1. Economics Chapter 10: Money, Banking, and Finance
2. The History of American Banking Section 10.2
3. What is a bank? An institution for receiving, keeping, and
lending money
4. Pre-Civil War Banking The first banks were informal
businesses run by local merchants with other specialties (banking
on the side) The first and second national banks provided a safe
and stable banking system Stable banking helped ensure the economic
growth of the United States However.
5. Banking Debate Federalists Followers of Alexander Hamilton
Strong central government to establish order Centralized banking
was key to promoting industry National bank: a bank chartered by
the federal government and has the power to issue a national
currency and manage funds Anti-Federalists Followers of Thomas
Jefferson Leaving power in the hands of the states Feared that the
wealthy would gain control of the bank Decentralized banking
system: states regulate their of banks
6. VS
7. The First Bank of the United States Federalists won the
battle Established in 1791 Granted a 20-year charter Functions:
Hold tax collections Issue representative money Supervised state
banks The good: Stability to American banking The bad: Difficult
for ordinary people to secure loans for property of businesses Does
the constitution grant Congress the power to create a national
bank?
8. After the First American Bank The Banks charter expired in
1811 not renewed Lack of regulation from a national bank caused
great confusion: State banks inconsistent Printing more money that
they could not back with specie Chartered banks that were not
viable or stable No uniform currency lost confidence in paper
money
9. The Second Bank of the United States Chartered in 1816 Still
limited to a 20- year deal Charged with rebuilding confidence in
banking Key figure in reestablishing stability: Nicholas Biddle Was
it enough to please Americans?
10. The Free Banking Era (1837-63) The fall of the second bank
allowed state banks to dominate once again Between 1830 and 1837,
state banks tripled Wildcat banks on the frontier doomed to fail
Fraud banks taking money and running Too many different currencies
Bank runs: widespread panics in which many people try to redeem
their money at the same time These banks often did not have enough
specie on hand Banks failed public confidence waned
11. Stability in the 1800s? By 1860, something needed to change
over 8,000 banks were issuing different currencies For many years,
the federal government did not have a role in providing currency or
regulating specie reserves Economic woes were worsened by the onset
of the Civil War in 1861
12. Civil War Currency Both sides needed to issue currency to
fund the war effort Greenbacks: issued by the United States
Treasury (demand notes) Confederacy used currency backed by cotton
representative money = success?
13. National Banking Acts of 1863 and 1864 Reforms to restore
confidence in paper currency Gave the federal government the power
to charter banks and to issue a national currency Also restored the
ability to require banks to store enough specie reserves to cover
their notes Success?
14. The Gold Standard Banking issues still affected the country
after the reform acts Gold standard: a monetary system in which
paper money and coins had the value of certain amounts of gold Set
a definitive value for the dollar Banks could only issue currency
if they had enough currency to back the notes helped promote a
stable currency by preventing the