Banking in the United States

Banking in the United States

Banking in the United States has occurred under a series of laws passed by the federal and state governments.


Early history - 1700s and 1800s

In 1781, an act of United States Congress established the Bank of North America in Philadelphia. During the American Revolutionary War, the Bank of North America was given a monopoly on currency; prior to this time, private banks printed their own bank notes, backed by deposits of gold and/or silver.

Robert Morris, the first Superintendent of Finance appointed under the Articles of Confederation, proposed the Bank of North America as a commercial bank that would act as fiscal agent for the government. The monopoly was seen as necessary because previous attempts to finance the Revolutionary War with paper currency had failed; after the war, a number of banks were chartered by the states under the Articles of Confederation, including the Bank of New York and the Bank of Massachusetts, both of which were chartered in 1784.

The Bank of North America was succeeded by the First Bank of the United States, which the United States Congress chartered in 1791 under Article One, Section 8 of the United States Constitution, after the Constitution replaced the Articles of Confederation as the foundation of American government. However, Congress failed to renew the charter for the Bank of the United States, which expired in 1811. Similarly, the Second Bank of the United States was chartered in 1816 and shuttered in 1836.

The dual banking system - 1860s

In 1863, Congress passed the National Bank Act in an attempt to retire the greenbacks that it had issued to finance the North's effort in the American Civil War. This opened up an option for chartering banks nationally. As an additional incentive for banks to submit to Federal supervision, in 1865 Congress began taxing any issue of state bank notes (also called "bills of credit" or "scrip") a standard rate of 10%, which encouraged many state banks to become national ones. This tax also gave rise to another response by state banks -- the invention of the demand deposit account, also known as a checking account. By the 1880s, deposit accounts had changed the primary source of revenue for many banks. The result of these events is what is known as the "dual banking system." New banks may choose either state or national charters (a bank also can convert its charter from one to the other).

The Federal Reserve System

The Federal Reserve Act of 1913 established the present day Federal Reserve System and brought all banks in the United States under the authority of the Federal Reserve (a quasi-governmental entity), creating the twelve regional Federal Reserve Banks which are supervised by the Federal Reserve Board. Notwithstanding the Glass-Steagall Act of 1932 and the Banking Acts of 1933 and 1935, which were attempts to reform various banking abuses, the Federal Reserve System has remained more or less unchanged through to the present day. The Glass-Steagall Act was repealed in 1999, whereas the Banking Act of 1933 simply strengthened the supervisory powers of federal authorities and created the Federal Deposit Insurance Corporation.

Deregulation - 1980s

Legislation passed by the federal government during the 1980s, while the House of Representatives was under control of the Democratic party and President Jimmy Carter, such as the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Garn-St. Germaine Depository Institutions Act of 1982, diminished the distinctions between banks and other financial institutions in the United States. This legislation is frequently referred to as "deregulation," and it is often blamed for the failure of over 500 savings and loan associations between 1980 and 1988, and the subsequent failure of the Federal Savings and Loan Insurance Corporation (FSLIC) whose obligations were assumed by the FDIC in 1989. However, some critics of this viewpoint, particularly libertarians, have pointed out that the federal government's attempts at deregulation granted easy credit to federally insured financial institutions, encouraging them to overextend themselves and (thus) fail.

Expansion of FDIC insurance - 1989

Until 1989, banks with national charters (national banks) were required to participate in the FDIC, while State Banks either were required to obtain FDIC insurance by state law or they could voluntarily join it (usually in an attempt to bolster their appearance of solvency). After enactment of the Federal Deposit Insurance Corporation Improvement Act of 1989 ("FDICIA"), all commercial banks that accepted deposits were required to obtain FDIC insurance and to have a primary federal regulator (the Fed for state banks that are members of the Federal Reserve System, the FDIC for "nonmember" state banks, and the Office of the Comptroller of the Currency for all National Banks).

Active banks of the United States

A list of many commercial banks in the United States can be found at the website of the Federal Deposit Insurance Corporation (FDIC). Cookies must be enabled to use this interactive website. Choose the "Find Institutions" section. Then leave all of the fields with the default value then choose "find". Wait a few moments to be prompted to "save as". It will be a 3.4MB .csv file that will be downloaded. This file can be viewed with a spreadsheet program such as or Microsoft Excel.] . According to the FDIC, there were 8,430 FDIC-insured commercial banks in the United States as of August 22, 2008. Every member of the Federal Reserve System is listed here along with non-members who are also insured by the FDIC. This list does not include banks and investments that are not FDIC-insured.

Bank mergers and closures

Bank mergers happen for many reasons in normal business. For instance, to create a single larger bank in which operations of both banks can be streamlined or to acquire another banks brands. As well as due to regulators closing the institution due to unsafe and unsound business practices or inadequate capitalization and liquidity.

Banks are not allowed to go bankrupt in the United States. Accounts are generally insured up to $100,000 per individual per bank by the Federal Deposit Insurance Corporation. Banks that are in danger of failing are either taken over by the Federal Deposit Insurance Corporation, administered temporarily and eventually sold off or merged with other banks. A List of banks seized by regulators and the assuming institutions can be obtained at [ Federal Deposit Insurance Corp - Failed Bank list] .

ee also

*Bank regulation in the United States
*List of bank mergers in United States
*Financial institution

Further reading

* "A History of Money and Banking in the United States" by Murray N. Rothbard. [ Full text (510 pages) in pdf format]
* Rothbard, Murray N. / Richardson & Snyder. 1983. "The Mystery of Banking" [ Full 177-page text in pdf format] .


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