Topic 6: Lessons 2-3 Copy the table on page 235. Explain whether each development reflects centralized or decentralized action by the government. Date Development Centralized/Decentralized 1791 First Bank of the United States established with 20-year charter Centralized 18111816 Period of instability follows expiration of First Bank’s charter Decentralized 1816 Second bank of United States reestablishes stability; 20 year charter Centralized 18361860s President Jackson vetoes recharter of Second Bank; Free Banking Era begins Decentralized 18631864 National Banking Acts establish national banking system and national currency Centralized 1913 President Wilson signs the Federal Reserve Act Centralized 1929 The Great Depression begins. :( 1933 President Franklin D. Roosevelt establishes the FDIC. Centralized 1940s -1960 s Period of government regulation and long-term stability. Centralized 1980s Period of deregulation; savings and loans face bankruptcies. Decentralized 2000s Subprime loans lead to foreclosures and the worst economic crisis since WWII. Decentralized Terms Terms Definition Application/Examples/Significance National Bank A bank chartered, or licensed, by the federal government. The bank has the power to issue a national currency, manage the federal government’s funds, and monitor other banks throughout the country. The Bank Hamilton created Bank Runs Widespread panics in which great numbers of people try to redeem their paper money at the same time In The Big Short when everyone took their money out of the bank, causing it to crash Gold Standard A monetary system in which paper money and coins had the value of certain amounts of gold The United States in the 1900s used the Gold Standard. Central Bank Bank that can lend to other banks in times of need The US Federal Reserve Federal Reserve Banks The system created as many as 12 regional Federal Reserve They are in 12 regions, such as the Federal Reserve Bank of Boston or Federal Reserve Bank of New York Member Banks Banks that belong to the Fed Wells Fargo, Bank of America, Chase Federal Reserve Board Those on the board of the federal reserve, chosen by the POTUS Controlled by 7 people on the board Short=Term Loans Each of the regional Federal Reserve Banks allow members to withdraw enough to meet short-term demands. Helps prevent bank failure like during the great depression, because it allows all who need an ASAP withdrawal can get one. Federal Reserve Notes The national currency we use now in the US Monetary Banks Reserves Deposits a bank keeps readily available Reserve Requirements The amount of reserves that banks are required to keep on hand Discount Rate Interest rate that the Federal Reserve charges for commercial banks Concepts: 1. Does the number of foreclosures and bank failures in the early 2000s support the statement that America has a free financial system—laissez-faire system? Explain why or why not. a. Firstly, this question fails to add another layer of context, as the government bailed a ton of these banks out, and the reason for the bank failure was on their own part, taking shady deals and risky investments. So, NO, our system is not laissez-faire, as the government saved most of these banks. 2. Create an illustration of the structure of the Federal Reserve. 3. Explain the two roles of The Fed serving the government. a. Acts as the Government’s Banker b. Issues the currency for the government 4. Explain the six roles of The Fed in serving and regulating the banks. a. Conducts the nation's monetary policy b. Promotes financial system stability c. Acts as a line of last resort d. QE e. Monitoring Reserves f. Conducting Bank Examinations/Investigations 5. Explain the two roles of The Fed in regulating the money supply. a. Demand for Money b. Stabilizing Economy Enduring Understanding: • Explain what is the Federal Reserve System and how it serves the government, serves member banks, and regulates banks.