The largest note ever printed by the Bureau of Engraving and Printing was the $100,000 Gold Certificate, Series These notes were printed from December 18, 1934 through January 9, 1935 and were issued by the Treasurer of the United States to Federal Reserve Banks only against an equal amount of gold bullion held by the Treasury. These notes were used for transactions between FRBs and were not circulated among the general public.