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Copyright South-Western, a division of Thomson, Inc. Slide 11
DEVELOPMENTOF U.S. BANKING
2.12.1 Creation of a National Currency2.22.2 Banking Before 19132.32.3 Banking in the Twentieth Century2.42.4 The Federal Reserve System
22
Copyright South-Western, a division of Thomson, Inc. Slide 22
Lesson 2.1
CREATION OF A NATIONAL CURRENCY
Identify different types of currencyExplain how currency evolved through the early days of the United States to what it is today
GOALSGOALS
Copyright South-Western, a division of Thomson, Inc. Slide 33
WHAT IS CURRENCY?WHAT IS CURRENCY?WHAT IS CURRENCY?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.
Copyright South-Western, a division of Thomson, Inc. Slide 44
CLASSIFYING CURRENCYCLASSIFYING CURRENCYCLASSIFYING CURRENCYCLASSIFYING CURRENCY
Metallic currency—coinsPaper currency—paper money and credit
instrumentsGovernment currency—money printed by the
governmentBank currency—bank notes issued against
reservesDeposit currency—checks
Copyright South-Western, a division of Thomson, Inc. Slide 55
SHIFTING MEANINGSSHIFTING MEANINGSSHIFTING MEANINGSSHIFTING MEANINGS
Before World War I 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 warThe idea of currency took on the broader sense
used today.
Copyright South-Western, a division of Thomson, Inc. Slide 66
COLONIAL CASHCOLONIAL CASHCOLONIAL CASHCOLONIAL 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.
Copyright South-Western, a division of Thomson, Inc. Slide 77
CURRENCY IN THE UNITED STATESCURRENCY IN THE UNITED STATESCURRENCY IN THE UNITED STATESCURRENCY 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.
Copyright South-Western, a division of Thomson, Inc. Slide 88
Lesson 2.2
BANKING BEFORE 1913
Identify the reasons for the establishment and expiration of both the first and second Banks of the United StatesDescribe the continuing problems that led to the Federal Reserve Act
GOALSGOALS
Copyright South-Western, a division of Thomson, Inc. Slide 99
THE FIRST BANK OF THE UNITED STATESTHE FIRST BANK OF THE UNITED STATESTHE FIRST BANK OF THE UNITED STATESTHE FIRST BANK OF THE UNITED STATES
Chartered in 1791Privately held with the U.S. government owning
about 20%Performed functions of a central bankCharter expired in 1811
Copyright South-Western, a division of Thomson, Inc. Slide 1010
THE SECOND BANK OF THE UNITED STATESTHE SECOND BANK OF THE UNITED STATESTHE SECOND BANK OF THE UNITED STATESTHE SECOND BANK OF THE UNITED STATES
Chartered in 1816 for twenty yearsRegulated credit and the money supply at the
expense of state banksWas weakened by opposition from President
Andrew Jackson and the withdrawal of government funds
Died when its charter expired in 1836
Copyright South-Western, a division of Thomson, Inc. Slide 1111
STEPS TOWARD CENTRAL BANKINGSTEPS TOWARD CENTRAL BANKINGSTEPS TOWARD CENTRAL BANKINGSTEPS TOWARD CENTRAL BANKING
State banksPrivate banksThe Independent Treasury System
Copyright South-Western, a division of Thomson, Inc. Slide 1212
THE NATIONAL BANKING ACT OF 1864THE NATIONAL BANKING ACT OF 1864THE NATIONAL BANKING ACT OF 1864THE NATIONAL BANKING ACT OF 1864
Enacted to stabilize the banking systemEstablished the office of the Comptroller of the
Currency to issue charters to national banksHelped establish a national currencyDid not provide for ongoing monitoring and
regulation of the credit and money supplyDid not guarantee the safety of banks
Copyright South-Western, a division of Thomson, Inc. Slide 1313
Lesson 2.3
BANKING IN THE TWENTIETH CENTURY
Explain why Congress established the Federal Reserve SystemIdentify challenges that the banking system of the United States faced in the twentieth century
GOALSGOALS
Copyright South-Western, a division of Thomson, Inc. Slide 1414
