The United States banking and financial system, between the adoption of the National Banking Act and the establishment of the Federal Reserve System in 1914, was in a constant state of evolution. This period was also marked by numerous banking panics with major panics or crises in 1873, 1893, and 1907, and minor or what Elmus Wicker referred to as “incipient” banking panics in 1884 and 1890 (2000). The panics of 1884 and 1890 are referred to as incipient because there was no general loss of depositor confidence in either New York or the interior banks. At first, one would imagine with no government-mandated lender of last resort, i.e. a central bank, that these panics were very painful and caused numerous bank failures. This is flawed, however, because there were institutions in the United States at the time that did provide lender of last resort activities. A prime example is the New York Clearing House, which some have argued stopped the incipient panics of 1884 and 1890 from becoming full fledged banking panics. There is a dearth of information on clearing houses in other financial centers of the United States, like Chicago, and as such the New York Clearing House will be the focus of this paper with respect to private institutions having a role in preventing or lessening the effects of banking panics. The United States Treasury Department also played a role in stemming the effects of banking panics or incipient banking panics. This was the beginning of the Treasury’s philosophy of being independent from the banking system.
The first major banking panic to occur after the adoption of the National Banking Act occurred in 1873. The New York Clearing House had successfully used two methods of dampening a banking panic in 1860 a...
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Jon R. Moen, and Ellis W. Tallman. Close but Not a Central Bank: The New York Clearing House and Issues of Clearing House Loan Certificates. Working Paper. Working Paper Series. Federal Reserve Bank of Cleveland, May 2013. http://ideas.repec.org/cgi-bin/refs.cgi.
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Wicker, Elmus. Banking Panics of the Gilded Age. Cambridge; New York and Melbourne:, 2000. http://0-search.ebscohost.com.umiss.lib.olemiss.edu/login.aspx?direct=true&db=ecn&AN=0560955&site=ehost-live&scope=site.
Seidman, L. W. (1986) Lessons of the Eighties: What does the evidence show? Retrieved July 25, 2010 from http://www.fdic.gov/bank/historical/history/vol2/panel3.pdf
Consequently, the provisions to separate commercial banking from securities and investment firms were regarded as a way to diminish the risk associated with providing such deposit insurance. Although some historians argue that the depression itself is what caused the collapse of the banking system, in 1933 the general consensus was that banks had provoked the failure by engaging in shady and abusive practices with depositor’s money. Congressional hearings conducted in early 1933 seemed to indicate that bankers and brokers were guilty of “disreputable and seemingly dishonest dealings, and gross misuses of the public's trust” (“Understanding How”, 1998). The Glass Steagall act was the main legislative response of President Roosevelt’s administration to the unprecedented financial turmoil that was facing the nation in the middle of a deep depression. It was intended to regulate and stabilize the banking industry, reduce risk, and provide consumers with confidence in the financial
Despite the oncoming bankruptcy of the state banks, prior to Jackson’s administration the government did not show much support in their survival. In fact, the government played a large role in the functioning of the Second Ban...
The Panic of 1819, preceded by land speculation, the expansion of state and private banks, easy credit, inflation, and an increase in agricultural exports, was triggered by the tightening of credit, the collapse of the export market, and increased imports.
...an Buren declared that he would retain Jackson’s Specie Circular. Within a week, on May 10th, the Panic of 1837 erupted in New York with banks refusing to redeem in specie. It turned out that none of the banks had hard cash available. Van Buren and his successor President William Henry Harrison were unable to solve the depression. On June 8th, 1840 a bill was passed in the Senate providing for the repeal of the Independent Treasury Act. The bill passed the House and it was signed by the newly elected Whig President Tyler. Although victorious Whigs repealed the Independent Treasury in 1841, they were unable to replace it with a national bank. Revived in 1846 by a new Democratic administration, the Independent Treasury remained in operation until the Federal Reserve System was created in 1913.
There is perhaps no other political issue in our contemporary society that is more pertinent, pervasive, and encompassing than a nation’s economy. From the first coins used in Greece and the Asia Minor in the 7th century BCE, to the earliest uses of paper money, history has proven time and time again that the control of a region’s economy is absolutely crucial to maintaining social stability and prosperity. Yet, for over a century scholars have continued to speculate why the United States, one of the world’s strongest and most influential countries, has one of the most unstable economies. Although the causes of this economic instability can be attributed to multiple factors, nearly all economists agree that they have a common ancestor: the Federal Reserve Bank – the official central bank of the United States. Throughout the course of this paper, I will attempt to determine whether or not there is a causal relationship between the Federal Reserve Bank’s monetary policies and the decline of the U.S. economy. I will do this through a brief analysis of the history and role of this institution, in addition to the central banking system in general. In turn, I will argue that the reckless and intentional manipulation of the economy by the Federal Reserve Bank, through inflation and the abolishment of the gold standard, has led to the current economic crisis in the United States.
