The Bank of the United States was designed to make money and build an economy. It was designed by men like Alexander Hamilton and Robert Morris, but did not benefit the common citizen as much as wealthy investors. Why did a fledgling government need to borrow millions from overseas in order to invest in a “national” bank, to turn around and then borrow the same money back and pay interest on it? The banking system developed by Alexander Hamilton and Robert Morris was prime pickings for speculators, and laid the groundwork for a history of unscrupulous activity regarding our nation’s money supply that continues to this day. The signatures on the Constitution were barely dry before corruption and
Such an event caused many problems in the country. The first problem had been that when banks lost tons of money due to the stock market crash, they also lost the life’s savings of so many hard
These periods of financial panics along with the inelastic money supply had long beleaguered the country. Bank failures, business bankruptcies, and unstable economic development were results of the lack of a central banking system (Federal Reserve System 8th ed. pp. 6-7). The Panic of 1907 was a bank run of epic proportions that exacerbated the problem. Depositors withdrew their savings from the second and third largest banks in the country. These banks were not able to generate enough funds to cover the demand and subsequently closed their doors. Their closings rapidly spread fear across the country leading to one of the largest runs on the banks the nation had ever witnessed (Schlesinger pp. 41).
Imagine having a job and having no safe place to put your money or no place to gain interest for money just sitting in an account. Although this seems like such a smart and genius idea, believe it or not, most people actually did not support the idea of a national bank and didn’t want one at all. The reason Andrew Jackson wanted a national bank was because even though there was already a bank it only became a bank from the farmers, laborers and other working class Americans working hard, it really only benefited the upperclassmen and Andrew Jackson did not like that. The second bank was also a cause of the War of 1812 with the hundreds dollars of debt acquired from the war the United States needed a way to bring down the inflation from the state banks (“Bank War”). There were other banks throughout the country but they were all privately owned and each had their own system of money, whether it was gold, silver, paper money.
The twenty year charter placed on the First Bank of the United States was done to quell/mitigate the worries of many Americans that a national bank was unconstitutional and would provide too much power to the central government, because once the twenty year period is up, the American people and congress can evaluate the bank’s performance and decide if it served all of its purpose accordingly, and if not, they could choose to not renew the charter for the bank. This exact mechanism/method of mitigating corruption was placed on the Second Bank of the United States, and at the end of its twenty year charter, it was clear that the bank had served to regulate and stabilize the United States’ economy by providing loans to citizens to start businesses, farms, plantations, providing opportunities for international investments and profits; which all served to strengthened the national economy and defense of the
Some background: In the wake of the 1929 stock market crash and the subsequent Great Depression, Congress was concerned that commercial banking operations and the payments system were incurring
This necessitated the need for development of regulatory measures for the industry. Bank regulation is a legal structure by which all financial
In doing so, Bruner and Carr are better able to elucidate the ways in which individual actors caused the rapid decline of the American economy in late 1906. In this, Bruner and Carr begin the text by highlighting the influences and magnitude of the major players in the financial services sector in the early twentieth century. Perhaps the most notable of the those mentioned is that of J. Pierpont Morgan, the Wall Street Oligarch for which the contemporarily “too big to fail” financial services entity J.P Morgan-Chase is named. In highlighting these individuals and their over-inflated influence on the financial system, Bruner and Carr subtlety highlight one of the biggest problems facing the financial services sector during this time period—the lack of regulation. To further elucidate this point, the books opening chapter follows the interactions between J.P Morgan and his other colleagues in George F. Baker, president of the First National Bank of New York and James Stillman, president of New York’s National City Bank. Here, the text focuses on the ways in which they inconspicuously competed and colluded with each other to make their fortunes larger and more
In the year 1907, trust companies including Knickerbocker Trust, Trust company of America and many other banks started to failed, many people withdrew their money but many of them had lost everything. Historians Jon R. Moen, Ellis W. Tallman and Tyler E. Bagwell had analyzed the importance of the panic of 1907, which had led the birth of the federal serve.
The Glass Steagall Act was passed on 1933, which is also known as The Banking Act to tighten regulation on the way banks did their business. This act was written as an emergency measure when about 5,000 banks failed during the Great Depression. Banks mostly failed because of the way they would invest with money. The act prohibits banks from investing money on investments that turn out to be risky. Banks could no longer sell securities or bonds. The act also created Federal Deposit Insurance Corporation (FDIC) to protect the deposits of individuals, which is still used to this date. The FDIC in this era insures your deposits in your bank up to $250,000. This gave the public confidence again to deposit their money in the bank. In 1933
Morgan leading the forefront, each of the banks consolidated their funds to provide the Knickerbocker Trust company with liquidity. After the Panic of 1907, many years later Congress established that there indeed was a need for a central government to assist in regulating the money supply. They analyzed the components of the Federal Reserve. They determined that a central government would combat bank crises from arising and enable stability in the interest rates. When the Federal Reserve Act was finally passed in the year of 1913, Congress relinquished all powers relating to controlling the money supply and regulating the banking system to the Federal Reserve. The only issue Congress had with forming this central government was that they didn’t want it to become more powerful than them. In efforts to prevent a tug of war involving issues concerning authoritative power, Congress granted and divided power amongst each of the Federal Reserve banks that were present within the country. Once Congress reached an agreement that established the exact number of Federal Reserve banks, again another issue was encountered. The issue Congress now faced was deciding on where each of the Federal Reserve Banks would be located. Thus, can be concluded that the location of each Federal Reserve Bank, denotes an example of the political influences and the distribution of power among senators and representatives dating as far back as 1913.
The banking industry as a whole after the stock market crashed was going bankrupt due to not being able to carry the “bad debt” that was created from using customer money to buy stock. Because the banks were out of money, they were unable to cover customer withdrawals from their bank, causing many bank customers to lose all of their savings. With the uncertainty of the future of the banking industry, many people withdrew all of their savings, which caused more than 9,000 banks to close their doors and go out of business (Kelly). Due to the effects of the Great Depression, and the collapse of the banking industry, the government created regulations to prevent similar failure in the future. For Example, the SEC, (or Securities Exchange Commission), which regulates the sell and trade of stocks, bonds and other investments was created as a result of The Great Depression. The FDIC (or Federal Deposit Insurance Corporation), was created to insure bank accounts so that that the consumer would be protected if the bank were to go out of business (Kelly). The Great Depression's effect on the banking industry led to many useful changes to the banking industry and helped restore confidence in banks in the American people.
The Bank of the United States is a symbol of the long held American fear of centralization and government control. The bank was an attempt to bring some stability and control and was successful at doing this. However, both times the bank was chartered, forces within the economy ultimately destroyed it. The fear of centralization and control was ultimately detrimental to the U.S. economy.
The third reason given was the bad banking structure which was in place in the 20's and into the 30's. Banks at this time were run individually, thus, when a bank failed or went belly up because of aggregate deposits, it started a domino effect. In 1929 alone, 346 banks closed their doors, leaving people out in the cold, with no money, money which they had trusted in the hands of these banks. This of course left the people with a bad taste in their mouths, and caused them to stop putting money in banks, relying instead on the bottom side of their mattresses. The bad running of banks ties into corruption also. The men who ran banks, men like Charles E. Mitchell, were more interested in keeping the stock market boom going rather then the health of the banks which they ran. These men kept interest rates low and gave bad loans to people who mostly had no hope of ever paying back.