THE HISTORY OF BANKING

11/10/2009

SO WHY THE HISTORY LESSON IN ECONOMICS?

The current banking system that our country has, was shaped by drastic financial overhauls that happened in our past. This lesson will give

you a better understanding of what happened in our country’s past to

cause the financial restrictions, institutions and situation we have

now.

BANKING AND THE GREAT DEPRESSION Roaring 20’s 1920’s turmoil

Banks were risky and reckless with their practices frequently accepting high-risk loans.

1 - Businesses collapse 2 - farmers have crop failures 3 - the stock market crash.

When the Stock Market Crashed panic spread Bankers rushed to withdraw their

money, this with the non-returned loans resulted in thousands of bank failures across the country.

BANKING REFORMS FDR became president in 1932. In 1933, Congress passed the act that

created the Federal Deposit Insurance Corporation (FDIC)

The FDIC insures customer deposits if a bank fails - $250,000

BANKING TODAY Savings accounts – pay a small amount of

interest – usually less then 1% annually Checking Accounts – place to save your

money without any interest, easy to take out money with checks/cards

Money Market Accounts – Usually have a minimum balance but have a higher interest rate then savings accounts

Certificates of Deposit (CD’s) – offer a guaranteed rate of interest over a certain period of time, they cannot be removed until that time is up or a fee must be paid.

LOANS Banks often provide loans.

Loans allow for banks to make money.They earn money by charging interest on

loans. Principal – the amount of money that is borrowed Interest is the price paid for the use of a loan

Get a loan forHouseCarSchoolBoatBusiness

TYPES OF INTEREST There are two types of interest, each

has its advantages Simple Interest – interest paid only on

your initial deposit If I deposit $100 in a savings account at 5%

simple interest, I will make $5 in annual interest forever

Compound Interest – Interest paid on both principal and accumulated interest In the example above, in the second year I

will be paid interest on $105

MORE BANKING Debit ATM Direct Deposit Automatic Withdraw Safety Deposit Box