Banking essays

Banking essays

Banking panics occurred in , , , and The last was especially embarrassing because by the US economy was the largest in the world, as was the US banking system. There were about 20, banks in , and there would be 30, by the all-time peak in the early s. US bank deposits were more than a third of the total National Banking Acts of and Despite these private or state-sponsored efforts at reform, the state banking system still exhibited the undesirable properties enumerated earlier. The National Banking Acts of and were attempts to assert some degree of federal control over the banking system without the formation of another Banking crises have developed many times throughout history when one or more risks have emerged for the banking sector as a whole. Prominent examples include the bank run that occurred during the Great Depression, the U.S. Savings and Loan crisis in the s and early s, the Japanese banking crisis during the s, and the sub-prime

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The Banking essays Twenties ». Banks are among the oldest businesses in Banking essays history—the Bank of New York, for example, was founded inand as the recently renamed Bank of New York Mellon it had its th anniversary in The banking system is one of the oldest, largest, and most important of our industries. Most adult Americans deal with banks, often on a fairly regular basis.

Nonetheless, banks and banking seem rather mysterious. What do banks do? Banking essays have they for so long been an integral part of our economy? Why, as in the financial crisis that commenced in banking essays, do banks every so often get into trouble and create serious problems for the country? Banks have two important economic functions. First, they operate a payments system, and a modern economy cannot function well without an efficient payments system.

We make most of our payments by writing checks, swiping credit cards issued by banks or tied to them, and by paying bills via online banking. We have confidence in bank money because we can exchange it at the bank or an ATM for legal tender. Banks are obligated to hold reserves of legal tender to make these exchanges when we request them. The second key function of banks is financial intermediation, lending or investing the money we banking essays with them or credit they themselves create to business enterprises, households, and governments.

This is the business side of banking, banking essays. Most banks are profit-seeking corporations with stockholders who provide the banking essays capital needed to start and maintain a banking business, banking essays.

Banks make their profits and cover their expenses by charging borrowers more for loans than they pay depositors for keeping money in the bank. The intermediation function of banks is extremely important because it helped to finance the many generations of entrepreneurs who built the American economy as well as the ordinary businesses that keep it going from year to year. But it is inherently a risky business. Will the borrower pay back the loan banking essays interest?

And what banking essays if, in the pursuit banking essays profit, banks do not maintain levels banking essays reserves and capital consistent with their own stability? There were no modern banks in colonial America. Colonial Americans gave credit to each other, or relied on credit from merchants and banks in Great Britain.

Money consisted of foreign coins and paper money issued by the governments of each colony. Three years later, Boston merchants founded the Massachusetts Bank and Hamilton became a founder of the Bank of New York.

When George Banking essays became our first president under the Constitution inthese were the only three banks in the United States. Washington tapped Hamilton to be our first secretary of the treasury, banking essays.

In his first two years in office Hamilton moved quickly, banking essays, and often controversially, to banking essays the Banking essays States a modern financial system. He implemented the federal revenue system, using its proceeds to restructure and fund the national debt into Treasury securities paying interest quarterly.

He defined the US dollar in terms of gold and silver coins; these would serve as reserves backing bank money as banks proliferated. The BUS prompted state legislatures to charter more banks—there were about thirty of these bymore than by banking essays, — by the s, and — on the eve of the Civil War. These banks were corporations, banking essays the states also chartered many non-bank business corporations.

A distinctly modern US financial system did not exist in the s but was firmly in banking essays by the mids, after which it expanded rapidly to serve, even foster, the rapid growth of the US economy. The banking system was a banking essays component of it, banking essays. Since most banks were business enterprises chartered by state legislatures, banking became highly politicized.

Banking essays party in banking essays of the legislature would grant bank charters to its backers and not those of the other parties. Banks also became sources of revenue: state governments invested in banks and earned dividends from them, they charged banks fees for granting charters of incorporation, and they taxed them, banking essays. Individual legislators accepted bribes to help some banks get charters and to prevent other banks from getting them.

These general incorporation laws made the granting of bank charters an administrative rather than a legislative function of government.

This increased the access of Americans to banking. The BUS, the national or central bank, also proved to be politically controversial. That weakened the ability of the government to finance the War of In Congress therefore chartered a second BUS, an even larger corporation than the first.

History repeated itself in the early s when, after both houses of Congress voted to re-charter the BUS, President Andrew Jackson vetoed the bill banking essays his veto could not be overridden.

The second BUS, like the first, did a good job of regulating American banking and promoting financial stability. But Jackson thought it had too many banking essays and was too friendly to his political opponents.

The BUS federal charter expired in The United States would not again have a central bank until when the Federal Reserve Act went into effect. Without a central bank to provide oversight of banking and finance, the expanding banking system of the s, s, and s suffered from some major problems, even as it supplied the country with ample loans to finance economic growth.

One problem was financial instability. Banking crises occurred in—, andyears when many banks had to suspend convertibility of their bank notes and deposits into coin because their coin reserves were insufficient. A good number of these banks failed or became insolvent when borrowers defaulted on their loan payments. The banking crises led to business depressions with high unemployment.

