DEVELOPMENT OF THE U.S. BANKING SYSTEM
Transcript of DEVELOPMENT OF THE U.S. BANKING SYSTEM
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DEVELOPMENT OF THE U.S. BANKING SYSTEM
2.1 Creation of a National Currency2.2 Banking Before 19132.3 Modern Banking
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2.1
CREATION OF A NATIONAL CURRENCY
Identify different types of currency.Explain how currency evolved through the early days of the United States to what it is today.
GOALS
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Currency
TERMS
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WHAT IS CURRENCY?
Medium of exchangeSomething people use to trade things of valueAnything from grain to metal to money
CurrencyAll media of exchange circulating in a country
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CLASSIFYING CURRENCY
Metallic currency Paper currencyGovernment currency Bank currencyDeposit currency
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SHIFTING MEANINGS
Before World War I Many countries had governments that did not issue paper money.
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.
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What is currency?checkpoint
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THE GROWTH OF AMERICAN CURRENCY
Colonial cashEnglish pounds and shillingsReal
A Spanish dollarPaper money
English or foreign bank notesPaper money issued by the Continental Congress
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CURRENCY IN THE UNITED STATES
1792 Mint Act authorizes coins
1794 U.S. mint begins operation
1864 National Banking Act Established standardsTaxed state bank notes
1913 Federal Reserve Act establishes banking system of today
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MORE THAN A MEDIUM OF EXCHANGE
Currency does more than serve as a medium of exchange.
Can provide recognition for individuals or events that are of national historical significance
Quarters commemorating each of the 50 states were issued between 1998 and 2008.
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What was the most common medium of exchange in Colonial America? When did the U.S. government begin to issue paper currency?
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2.2
BANKING BEFORE 1913
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.
GOALS
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Federal Reserve Act
TERMS
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BANKS IN THE YOUNG UNITED STATES
The First Bank of the United StatesDuration of charter
1791-1811Ownership
80% held by private investors and foreign governments20% held by U.S. government
The Second Bank of the United StatesDuration of charter
1816-1836U.S. government owned
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Why did the two first U.S. National banks fail?checkpoint
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STEPS TOWARD CENTRAL BANKING
The National Banking Act of 1864Comptroller of the Currency
Issued charters to national banksIssued national bank notes
Federal Reserve ActIn 1913, created a system to stabilize the banking system
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What was the purpose of the National Banking Act of 1864?
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2.3
MODERN BANKING
Explain why Congress established the Federal Reserve System.Identify recent challenges faced by the banking system.
GOALS
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Reserve liquidityGreat DepressionMarginBank runFederal Deposit Insurance Corporation (FDIC)
TERMS
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InflationStagflationRecession
TERMS
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A TRUE NATIONAL BANKING SYSTEM
ReservesPercentage of deposits that are set aside to help with liquidity drops
Reserve liquidityWays to convert the reserves readily into cash
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THE FEDERAL RESERVE ACT OF 1913
Central banking systemFlexible and adaptable
Board of directorsControlled district reserve banks
Member banks could borrow money to meet demand
Monitored and protected entire banking system
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BANKS IN CRISIS
Great Depression (1929-1939)Worst economic crisis of Western industrialized nations through the end of the twentieth century
MarginBuying a stock for a fraction of its price and then reselling it for a profit
Full purchase price of stock is not paidBank run
When many people try to withdraw their money at once
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THE BANKING ACTS OF 1933 AND 1935
Glass-Steagall ActSeparated commercial banking from investment bankingRequired bank holding companies to be examined by the Federal Reserve BoardFederal Deposit Insurance Corporation (FDIC)
Guarantees deposits against bank failuresBanking Act of 1935
Expanded the monetary controls of the Federal Reserve Board
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What brought about the creation of the Federal Reserve in 1913? What is a bank run?
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RECENT BANKING
Inflation and BankingInflation
A rise in general pricesStagflation
A combination of a stagnant economy, high inflation, and high unemployment
RecessionA decline in total production lasting a minimum of two consecutive quarters
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DEREGULATION
Early 1980sLaws passed to let banks compete with other financial firms
Mid 1980sGovernment intervention to assist failed S&Ls
Mid 2007Mortgage crisis
Emergency Economic Stabilization Act of 2008
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THE REVOLUTION CONTINUES
The Federal Reserve dropped interest rates multiple times
To stimulate the economyCheck21Mortgage crisisCredit crisisFederal intervention to rescue large financial institutions on the brink of failure
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Why is inflation a potentially serious economic threat? Why were banks deregulated in the early 1980s?
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