1. The Development of Modern Banking
Chapter 11 Section 3

2. I. Revising the Banking System
The National Banking Act (1863) strengthened the nation’s financial system by creating a system of national banks.

3. II. The Federal Reserve System
The Fed was set up as a corporation and any bank that joined the system had to purchase shares of stock in the system
privately owned banks own the Fed, not the government.
The Fed is publicly controlled.

4. The president appoints and Congress approves the Fed’s Board of Governors.

5. Banks were overextended during the 1920s, and many failed after the Great Depression hit in 1929.
The Federal Deposit Insurance Corporation insured customer deposits in the event of a bank failure.

6. Question
What are the advantages of the Federal Reserve System being a privately owned institution that is publicly controlled? What are the disadvantages?

7. A credit union is a nonprofit service cooperative that is owned by and operated for the benefit of its members.

8. Question
Why do you suppose credit unions are able to offer lower interest rates on loans than commercial banks?
Commercial banks are for-profit, so the interest rates include a profit margin; credit unions are nonprofit, and keep costs to members as low as possible