The year 2008 was a very scary one for anyone involved in the US stock market. Due to subprime lending, and cheap mortgages, the housing market became grossly overinflated. Naturally, as with a balloon that’s filled too much, it “popped”. The resulting collapse of the housing bubble had severe implications for the rest of the US economy, housing, and related industries such as lumber, construction, and realty all came crashing down, and the people employed in those fields soon found themselves out of work. As with the stock market crash of 1929, fear of the economic instability caused people to pull their money out of any investments they had. This can be a problem for a healthy bank, being unable to supply the money people are requesting if it’s tied up in loans. However, this would prove to be an even bigger problem if the money never existed in the first place, and would take down one of the largest scams in American history.
"FINANCIAL MARKETS: After the Stock Exchange Coltapse--Resemblances With Other Crises, and Differences." New York Times (1929).
In October of 1929, the American economy took a huge hit from the stock market crash. Since so much people had invested their money and time in the banks, when the banks closed many had lost all of their money and were in the deep poverty. Because of this, one of my first actions of the New Deal was the Federal Deposit Insurance Corporation (FDIC). Every bank in the United States had to abide by this rule. This banking program I launched not only ensured the safety and protection of deposits made my users of banks, but had also restored America’s faith in banks, causing people to once again use banks which contributed in enriching the economy. Another legislation I was determined to get passed...
To fully grasp the similarities and differences of these financial crises one must first understand the circumstances that surrounded the panics. The financial panic of 1907 can be traced back to 1901, the beginning of the Roosevelt presidency, and his crusade against monopolies and big business by enacting strict anti-trust laws. Business began searching for ways around these new anti-trust laws which led them to chasing riskier profit. This activity went nearly completely unregulated, as there was no central bank at the time. Stocks suffered a period of increasing volatility stemming from multiple factors including: the April 1906 San Francisco Earthquake and the Hepburn Act, a form of regulation which depreciated the value of railroad securities and international market interest rate changes. Decreases in money supply lead financial institutions to begin deleveraging. The panic would truly begin with an attempt to corner the market orchestrated by Augustus Heinze, a copper tycoon, his brother Otto, and Charles Morse a Wall Street banker. They devised a scheme to manipulate the price of United Copper stock and gain market share. The Heinze brothers created a short squeeze where they planned to purchase the remaining shares and force short sellers to pay for their borrowed stock. They believed that this would drive up the share price of copper and force the short sellers to pay whatever price the Heinze brothers and Morse wanted. To properly pull the scheme off a large amount of financing was needed, which they looked to the Knickerbocker Trust Company for. President Charles Barney had financed Morse’s previous schemes but decided that this particular scheme was too risky. However, Barney’s denial was not enough to discourage the...
Grant, Peter. "The Giant J.P. Morgan and The Panic of 1907." The New York Daily News 20 Mar. 1998: 49 "J. P. Morgan". Dictionary of American Biography. New York: Charles Scribners and Sons, 1934. Vol. 7 "J. P. Morgan". International Directory of Company Histories. Chicago: St. James's Publishing, 1990. Vol. 2
The financial Panic of 1873 was sparked on September 18, 1873 by a single meeting with an employee of the Investment Bank of Jay Cooke & Company and two outside bankers. It was just a routine meeting at the bank to raise $1 million of capital. Jay Cooke, the principal, was on vacation with President Grant while the meeting took place. The other two bankers declined to invest money with Jay Cooke & Company. This then led to the employee deciding himself to close the bank. Panic seized Wall Street.
Mullard, M. (2012). The Credit Rating Agencies and Their Contribution to the Financial Crisis. The Political Quarterly, 83, 77-95
First, when the stock market crashed banks began to shut down causing havoc because people were not able to make transactions. (Could not deposit or withdraw money.) Since people were not able to access their money people were beginning to get frightened on the possibility of not being able to pay their bills, or be able to provide enough to maintain food on the table for their families.
Perloff, J. (2009, April 13). How the Monetary Mayhem Began: The Federal Reserve Has Inflicted a Century of Financial Havoc on Americans. Looking at How This Came to Pass Reveals Who Desires This State of Affairs and How They Profit from It. The New American, 25, 32+.