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Banks and Other Financial Institutions

Page history last edited by Robert W. Maloy 11 months, 3 weeks ago

Bank of America Tower, New York City

Bank of America Tower, New York City

 

Focus Question: What is a bank and how does it operate?


Topics on the Page

 
History of American Banks and Banking

 

 

Banking in the United States Today

 

 

Federal Deposit Insurance Corporation
 

Credit Unions
 

Federal Reserve Banking

 

  • Discrimination in Banking Practices 

 

 

 

Teaching Students about Banking

 

Purpose of Banks:

 

  • The main role of a bank is to keep money safe

  • Offers interest on a deposit to entice deposits

  • Lends money to people and businesses, with interest

  • Offer financial services and advice

 

History of Banking and basic idea of banks and other financial institutions

 

 

History of American Banks and Banking


Background information on What Is A Bank? from ThinkQuest.


Click here for a Crash Course on Banks.

external image 200px-Hebrew_timeline.svg.pngTimeline of the US Banking System

Check this link out: History of American Banks

 

Origin and regulation

 

  • Alexander Hamilton wanted a Federal Banking system, which all states would use, instead of creating an individual system for each state.
    • Prior to this, only States were allowed to create and charter banks.

 

  • In 1791 the US government charted the First Bank of the United States, which replaced the bank established in 1781.
    • After the end of the Revolutionary War, a number of state banks were chartered. 

 

  • The First Bank of the United States expired in 1811 when Congress failed to renew the charter. 
    • The Second Bank of the United States was chartered in 1816, and shut down in 1836. This started the rise of commercial banking, which is the banking that we are familiar with today.

 

 

 

 

 

The Stock Market Crash of 1929

external image Black-Monday-the-Stock-Market-Crash-of-1987-NYT.jpg
The Stock Market Crash

 

 

  • Sharp decline in US stock market values that led to the Great Depression

 

  • Mass speculation helped fuel the Crash

    • People took out mortgages to invest in the Stocks

      • When they crashed these people lost everything

 

  • The market entered Freefall on October 18

    • People were buying stocks, but not as fast as people were selling them

 

  • October 24: Black Thursday

    • Record 12.9 million shares traded as investors tried to cover loses

    • Banks bought these shares in an attempt to reduce panic, succeeded for the day

 

  • October 28: Black Monday

    • Market drop 12.8%

 

  • October 29: Black Tuesday

    • New record of 16 million shares traded

    • Dow Jones closed at another 12%

 

  • Major banks and politicians tried to stymy the investment failures by preaching control

    • It did not work

 

  • Causes

    • Wild Speculation

    • Credit raised by the Federal Reserve, harder to borrow money

    • Rapid growth of holding companies and investment trusts, these tended to create debt

    • Many bank loans that could not be liquidated and a recession that had began that summer

 

Game simulating Speculation in the 1920’s!


Black Tuesday: The Stock Market Crash, from Reading Through History

An essay on the Crash from the website of the Federal Reserve

After the Great Depression, banks were required to keep a certain percentage of assets to protect from a rush.

African Americans in the Great Depression:

  • African Americans suffered doubly in the Great Depression

 

  • Did not qualify for many New Deal Programs
    • In several African Americans could be fired and replace with white workers

 

  • Roosevelt refused to pass anti-lynching legislation because he feared it would make Southern politicians vote against other New Deal legislation

 

 

  • There are also great works of children's literature on the subject such as Bud, Not Buddy by Christopher Paul Curtis

     

 

 

Wells Fargo walk up ATMs

Banking Today in the United States

 

For information about how banks affected the American economy, see the 2008 Financial Crisis.

Role of Banking system:
1) operate payment systems: checks, bank cards, credit cards

2) Financial Intermediation: lending or investing money into the economy, housing or investments.

