--%>

How banking evolved into the sophisticated operation

Give a short history of how banking evolved into the sophisticated operation. Start first with the Goldsmith and sum up with the Banking system which we experience nowadays.

E

Expert

Verified

Colonial America used British pounds as money when it was a colony of Great Britain. The “dollar” was issued during the sixteenth century. The Spanish silver dollar was comparatively more stable from the 16th to the 19th century. In 1690, Massachusetts government issued government paper money, which started in medieval China. This was redeemable in gold. Though there were money lenders since long, banking began in England in the 17th century to lend out the savings of others. Thus banking began gradually in colonial America simultaneously, but they did not last long.

The prominent bank was Massachusetts Land Bank, which issued notes and lent them on real estate. The private bank notes as well as deposits were redeemable in specie. Later in 1782, the Bank of North America began and enjoyed monopoly power to issue paper money. Later in 1784, the Bank of New York and Massachusetts Bank began and the specie was driven out gradually with more bank notes being issued.

In 1792, Coinage Act was passed, which established a bimetallic dollar standard where dollar was defined to have a 15:1 ratio of silver and gold. But this led dollar to be subjected to Gresham law, which drove out gold by 1810 and silver coins were frequently used between 1810 and 1834. The Bank of North America was unsuccessful, which led to the development of the Bank of the United States in 1791, with a charter for 20 years. Soon after, eight new banks were established and additional ten banks, thus totaling to 18 banks by 1796. However, as the charter terminated, the bank was closed in 1811. Banks lent with a very stringent policy during these periods and only short-term loans ranging between thirty and sixty days were offered.

The second bank was established in 1816 and it functioned until 1832. After 1832, state governments supervised and regulated banks, instead of the central government. However, this was insufficient with a variety of bank notes being issued which differed in quality, which led to people owning worthless paper. There were nearly 10,000 different notes by 1860, which led to the failure of a large number of banks. National Bank Act was passed in 1864, establishing a new system for banking. This system was a success with many regulations and the central government as the regulator and no bank note owner was defaulted. National bank notes were only frequently used until 1914 when Federal Reserve notes were established. In 1929, the worldwide depression led to a banking crisis, which resulted in the failure of nearly 1000 US banks.
In 1933, Roosevelt took sufficient measures to overcome the banking crisis and more laws were passes regulating bank activities and limiting risks to banks. The Office of the Comptroller of Currency (OCC) was established, which even now regulates banks and imposes the banking laws. Banking industry underwent a technological revolution after 1970s, thus leading to phone banking, mobile banking, credit and debit cards, automatic teller machines, gold loans, etc. Though the tools have been enhanced for the banking industry, OCC still has the same mission and functions efficiently.

   Related Questions in Macroeconomics

  • Q : Consumption curve Illustrate a point on

    Illustrate a point on consumption curve at which APC = 1. Answer: APC = C/Y = 1 is possible when C = Y, that is, Consumption is

  • Q : Define Quantity of a good Quantity of a

    Quantity of a good: The quantity of a good which buyers demand is found out by the price of the good, income, the prices of associated goods, expectations, tastes, and the number of buyers.

  • Q : Why tax considered as revenue receipt

    Why is tax considered as revenue receipt? Answer: Since tax neither makes a liability for government nor decreases assets of the government.

  • Q : Difference on consumer willing to pay

    I have a problem in economics on Consumer Surplus-Difference consumer willing to pay and what actually pay. Please help me in the following question. The consumer surplus signifies to the difference among the: (i) Satisfaction of wealthy people and th

  • Q : Type of market when people cannot buy

    Whenever people can’t purchase all of a good they are willing and capable to pay for at present market price, there is surely a market: (1) Price ceiling. (2) Price floor. (3) Shortage. (4) Anomaly.  (5) Surplus. Please

  • Q : Monetary policy-how is it decided The

    The practice explores how monetary policy influences the economy and the type of factors which are significant in finding out the Monetary Policy Committee’s decision.

  • Q : Computing Fiscal deficit In government

    In government budget, primary deficit is Rs. 10,000 crores and interest payment is Rs. 8,000 crores. Compute the fiscal deficit?

  • Q : Expenditure of money on party effects

    When you pay a straight A student in advance to write up your term paper and that person expends the money on a party and then, hung-over, can’t do a good job and hence you wind up with an F for submitting sloppily written gibberish, you encompass just suffered

  • Q : Purchasing and consumption of

    The usual household maximizes the utility by spending all its money to purchase and consume a combination of goods which yields: (1) Fundamental physiological requirements and customary wants. (2) Maximum status and the social prestige. (3) Complete satisfaction of al

  • Q : Analyzing regions leading transaction

    Analyze at least 3 possible regions for the industry which could lead to transaction costs, explaining each in detail.