Another problem was a chaotic currency. In those days, the government provided only coins. Paper money—bank notes—was issued by just about every individual banking essays. By there were 1,—1, such banks, most of which issued several denominations of notes. Hence, throughout the United States there circulated about eight to nine thousand different-looking pieces of paper, each with the name of a bank on it and a number of dollars which the named bank promised to pay in coin if the note were presented to it.

It was costly, of course, to return a note of, say, banking essays, a Georgia bank received in New York to banking essays bank in Georgia, so such notes circulated at discounts the farther they were from the issuing bank. Note brokers earned a banking essays by buying bank notes at a discount and returning them en masse to the issuing banks for payment in coin.

Banking essays was not an efficient payments system for an expanding economy. Moreover, it was one in which counterfeiting of bank notes thrived because with so many different-looking notes in circulation, it was hard to tell a real one from a fake. The solution, introduced inwas to get the federal government back into the business of chartering banks. The new national banks, like free banks under earlier state laws, would issue a uniform national currency printed by the government and banking essays by US bonds.

National banks had to purchase the bonds to back bank notes they issued, making it easier for the Lincoln administration to sell bonds and finance the war against the Southern confederacy. In effect, banking essays, national bank notes were a liability of the federal government, not the bank. Discounts on bank notes, a problem of the previous era, disappeared, banking essays the national payments system.

The intent of the National Bank law was that the old state banks would convert to national charters. But not all of them did, so Congress in passed a prohibitive tax on state bank banking essays. That ended the issue of state bank notes. But it did not end state-chartered banking because many state banks could continue as deposit-taking banks without issuing notes. Shortly after the Civil War most US banks were national banks.

But by the end of the nineteenth century, state banking had recovered banking essays to rival national banking, banking essays. During the half century from tothe country continued to be without a central bank.

It had a uniform national currency and a better banking system than the one beforebut it was still prone to financial instability. Banking panics occurred in,and The last was especially embarrassing because by the US economy was the largest in the world, as was the US banking system. There were about 20, banks inbanking essays, and there would be 30, by the all-time peak in the early s. US bank deposits were more than a third of the total world deposits, banking essays, and approximately the same as the combined deposits of German, banking essays, British, and French banks, banking essays, the next three largest systems.

So inbanking essays, after three-quarters of a century without a central bank and a period punctuated by a number of banking crises, Congress created a new central bank, the Federal Reserve System the Fed. The Fed was organized inand by the end of the year the twelve regional Reserve Banks, coordinated by the Federal Reserve Board in Washington, DC, banking essays, were open for business, banking essays.

The new system was a decentralized central bank in keeping with the long American tradition of banking essays wishing to have concentrated financial power in either Wall Street or Washington, DC. The Fed further improved the payments system by operating a national check-clearing system. It also introduced Federal Reserve Notes, which gradually replaced national bank notes and Treasury-issued currency, making the national currency still more uniform.

The Fed also had the power to expand and contract its currency and credit, which served to reduce seasonal fluctuations in interest rates, enhancing economic stability. As we know from recent experience, the Fed did not eliminate banking crises. But crises were far less frequent than when there was no central bank. Indeed, there have been only two major banking crises in ninety-six years, — and — Earlier in US history, in the forty years when the two Banks of the United States existed, there was only one banking crisis, banking essays, in Compared to the seventy-eight-year period from tobanking essays, which witnessed seven banking crises, the two eras of central banking look pretty good: a crisis once every thirty to forty years on average, instead of once every eleven years, banking essays.

The presence of a central bank with a mandate to lend to solvent but illiquid banks and to the money and capital markets in times of stress enhanced financial stability and reduced the incidence of banking crises. The Fed, however, rather infamously did little banking essays prevent the failure of thousands of US banks in the period —, a lapse that contributed to making the Great Depression of the same years the worst economic slump in American history.

The reasons for the lapse are still not clear. Some historians contend that decisive action to prevent the contagious failure of so many banks was impossible because the leadership of the Fed was weak and divided.

The Board in Washington banking essays with some of the regional Reserve Banks on what actions to take, and the regional banks disagreed with one another. Others say that the Fed thought it had to defend the convertibility of the dollar to gold, banking essays, which led it to contract rather than expand credit during critical periods of the slide into the Great Depression.

The Banking Act of Junebanking essays, often called the Glass-Steagall Act because of its chief congressional sponsors, banking essays, introduced federal deposit insurance, federal regulation of interest rates on deposits, and the separation of commercial banking from investment banking.

Banking essays Banking Act of essentially created the Fed as we know it today. New Deal banking reforms ushered in banking essays long period of banking stability lasting from the s to the s, banking essays.

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Nov 22,  · Congress saw the need for substantial reform of the banking system, which eventually came in the Banking Act of , or the Glass-Steagall Act. The bill was designed “to provide for the safer and more effective use of the assets of banks, to regulate interbank control, to prevent the undue diversion of funds into speculative operations, and National Banking Acts of and Despite these private or state-sponsored efforts at reform, the state banking system still exhibited the undesirable properties enumerated earlier. The National Banking Acts of and were attempts to assert some degree of federal control over the banking system without the formation of another Telephone Banking: Telephone banking is a service provided by the banks which provides customers to perform transactions on blogger.com the telephone banking systems uses automated answering system with keypad response or voice recognition blogger.com prove their identity coustomers must provide a numeric or verbal password or answering the questions asked by the call center blogger.com