AOF: Banking & Credit – Scott Dixon 2012

HISTORY OF U.S. BANKING

WHY DO WE NEED BANKS?

March Groups (p7)

The White Horse Carm, Andrew, Max, Kaylie

The Blueberries Allie, Nicole, Evan, Jackie

The Green Hornets April, Phil, Lauren, Alan

The Pink Flamingos Catie, Brandon, Lexie, Julia M.

The Purple Stivs Dan, Nathan, Emily, Maggie

March Groups (p8)

WHITE Tyler, Maria, Julia K., Shawn

BLUE Cortlynn, Alex, Hannah, Megan H.

GREEN Keelen, Jaclyn, Chris, Katie K.

PINK Nick, Natalie, Addy, Alexa

PURPLE Miranda, Megan R., Kevin, Julia L.

AS A GROUP

This is your group for the month of March

Select a section of the room to call your own.

This is where you will go whenever groups are needed

Have a group name selected by tomorrow

Within your group, choose

PARTNER “A”

Write their name on your index card

PARTNER “B”

Write their name on your index card

1) Name A:B:

Title of Reading

One Sentence Summary

FACTS 1

FACTS 2

FACTS 3

FACTS 4

PARAGRAPH SUMMARY

What services does a bank provide?

Services Savings account

Checking account

Loans Car/Boat Student Mortgage College Business !!!

Bonds

Customer Service

Certificates of Deposit

ATM

Online banking (payments)

Jobs (employment)

Financial Advice

What services does a bank provide?

Services

Checking

Savings

Loans

Mortgage (Home)

College

Car/Boat/Toys

Business !!!!

As a consumer

Safety and Security

Convenience of Payment

Access to Cash

Earning Interest

Incentives to Save

Providing Services

Helping people achieve financial goals

Generate economic activity

Access to capital ($$) to loan to customers

Financial Profit

Benefits of a bank

As a lender

Safety and Security

Convenience of Payment

Access to Cash

Interest

Incentives to Save

Achieving Financial Goals

Economic Activity

Loans

Consumers:

Why do you want these?

Lenders:

Why do you want to provide these services?

Establishing Credit, Earning Interest

Lending Money is RISKY ! Why?

Try to define “CREDIT”

How does credit affect bank services?

How does credit benefit the lender (bank)?

Try to define “Interest”

How does interest affect consumers?

ESTABLISHING CREDIT, EARNING INTERESTVIDEO

Group A

Why do you think credit and interest were essential to overseas trade?

How do the concepts of credit and interest help to stimulate economic growth?

Round Robin

Group B

HOME GROUP

Assign a reading to each student.

Give a brief summary statement to each member

In your groups

EXPERT GROUP

HOME GROUP

Complete a round robin, each member must provide ONE more piece of information.

When complete, write and share a summary (back of index card)

In your groups

EXPERT GROUP

HOME GROUP

Trade Summaries with partner “a”

Trade summaries with partner “b”

Round Robin and give “non-expert” summaries to entire group.

Experts may correct as necessary

1 2

3 4

In your groups

First Bank

Second Bank

Free Banking

National Bank Act

IF UNCONTROLLED

• Banks take more risk for profit

• Discrimination when lending money

• Banks may charge unfair fees

WHEN NO FREEDOM

• Banks lose control of decisions

• Political changes impact long-term investment

• Restrictions slow economy

Problems with banking

HISTORY OF UNITED STATES BANKING

WE LEARNED THE HARD WAY

HISTORY OF BANKINGVIDEO

A New Nation 1775-1790 Continental Congress issued our

first currency to fund the war. “Not worth a continental”

USA owed individual states for loans, but each state had its own currency. Alexander Hamilton recommended

that the Federal Government take over these debts and to prohibit individual states from issuing their own currency.

Bank of the United States

State Banks

City Banks Rural Banks

The First Banks

The First Bank of the United States 1791-1811 Alexander Hamilton was the

Secretary of the Treasury for President George Washington Modeled bank after the Bank of

England

Main Office in Philadelphia 8 branches in major cities

Intended to take care of USA finances, but also to serve as a commercial bank. (giving loans to businesses)

The First Banks

City Bankers tended to be EXTREMELY cautious when lending Short-term (30-60 day) loans Long term investment nearly

impossible

Rural (unsettled parts) of the country were more LIBERAL when lending Farmers needed to buy

land/equipment and therefore longer term loans provided

Loan losses tended to be higher

The First Bank of the United States 1791-1811 Success in paying off war debt

Many felt it was unconstitutional because it was a private entity. Only Congress was granted power to print money.

In 1811 when Congress went to renew the charter, it was defeated by ONE vote.

The Second Bank of the U.S. 1816-1836 U.S.A. added debt during

The War of 1812

Many state banks, who issued their OWN currency would not pay out in coins, thus restricting portability.

Began to regulate State Banks to protect value of currency. Remember the Continental !

Large opposition continued because it was private and could become corrupt.

Most notable opposition from President Andrew Jackson.

He effectively destroyed the bank by withdrawing all deposits in 1832. The charter expired in 1836.

IRONY: Andrew Jackson is on the $20 bill , but he was strongly against the use of paper money.

The Second Bank of the U.S. 1816-1836

FREE Banking 1837-1864 Without a national bank, state

banks did not have one set of rules to follow. Each state made its own rules.

Most states made it easier to open a bank by reducing regulations.

Hundreds of banks opened, each with its own currency.

FREE BANKING

PROBLEMS

Lack of Supervision

$1 in PA might only equal $0.50 in NY

Some banks did not keep

enough gold/silver to

pay depositors

No universal currency.

What should we do?

The National Banking System 1863

The Civil War once again led to the need for a national bank.

With the failure of the first and second banks and the chaos of the Free Banking era, a better system needed to be created.

The National Banking System 1863, 1864, 1865

Creation of the United States Dollar, a national currency and nationally chartered banks. (similar to previous national bank branches)

Creation of the Comptroller of the Currency to regulate national banks.

The National Banking System 1863, 1864, 1865

State Banks could remain free

Due to a heavy tax, most agreed to become national Consistent currency

Stronger Regulations

To avoid the tax and remain free, some state banks created “Checks” to avoid new regulations

POSITIVES

Reduced currencies from thousands to one national currency.

Provided greater trust and safety

Reduced fraud

Paid war debt

No ONE bank had full control (such as with the first and second US banks)

State banks found “loopholes”

Unable to regulate amount of currency in the system

Safety not guaranteed

Bank Panics occurred every ten years and caused havoc

The National Banking System

NEGATIVES

THE ART OF MAKING MONEYVIDEO

A RUN ON THE BANKVIDEO

PANIC !

1873

1893

1907

Even a bank in good standing could fall during a panic.

The panic of 1893 caused a terrible depression and then a recession in 1907.

Bankers and Congress agreed that a fix was needed.

US Banking History

1775-1790 1791-1811 1816-1836 1836-1862 1862-1864 1863-1907 1913

Lack of BankingThe First Bank of the United

States

The Second Bank of the

United States

The Free Banking Era

The National Banking Act

Major PanicsThe Federal

Reserve

Revolution Pay for Revolution Pay for War of 1812 Civil War Reconstruction

A DECENTRALIZED CENTRAL BANK

THE FEDERAL RESERVE

IF UNCONTROLLED

• Banks take more risk for profit

• Discrimination when lending money

• Banks may charge unfair fees

WHEN NO FREEDOM

• Banks lose control of decisions

• Political changes impact long-term investment

• Restrictions slow economy

Problems with banking