History of banking in the United States
Despite what some may consider discriminatory practices with insider lending, these banks actually were very sound and failures remained uncommon, further encouraging the financial evolution in the United States.
The predominant reason that the Second Bank of the United States was chartered was that in the War of 1812, the U.S. experienced severe inflation and had difficulty in financing military operations.
Viewed through the lens of party elite discourse, Schlesinger saw inter-party conflict as a clash between wealthy Whigs and working class Democrats."
(Grynaviski)[citation needed] President Andrew Jackson strongly opposed the renewal of its charter, and built his platform for the election of 1832 around doing away with the Second Bank of the United States.
During September 1833, President Jackson issued an executive order that ended the deposit of government funds into the Bank of the United States.
However, after several years of experience, with the exception of a few exogenous shocks, different states developed more functional and stable banking industries.
It established the Office of the Comptroller of the Currency as part of the United States Department of the Treasury, authorizing it to examine and regulate nationally chartered banks.
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.
Jay Cooke launched the first mass securities selling operation in U.S. history, employing thousands of salesmen to float what ultimately amounted to $830 million worth of government bonds to a wide group of investors.
The Republican Party nominated William McKinley on a platform supporting the gold standard which was favored by financial interests on the East Coast.
However, his presidential campaign was ultimately unsuccessful; this can be partially attributed to the discovery of the cyanide process by which gold could be extracted from low-grade ore.
The McKinley campaign was effective at persuading voters that poor economic progress and unemployment would be exacerbated by adoption of the Bryan platform.
During the period from 1890 to 1925, the investment banking industry was highly concentrated and dominated by an oligopoly that consisted of JP Morgan & Co.; Kuhn, Loeb & Co.; Brown Brothers; and Kidder, Peabody & Co.
[15] In 1913, the Pujo Committee unanimously determined that a small cabal of financiers had gained consolidated control of numerous industries through the abuse of the public trust in the United States.
7th) convened a special committee to investigate a "money trust", the de facto monopoly of Morgan and New York's other most powerful bankers.
The report revealed that no less than eighteen different major financial corporations were under control of a cartel led by J.P Morgan, George F Baker and James Stillman.
The report revealed that a handful of men held manipulative control of the New York Stock Exchange and attempted to evade interstate trade laws.
[19] Businessman and philanthropist Edward Filene spearheaded an effort to secure legislation for credit unions first in Massachusetts and later throughout the United States.
The idea was to get banks involved in lending, not insurance companies, and to provide realistic loans which people could repay and gain full ownership of their homes.
During those 100 days of lawmaking, Congress granted every request Roosevelt asked, and passed a few programs (such as the FDIC to insure bank accounts) that he opposed.
On March 4, 1933, in his first inaugural address, he proclaimed: Practices of the unscrupulous money changers stand indicted in the court of public opinion, rejected by the hearts and minds of men. ...
In March and April in a series of laws and executive orders, the government suspended the gold standard for United States currency.
The chief features of the Bretton Woods system were an obligation for each country to adopt a monetary policy that maintained the exchange rate by tying its currency to the U.S. dollar and the ability of the IMF to bridge temporary imbalances of payments.
These measures included unilaterally cancelling the direct convertibility of the United States dollar to gold that essentially ended the existing Bretton Woods system of international financial exchange.
However, some critics of this viewpoint, particularly libertarians, have pointed out that the laws extended moral hazard by granting easy credit to federally insured financial institutions, encouraging them to overextend themselves and (thus) fail.
[47] The collapse of the U.S. housing bubble, which peaked in 2006, caused the values of securities tied to U.S. real estate pricing to plummet, damaging financial institutions globally.
[48] Questions regarding bank solvency, declines in credit availability and damaged investor confidence affected global stock markets, where securities suffered large losses during 2008 and early 2009.
[52][53][54] While many causes for the financial crisis have been suggested, with varying weight assigned by experts,[55] the United States Senate issuing the Levin–Coburn Report found "that the crisis was not a natural disaster, but the result of high risk, complex financial products; undisclosed conflicts of interest; and the failure of regulators, the credit rating agencies, and the market itself to rein in the excesses of Wall Street.
[57] Due to the 2007–2008 financial crisis, and to encourage businesses and high-net-worth individuals to keep their cash in the largest banks (rather than spreading it out), Congress temporarily increased the insurance limit to $250,000.
It raised the minimum amount of assets banks need to be subject of more Federal oversight from $50B to $250B, though gave power to the Fed to force them if necessary.
