1. Chapter 15 Banks and Banking
Lesson 1 – The History of American Banking
Lesson 2 – Banking Today

2. Lesson 1 – A History of American Banking

3. Lesson 1 Focus
1. The history of banking in the U.S. is the story of shifts between a centralized, national banking system and independent state and local banks.
2. Out of these shifts has developed the stable banking system in which we place our confidence today.

4. Lesson 1 Key Terms Bank National bank Bank run Greenback Gold standard
Federal Reserve System
Central bank
Member bank
Federal Reserve Note
Great Depression
Federal Deposit Insurance Corporation (FDIC)

5. Banks
Bank – an institution for receiving, keeping, and lending money

6. American Banking Before the Civil War
During the early years banks were informal businesses run by local merchants

7. Two Views on Banking Federalists vs. Anti-Federalists
Alexander Hamilton believed in a centralized bank so the US could develop healthy industries and trade
National bank – a bank chartered, or licensed, by the national government
Thomas Jefferson decentralized banking system that allowed the states to make their own rules

8. The 1st Bank of the U.S. 1791 – The Bank of the United States Used to:
Hold collected taxes
Helped government tax, borrow money, regulate trade
Issue representative money
Anti-federalists worried the bank would only loan to the rich
Did the Constitution allow a national bank?
Its 20 year charter ran out in 1811

9. Chaos in American Banking
States started charting banks
They didn’t back the notes with gold/silver
Prices rose rapidly
Consumers didn’t have confidence in these banks

10. The 2nd Bank of the United States
The 2nd Bank was chartered in 1816
Slowly started to rebuild the nations confidence in a national bank
President Andrew Jackson opposed the idea
Nicolas Biddle was the one in charge of the 2nd Bank
President Jackson vetoed the bank’s renewal of its charter in 1832

11. The Free Banking Era
Between 1837 and 1863 known as the Free Banking or ‘Wildcat’ Era
State chartered banks tripled leading to:
Bank runs and panics – when people tried to redeem their money at once
Wildcat banks – located on the edge of settled areas
Fraud – some banks plain cheated
Different currencies – some issued their own money which were worthless

12. The Later 1800s By 1860 8,000 different banks were issuing currency
The federal government played no role in issuing paper currency
The Civil War starting in 1861 makes everything worse

13. Currency in the North and South
1861 the US Treasury offered ‘demand notes’ but were called green backs because of their color
The South printed currency backed by cotton

14. Unifying American Banks
The federal government enacted the National Banking Acts of 1863 and 1864:
The power to charter banks
The power to require banks to hold adequate supplies of gold and silver in reserve
The power to issue a single currency

15. The Gold Standard
Gold Standard set in the early 1870s, it was a system in which paper money and coins are equal to a certain amount of gold

16. Banking in the Early 20th Century
The Panic of 1907 caused a huge number of banks to fail
The government made plans to reinstate a central bank

17. The Federal Reserve Act of 1913
The Federal Reserve System, often referred to as “the Fed,” is a group of 12 regional, independent banks.
Initially the Federal Reserve System did not work well because the actions of one regional bank would counteract the actions of another.
A Stronger Fed
In 1935, Congress adjusted the Federal Reserve structure so that the system could respond more effectively to crises.
Today’s Fed has more centralized powers so that regional banks can work together while still representing their own concerns.

18. The Federal Reserve System

19. Banking and the Great Depression
Banks in the 1920s loaned huge sums of money out
Stock prices crashed
Bank runs
1000’s of banks failed
No trust in banks

20. Banking Reforms
A ‘bank holiday’ enacted by FDR to restore trust in the banks
FDIC – today $250,000

21. Banking in the Later 20th Century
Banks were closely regulated from 1933 through the 1960s.
By the 1970s the banks were eager for relief
By the 1980s Congress passed laws to deregulate several industries

22. The Savings and Loan Crises
The S & L Crises was caused by:
Deregulation
High interest rates
Bad loans
fraud

23. Recent Trends Growing trend of bank mergers
More deregulation and more bank failures

24. Lesson 1 Bookwork
Define vocab on page 250
Example:
1. Bank – define…

25. Lesson 2 – Banking Today

27. Lesson 2 Focus Banking has changed greatly in recent decades
Today, many people are likely to use credit or debit cards instead of cash or checks.
Banks provide a large array of services, and electronic banking is revolutionizing the way people conduct banking transactions

28. Lesson 2 Vocab Money supply Liquidity Demand deposit
Money market mutual fund
Fractional reserve banking
Default
Mortgage
Credit card
Interest
Principal
Debit card
creditor

29. Measuring the Money Supply
Money consists of:
Currency
Traveler’s checks
Checking account deposits
Variety of other items
All of these items make up the money supply all the money available in the U.S. economy

30. M1 – page 259 figure 10.5
M1 represents money that people can access easily and immediately use to pay for goods and services
M1 assets have liquidity, or the ability to be used as or directly converted into cash
48% of M1 is cash held outside of banks

31. M2 – page 259 figure 10.5 M2 = M1 plus several other categories
M2 assets are near money since they can not be directly turned into cash
Deposits in savings
Money market mutual funds – a fund that pools money from small savers to purchase govt and corporate securities

32. Functions of Financial Institutions
Storing Money
Saving Money
Loans
Mortgages
Credit Cards
Simple and Compound Interest
Banks and Profit

33. Storing Money Safe, convenient place to store your money
Cash kept in fireproof vaults
Insured against robbery

34. Saving Money Savings accounts Checking accounts Money market accounts
Certificates of deposit (CDs)

35. Loans Banks provide people with loans
They loan out a % of their patrons deposits to other people
They make interest off the loans
Default – when borrowers fail to pay back their loans
Fractional reserve banking – page 260 figure 10.6

36. Mortgages
Banks provide you with loans to buy a house

37. Credit Cards Banks provide you with credit cards
Remember credit cards are not debit cards

38. Simple and Compound Interest
Interest – the price paid for the use of borrowed money
Principal – the amount borrowed in a loan
Page 261 figure 10.7

39. Banks and Profit Banks are in business to make a profit
Page 262 figure 10.8

40. Types of Financial Institutions
Commercial Banks
Savings and Loan Associations
Savings Banks
Credit Unions
Finance Companies

41. Commercial Banks Your everyday neighborhood bank
They provide the most services and play the largest role in the economy of any type of bank

42. Saving and Loans Popular during the 1800s
Today they provide many of the same services as commercial banks

43. Savings Banks Started in the 1800s
Would make smaller deposits than commercial banks wished to handle

44. Credit Unions
Cooperative lending associations for particular groups like employees of a specific firm or government
Provide many of the same services as commercial banks but at better rates for their members
National Credit Union Administration (NCUA)

45. Finance Companies
A place to also go to get home loans, car loans etc etc

46. Electronic Banking ATM’s Debit Cards Home Banking
Automatic Clearing House
Stored Value Cards

47. Automated Teller Machines
Automated way of withdrawing cash from your accounts

48. Debit Cards Used to withdraw money directly from your account
Need a pin
NOT a credit card

49. Home Banking
On-line banking

50. Automatic Clearing Houses
Allows consumers to pay bills without writing checks
Available at Federal Reserve Banks and their branches

51. Stored Value Cards
Examples?

52. Banks and Banking Review
Page
Key Terms 1-8 write out and underline
Reviewing Main Ideas restate