Banking02

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Banking & Finance Chapter 2

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Banking02

  1. 1. 2 DEVELOPMENT OF U.S. BANKING 2.1 Creation of a National Currency 2.2 Banking Before 1913 2.3 Banking in the Twentieth Century 2.4 The Federal Reserve SystemSlide 1 © South-Western Publishing
  2. 2. Lesson 2.1 CREATION OF A NATIONAL CURRENCY GOALS Identify different types of currency Explain how currency evolved through the early days of the United States to what it is todaySlide 2 © South-Western Publishing
  3. 3. WHAT IS CURRENCY? Money is a medium of exchange for people to use to trade things of value. Most people associate the word ―currency‖ with paper money. Strictly speaking, currency is all media of exchange circulating in a country.Slide 3 © South-Western Publishing
  4. 4. CLASSIFYING CURRENCY Metallic currency—coins Paper currency—paper money and credit instruments Government currency—money printed by the government Bank currency—bank notes issued against reserves Deposit currency—checksSlide 4 © South-Western Publishing
  5. 5. SHIFTING MEANINGS Before World War I Many countries had governments that did not issue paper money. In these countries, paper currency meant only notes issued by large banks. In the United States, currency meant the money that the government printed. After the war The idea of currency took on the broader sense used today.Slide 5 © South-Western Publishing
  6. 6. COLONIAL CASH Some British-type coins were minted on American soil as early as the 1650s. Foreign money was more common. There was limited use of English pounds and shillings. The Spanish dollar called the real was the most popular.Slide 6 © South-Western Publishing
  7. 7. CURRENCY IN THE UNITED STATES  1792 Mint Act authorizes coins.  1794 U.S. mint begins operation.  1794–1830s Both foreign and U.S. coins in circulation.  1863–1864 National Currency Act and National Banking Act establish standards and tax state bank notes.  1864–1913 Problems with money supply persist.  1913 Federal Reserve Act establishes banking system of today.Slide 7 © South-Western Publishing
  8. 8. Lesson 2.2 BANKING BEFORE 1913 GOALS 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 ActSlide 8 © South-Western Publishing
  9. 9. THE FIRST BANK OF THE UNITED STATES Chartered in 1791 Privately held with the U.S. government owning about 20% Performed functions of a central bank Charter expired in 1811Slide 9 © South-Western Publishing
  10. 10. THE SECOND BANK OF THE UNITED STATES Chartered in 1816 for twenty years Regulated credit and the money supply at the expense of state banks Was weakened by opposition from President Andrew Jackson and the withdrawal of government funds Died when its charter expired in 1836Slide 10 © South-Western Publishing
  11. 11. STEPS TOWARD CENTRAL BANKING State banks Private banks The Independent Treasury SystemSlide 11 © South-Western Publishing
  12. 12. THE NATIONAL BANKING ACT OF 1864 Enacted to stabilize the banking system Established the office of the Comptroller of the Currency to issue charters to national banks Helped establish a national currency Did not provide for ongoing monitoring and regulation of the credit and money supply Did not guarantee the safety of banksSlide 12 © South-Western Publishing
  13. 13. Lesson 2.3 BANKING IN THE TWENTIETH CENTURY GOALS Explain why Congress established the Federal Reserve System Identify challenges that the banking system of the United State faced in the twentieth centurySlide 13 © South-Western Publishing
  14. 14. THE FEDERAL RESERVE ACT OF 1913 Federal Reserve Act in 1913 founded a system of central banking that was both adaptable and flexible. A board of directors controlled district reserve banks. The original Federal Reserve Board Secretary of the Treasury Comptroller of the Currency Presidential appointees with ten-year termsSlide 14 © South-Western Publishing
  15. 15. BANKS IN CRISIS The stock market crash in October 1929 The Great Depression Buying stock on margin Bank runsSlide 15 © South-Western Publishing
  16. 16. The Emergency Banking Act of 1933 Also called the Glass-Steagall Act Separated commercial banking from investment banking to protect assets Required bank holding companies to be examined by the Federal Reserve Established the Federal Deposit Insurance Corporation (FDIC)Slide 16 © South-Western Publishing
  17. 17. The Banking Act of 1935 Expanded the monetary controls of the Federal Reserve Changed the structure of the Federal Reserve Board Removed the Secretary of the Treasury and Comptroller of the Currency Lengthened terms of board membersSlide 17 © South-Western Publishing
  18. 18. MODERN BANKING Basic banking system remained unchanged for the rest of the twentieth century. Federal Reserve and its chairmen became more independent. Inflation, recession, and modernization have changed banking dramatically.Slide 18 © South-Western Publishing
  19. 19. INFLATION AND BANKING Inflation is a collective rise in the supply of money, incomes, and prices. Stagflation is a combination of a stagnant economy and high inflation.Slide 19 © South-Western Publishing
  20. 20. DEREGULATION  Laws were passed in the early 1980s to let banks compete more freely with other financial firms, opening doors to the services available today.  Many savings and loan institutions (S&Ls) took advantage of new regulations to invest in commercial real estate and speculative loans.  These S&Ls failed during the recession of the mid-1980s.  When the Federal Savings and Loan Insurance Corporation (FSLIC) could not cover all the losses, the government stepped in.Slide 20 © South-Western Publishing
  21. 21. THE REVOLUTION CONTINUES The basic structure of the banking system remains essentially as it was in 1913. The business of banking, with its rapid communication, its global information exchange, and its marketing focus, little resembles the banking industry of an earlier age.Slide 21 © South-Western Publishing
  22. 22. Lesson 2.4 THE FEDERAL RESERVE SYSTEM GOALS Identify the organization of the Federal Reserve system Explain how the Federal Reserve influences banks and the economySlide 22 © South-Western Publishing
  23. 23. STRUCTURE OF THE FED Chairman Board of Governors District Reserve Banks Member BanksSlide 23 © South-Western Publishing
  24. 24. FUNCTIONS OF THE FED Act as government’s bank Act as the bank’s bank Monitor bank operations Establish and affect monetary policySlide 24 © South-Western Publishing
  25. 25. THE GOVERNMENT’S BANK Tax payments go to accounts in Federal Reserve banks. Government makes payments from these accounts. Federal Reserve is responsible for selling and redeeming various government securities.Slide 25 © South-Western Publishing
  26. 26. THE BANKS’ BANK Serves as a reserve bank for other banks Processes payments between banksSlide 26 © South-Western Publishing
  27. 27. BANK SUPERVISION Conducts bank examinations Supervises international banks Protects consumersSlide 27 © South-Western Publishing
  28. 28. MONETARY POLICY Open market operations Setting reserve requirements Adjusting the discount interest rateSlide 28 © South-Western Publishing

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