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Encyclopedia > United States Banking

United States Banking began in 1781 with an act of United States Congress that established the Bank of North America in Philadelphia. During the American Revolutionary War, the Bank of North America was given a monopoly on currency; prior to this time, private banks printed their own bank notes, backed by deposits of gold and/or silver.

Robert Morris, the first Superintendent of Finance appointed under the Articles of Confederation, proposed the Bank of North America as a commercial bank that would act as fiscal agent for the government. The monopoly was seen as necessary because previous attempts to finance the Revolutionary War with paper currency had failed; after the war, a number of banks were chartered by the states under the Articles of Confederation, including the Bank of New York and the Bank of Massachusetts, both of which were chartered in 1784.

The Bank of North America was succeeded by the First Bank of the United States, which the United States Congress chartered in 1791 under Article One, Section 8 of the United States Constitution, after the Constitution replaced the Articles of Confederation as the foundation of American government. However, Congress failed to renew the charter for the Bank of the United States, which expired in 1811. Similarly, the Second Bank of the United States was chartered in 1816 and shuttered in 1836.


The Era of Free Banking

Prior to 1838, a bank could only be chartered by a legislative act. However, when the state of New York adopted the Free Banking Act in that year, anyone could charter a state bank simply by complying with certain charter conditions. This method of chartering banks was quickly adopted by other states and persisted until 1863, when Congress passed the National Bank Act.

The Dual Banking System

The National Bank Act of 1863 created a system of banks throughout the United States that were chartered by the federal government. In 1865, an amendment to the act placed a tax on state bank notes, bringing all banks in the United States under federal supervision. However, a number of banks were exempt from the tax and continued under their state charters until the Federal Reserve Act of 1913. This was known as the "dual banking system."

The Federal Reserve System

The Federal Reserve Act of 1913 established the present day federal reserve system and brought all banks in the United States under the authority of the federal government, creating the twelve regional federal reserve banks which are supervised by the Federal Reserve Board. Notwithstanding the Glass-Steagall Act of 1932 and the Banking Acts of 1933 and 1935, which were attempts to reform various banking abuses, the federal reserve system has remained more or less unchanged through to the present day. To wit, the Glass-Steagall Act was repealed in 1999, whereas the Banking Act of 1933 simply strengthened the supervisory powers of federal authorities and created the Federal Deposit Insurance Corporation (FDIC).


Legislation passed by the federal government during the 1980s, such as the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Depository Institutions Act of 1982, diminished the distinctions between banks and other financial institutions in the United States. This legislation is frequently referred to as "deregulation," and it is often blamed for the failure of over 500 savings and loan associations between 1980 and 1988, and the subsequent failure of the Federal Savings and Loan Insurance Corporation (FSLIC) whose obligations were assumed by the FDIC in 1989. However, some critics of this viewpoint, particularly libertarians, have pointed out that the federal government's attempts at deregulation granted easy credit to federally insured financial institutions, encouraging them to overextend themselves and (thus) fail.

Bank Mergers and Brands

Most of the current brands in the banking/financial services industry today are "fake", insofar as they are the result of a merger where the original bank with a certain brand was taken over by a different one with a different management team and business model/philosophy, which assumed the brand name of the bank it took over. This happened in the case of these mergers:

  • The Nations Bank/BankAmerica merger
  • The Norwest/Wells Fargo merger
  • The Firststar/US Bank merger
  • The Travelers/Citibank merger
  • The Chemical Bank/Chase merger
  • The Travelers Group/Citicorp merger
  • First Union/Wachovia merger

See also

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The national Bank would confer many benefits on the government including a ready source of loans, a principal depository for federal monies that were transferable from city to city without charge, and a clearing agent for payments on the national debt.
The death of the Bank was another chapter in an ongoing debate between the early leaders of the country who were split between those who preferred a weak central government on the one hand and those who desired a strong central government on the other.
The political die of the United States was cast with that document, and by 1792 the economic base of Federalism was in place, first with the Federal funding of national and state war debts, and second, with a sound national Bank in place to give coherence to the developing U.S. financial system.
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