1 Money and the Banking System CHAPTER 13

2 Functions of money: a medium of exchange a store of value a standard of value Money SECTION 1

3 Characteristics of money: durability portability divisibility stability in value acceptability Money SECTION 1

4 Sources of money ’ s value: commodity money—when an item has a value of its own and is used as money representative money—when an item can be exchanged for another item of equal value fiat money—when an item has value because the government decrees it Money SECTION 1

5 Types of money used in the United States: coins paper money checks (demand deposits) near money Money SECTION 1

6 View of banking: Federalists—federal control over state banks Antifederalists—state control over banks History of U.S. Banking SECTION 2

7 With the creation of nationally chartered banks, state-chartered banks weakened. Reasons included: federal government now had power to charter national banks banks required to hold silver and gold reserves federal government issued a national currency that led to the elimination of state-bank currencies History of U.S. Banking SECTION 2

8 Post-World War I banking reforms: created the Federal Reserve System to centralize U.S. banking and passed the Banking Act of 1933 to protect deposits enacted the Gold Reserve Act of 1934 to allow the government to buy all gold held by U.S. banks and remove the gold standard in the U.S. History of U.S. Banking SECTION 2

9 Common types of U.S. financial institutions: commercial banks savings and loan associations mutual savings banks credit unions U.S. Banking Today SECTION 3

10 Effects of automation on banking: increased banks ’ efficiency speeded up banking transactions saved banks money by reducing the number of workers needed U.S. Banking Today SECTION 3

11 Results of banking deregulation: more competition growth of regional banking U.S. Banking Today SECTION 3

12 Problems financial institutions faced in the late 1980s: loan defaults bank failures S&L crisis U.S. Banking Today SECTION 3