Current State Of The Us Banking System And The Global Economy

1771 Words Nov 7th, 2015 8 Pages
Although there are several different types of financial institutions in the United States, including banking and investment intermediaries, the banking system has undergone the most radical changes since the United States declared its independence from England. In 1791, the first central bank in the U.S. was created. Modeled after the banking system in England, it was criticized as an instrument for corruption and manipulation because it was partly owned by foreigners. The first bank operated for twenty years but only produced 20% of the country 's currency, with states producing the rest. When the bank 's charter lapsed, the government struggled to raise funds for the War of 1812 and inflation soared. The Second Bank of the United
States was founded five years later, but it also dissolved when Andrew Jackson refused to renew the charter. Following the end of the second bank, the U.S. saw another period of high inflation, leading to the Panic of 1837. The failure of the first two central banks illustrated the need for inflation controls, uniform currency, and a means to fund the government 's projects.
Without a central bank in place, only state-chartered banks existed. During this free banking period, supervision was limited in many states and the industry attracted many dishonest bankers. Banks issued currency, but the value of the bills was often lower than face value, and many banks failed because they could…
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