The Twentieth Century American Banking System

1385 Words6 Pages
First, an overview of the Twentieth Century American Banking System. Banking regulations are implanted to strengthen the banking sector and to eliminate bank panics. For example, the creation of the Federal Reserve System in 1913 was largely a response to lessons learned in the Panic of 1907. Industry regulation and structure, risk management viz. moral hazard, adverse selection. The Creation of the Federal Reserve System in 1913 marked the beginning of the modern era of Banking in America. From 1864 until 1913, American banking was dominated by a federally regulated system of the national banks. They alone were allowed issue currency, and the currency notes they issued were printed by the federal government with uniform size and design. How much currency a national bank could issue depended on its capital. Although, this system was an improvement on the earlier period, in which banks issued their own notes with uniformity and no regulation, the national bank regime still suffered numerous bank failures and major financial crises. The financial and banking crisis of the Twentieth Century in America caused major concerns. The main problem afflicting the system was that the money supply was not sufficiently responsive meaning it was difficult to shift currency around the country to respond quickly to local economic changes. Rumors that a bank had insufficient currency to satisfy demand for withdrawals would quickly lead to a bank run. A bank run then will, set a panic
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