1. 1. Economics Chapter 10: Money, Banking, and Finance
2. 2. The History of American Banking Section 10.2
3. 3. What is a bank? An institution for receiving, keeping, and lending money
4. 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. 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. 6. VS
7. 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. 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. 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. 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. 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. 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. 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. 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