 

Financial Crisis of 2008:

  • The Most devastating financial crisis since the Great Depression

    • Many major companies declare bankruptcy

      • Lehman Brothers, Washington Mutual, General Motors, CIT Group, Chrysler, and many others

    • Caused partly by subprime mortgages

      • House loans given by banks(such as Lehman Brothers and Washington Mutual)

      • Unfavorable terms for borrowers

        • Initial low rates that skyrocket after a few years

        • Banks assured people that they could afford them

          • Most who took subprime mortgages were families who could not qualify for a standard mortgage

      • Government mortgage firms and Insurance companies also joined in

      • All rooted in growing real estate prices

        • Led to a housing bubble

        • People who defaulted on mortgages, borrowed more based off home equity

          • Led to foreclosure and popping of the bubble

          • A 75% increase of foreclosures in 2008

      • The lending institutions stopped trusting each other and held on to funds

        • Those who could not hold on failed

          • Countrywide, the largest mortgage firm in the US failed

            • Bought by Bank of America

          • The Federal Reserve purchased billions of dollars of failing assets in an attempt to stem the bleeding

          • The market was in freefall

Crash Course Economics video on the Financial Crisis


US Banking Today

Largest Bank in the United States with $2.39 trillion in assets.
Largest Bank in the United States with $2.39 trillion in assets.


Top 10 Biggest Banks in America, Forbes

FDIC: Federal Deposit Insurance Corporation

 

Click here for a Crash Course on the Great Depression and why the FDIC is important.


A FDIC protects a portion of your money so that if a bank run would happen, part of your money would be protected, attempting to keep from a depression.

Credit Unions

The first Credit Union was founded in 1908 in New Hampshire. 

Define Credit UnionCredit unions worldwide offer members much more than financial services. They provide members the opportunity to own their own financial institution and help them create opportunities such as starting small businesses, building family homes and educating their children. Credit unions are democratic, member-owned financial cooperatives. Credit unions exist to serve their members and communities. Credit unions are safe, convenient places to access affordable financial services. (Definition from the WOCCU)

The Three Agencies with the Power to Make or Break Economies is a TED Talk about the power of private credit rating agencies.

 

Home Owners' Loan Corporation Philadelphia redlining map, 1936

 

 

Home Owners' Loan Corporation Philadelphia redlining map, 1936

Redlining

 

- Redlining: Redlining is an unethical practice that puts services (financial and otherwise) out of reach for residents of certain areas based on race or ethnicity.

 

It can be seen in the systematic denial of mortgages, insurance, loans, and other financial services based on location (and that area’s default history) rather than an individual’s qualifications and creditworthiness.

 

Notably, the policy of redlining is felt the most by residents of minority neighborhoods. (Investopedia)


Redlining, Still a Thing, 2015 

Red Lining Syracuse, NY, 1930s

Home Owners' Loan Corporation

Chicago's Racial Restrictive Covenants

 

 

 

Minority Banking Milestone Timeline  When minorities were underserved by American banks, they took matters into their own hands and created banks to serve themselves. 



 
Federal Reserve Banking


Check this link out: Federal Reserve Bank.

- In short: the Federal Reserve Bank is the bank for banks and the US.

- US Treasury collects taxes, and the taxes are deposited in the FRB.

- It plays a key role in the economy, and has the ability to spur the economy by adjusting the interest rates. The interest rates affect how much the banks pay and ultimately their customers


Discrimination in Banking Practices


Bank to Pay 10.6 million over Loan Discrimination

See United States History II.22 for background on redlining

 

 

Future of Banking 

 

This TED Talk discusses about the future of banking and financial technology. Chris Skinner assesses the nature of banking from the 80s to today, fueled by greed and individualism. He talks about how kids will turn this around and how new companies are implementing positive changes. 

     “Little ideas can make massive changes. Those ideas can come from technology doing good for the planet and good for society and good for financial services rather than keeping it as greed is good.”

 

 

 Teaching Students about Banks and Banking

 

Graph shows delinquencies on US mortgages, totals of 30 days+, 60 days+ and 90 days+ delinquencies, but without loans in any stage of foreclosure process, seasonally adjusted figures

Delinquencies on US mortgages, totals of 30 days+, 60 days+ and 90 days+ delinquencies, but without loans in any stage of foreclosure process, seasonally adjusted figures
 



external image Red_apple.jpgLesson Plan on banking in the 20th and 21st centuries. 

external image Credit-cards.jpgTeaching students how credit cards work

 

external image Mortgage-debt.jpg
Learn about individual borrowing, mortgages and the role of consumers from Inside the Meltdown from PBS.

 

Reality Check is an interactive game that shows how much money you need to make to do the things you want to do

 

The FDIC's learning page for educators provides teaching resources on banking for any age 

Alexander Hamilton vs. today's banking system

Click here for The Most Powerful Women in Banking from The American Banker.

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