THE FEDERAL RESERVE ACT OF 1913THE FEDERAL RESERVE ACT OF 1913THE FEDERAL RESERVE ACT OF 1913THE 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 BoardSecretary of the TreasuryComptroller of the CurrencyPresidential appointees with ten-year terms
Copyright South-Western, a division of Thomson, Inc. Slide 1515
BANKS IN CRISISBANKS IN CRISISBANKS IN CRISISBANKS IN CRISIS
The stock market crash in October 1929The Great DepressionBuying stock on marginBank runs
Copyright South-Western, a division of Thomson, Inc. Slide 1616
The Emergency Banking Act of 1933 The Emergency Banking Act of 1933 The Emergency Banking Act of 1933 The Emergency Banking Act of 1933
Also called the Glass-Steagall Act Separated commercial banking from investment
banking to protect assetsRequired bank holding companies to be
examined by the Federal ReserveEstablished the Federal Deposit Insurance
Corporation (FDIC)
Copyright South-Western, a division of Thomson, Inc. Slide 1717
The Banking Act of 1935The Banking Act of 1935The Banking Act of 1935The Banking Act of 1935
Expanded the monetary controls of the Federal Reserve
Changed the structure of the Federal Reserve BoardRemoved the Secretary of the Treasury and
Comptroller of the CurrencyLengthened terms of board members
Copyright South-Western, a division of Thomson, Inc. Slide 1818
MODERN BANKINGMODERN BANKINGMODERN BANKINGMODERN 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.
Copyright South-Western, a division of Thomson, Inc. Slide 1919
INFLATION AND BANKINGINFLATION AND BANKINGINFLATION AND BANKINGINFLATION 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.
Copyright South-Western, a division of Thomson, Inc. Slide 2020
DEREGULATIONDEREGULATIONDEREGULATIONDEREGULATION
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.
Copyright South-Western, a division of Thomson, Inc. Slide 2121
THE REVOLUTION CONTINUESTHE REVOLUTION CONTINUESTHE REVOLUTION CONTINUESTHE 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.
Copyright South-Western, a division of Thomson, Inc. Slide 2222
Lesson 2.4
THE FEDERAL RESERVE SYSTEM
Identify the organization of the Federal Reserve systemExplain how the Federal Reserve influences banks and the economy
GOALSGOALS
Copyright South-Western, a division of Thomson, Inc. Slide 2323
Board of Governors
STRUCTURE OF THE FEDSTRUCTURE OF THE FEDSTRUCTURE OF THE FEDSTRUCTURE OF THE FED
Member Banks
District Reserve Banks
Chairman
Copyright South-Western, a division of Thomson, Inc. Slide 2424
FUNCTIONS OF THE FEDFUNCTIONS OF THE FEDFUNCTIONS OF THE FEDFUNCTIONS OF THE FED
Act as government’s bankAct as the bank’s bankMonitor bank operationsEstablish and affect monetary policy
Copyright South-Western, a division of Thomson, Inc. Slide 2525
THE GOVERNMENT’S BANKTHE GOVERNMENT’S BANKTHE GOVERNMENT’S BANKTHE 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.
Copyright South-Western, a division of Thomson, Inc. Slide 2626
THE BANKS’ BANKTHE BANKS’ BANKTHE BANKS’ BANKTHE BANKS’ BANK
Serves as a reserve bank for other banksProcesses payments between banks
Copyright South-Western, a division of Thomson, Inc. Slide 2727
BANK SUPERVISIONBANK SUPERVISIONBANK SUPERVISIONBANK SUPERVISION
Conducts bank examinationsSupervises international banksProtects consumers
Copyright South-Western, a division of Thomson, Inc. Slide 2828
MONETARY POLICYMONETARY POLICYMONETARY POLICYMONETARY POLICY
Open market operationsSetting reserve requirementsAdjusting the discount interest rate
Copyright South-Western, a division of Thomson, Inc. Slide 2929
FISCAL POLICYFISCAL POLICYFISCAL POLICYFISCAL POLICY
Adjusting budgetary deficits or surpluses to achieve economic goals
Role of Congress and the President“Priming the pump” in an economic downturnSlowing the boom economy