1. DEVELOPMENT OF U.S. BANKING
1/29/2018
DEVELOPMENT OF U.S. BANKING 2
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
Chapter 2

2. Lesson 2.1 CREATION OF A NATIONAL CURRENCY
Banking
1/29/2018
Lesson 2.1 CREATION OF A NATIONAL CURRENCY
GOALS
Identify different types of currency
Explain how currency evolved through the early days of the United States to what it is today
Chapter 2

3. 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 paper money.
Strictly speaking, currency is all media of exchange circulating in a country.

4. CLASSIFYING CURRENCY
Metallic currency—coins
Paper currency—paper money and credit instruments
Government currency—money printed by the government
Bank currency—bank notes issued against reserves
Deposit currency—checks

5. SHIFTING MEANINGS Before World War I After the war
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 today.

6. Foreign money was more common.
COLONIAL CASH
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 shillings.
The Spanish dollar called the real was the most popular.

7. 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 of today.

8. Lesson 2.2 BANKING BEFORE 1913
GOALS
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

9. THE FIRST BANK OF THE UNITED STATES
Chartered in 1791
Privately held with the U.S. government owning about 20%
Performed functions of a central bank
Charter expired in 1811

10. 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 government funds
Died when its charter expired in 1836

11. STEPS TOWARD CENTRAL BANKING
State banks
Private banks
The Independent Treasury System

12. 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

13. Lesson 2.3 BANKING IN THE TWENTIETH CENTURY
GOALS
Explain why Congress established the Federal Reserve System
Identify challenges that the banking system of the United State faced in the twentieth century

14. THE FEDERAL RESERVE ACT OF 1913
Federal Reserve Act in 1913 founded a system of central banking that was both adaptable and flexible.
A board of directors controlled district reserve banks.
The original Federal Reserve Board
Secretary of the Treasury
Comptroller of the Currency
Presidential appointees with ten-year terms

15. BANKS IN CRISIS
The stock market crash in October 1929
The Great Depression
Buying stock on margin
Bank runs

16. 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 Corporation (FDIC)

17. Expanded the monetary controls of the Federal Reserve
The Banking Act of 1935
Expanded the monetary controls of the Federal Reserve
Changed the structure of the Federal Reserve Board
Removed the Secretary of the Treasury and Comptroller of the Currency
Lengthened terms of board members

18. MODERN BANKING
Basic banking system remained unchanged for the rest of the twentieth century.
Federal Reserve and its chairmen became more independent.
Inflation, recession, and modernization have changed banking dramatically.

19. 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.

20. DEREGULATION
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 stepped in.

21. 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.

22. Lesson 2.4 THE FEDERAL RESERVE SYSTEM
GOALS
Identify the organization of the Federal Reserve system
Explain how the Federal Reserve influences banks and the economy

23. District Reserve Banks
STRUCTURE OF THE FED
Chairman
Board of Governors
District Reserve Banks
Member Banks

24. FUNCTIONS OF THE FED
Act as government’s bank
Act as the bank’s bank
Monitor bank operations
Establish and affect monetary policy

25. THE GOVERNMENT’S BANK
Tax payments go to accounts in Federal Reserve banks.
Government makes payments from these accounts.
Federal Reserve is responsible for selling and redeeming various government securities.

26. THE BANKS’ BANK
Serves as a reserve bank for other banks
Processes payments between banks

27. BANK SUPERVISION
Conducts bank examinations
Supervises international banks
Protects consumers

28. MONETARY POLICY
Open market operations
Setting reserve requirements
Adjusting the discount interest rate