Question

Does the U.S. need the Federal Reserve and bank regulations? Why? In your post mention some of the history of the U.S. banking history. Also talk about the following terms:

- Reserve requirements

- Comericial Banks

- Shadow Banks

- Glass Steegal Act

- Dodd-Frank Act

- Balance sheet of Banks

- Balance sheet of the Federal Reserve

- Bank run

Answer 1

Answer:

U.S Need for the faderal reserve :-

Faderal reserve was created by the Congress to provide the nation with a safer, more flexible, and more stable monetary and financial system. The Federal Reserve was created on December 23, 1913, when President Woodrow Wilson signed the Federal Reserve Act into law.

The Federal Reserve System and bank regulations supervises and regulates a wide range of financial institutions and activities. The Federal Reserve works in conjunction with other federal and state authorities to ensure that financial institutions safely manage their operations and provide fair and equitable services to consumers.

U.S Banking history:-

1791 to 1832

a central bank founded in 1791 at the initiative of the nation's first Secretary of the Treasury, Alexander Hamilton. Its Congressional charter expired in 1811. A second Bank of the United States was created in 1816 and operated until 1832.To make sure they had enough cash available to meet unexpected demands from depositors, bankers generally made short-term loans only. Thirty to sixty days was the norm

1832 to 1864

When the second Bank of the United States went out of business in 1832, state governments took over the job of supervising banks. This supervision often proved inadequate. In those days banks made loans by issuing their own currency. These bank notes were supposed to be convertible, on demand, to cash

By 1860 more than 10,000 different bank notes circulated throughout the country. Commerce suffered as a result.

Congress passed the National Currency Act in 1863. In 1864, President Lincoln signed a revision of that law, the National Bank Act. These laws established a new system of national banks and a new government agency headed by a Comptroller of the Currency.

Creating a National Currency: 1865 to 1914

National banks bought U.S. government securities, deposited them with the Comptroller, and received national bank notes in return. By being lent to borrowers, the notes gradually entered circulation.

The Banking Crisis: 1929 to 1933

The onset of the worldwide depression in 1929 was a disaster for the banking system. In the last quarter of 1931 alone, more than 1,000 U.S. banks failed, as borrowers defaulted and bank assets declined in value.

The banking crisis was the first order of business for President Franklin D. Roosevelt. The day after taking office, on March 5, 1933, he declared a bank holiday, closing all the country's banks

A Revolution in Banking: 1970s to Today

Technology has transformed the way Americans obtain financial services. Telephone banking, debit and credit cards, and automatic teller machines are commonplace, and electronic money and banking are evolving.

Reserve requirement :Currently, the marginal reserve requirement equals 10 percent of a bank's demand and checking deposits.

Commercial Banks:

Commercial banks make money by providing and earning interest from loans such as mortgages, auto loans, business loans, and personal loans. Customer deposits provide banks with the capital to make these loans.

Shadow banks:

Shadow banks, which are often based in tax havens, invest in long-term loans like mortgages, providing credit across the financial system by matching investors and borrowers individually or by becoming part of a chain involving numerous entities, some of which may be mainstream banks

Glass Steegal Act

The Glass-Steagall Act is a 1933 law that separated investment banking from retail banking. 1 Investment banks organized the initial sales of stocks, called an initial public offering. They facilitated mergers and acquisitions. Many of them operated their own hedge funds.

Dodd-Frank Act

An Act to promote the financial stability of the United States by improving accountability and transparency in the financial system, to end "too big to fail", to protect the American taxpayer by ending bailouts, to protect consumers from abusive financial services practices, and for other purposes.

Balance sheet of Banks : Which shows loan given as assets and deposit taken as liability .it is summary of financial position of bank

Balance sheet of faderal bank:

It lists all assets and liabilities, providing a consolidated statement of the condition of all 12 regional Federal Reserve Banks. The Fed's assets consist primarily of government securities and the loans it extends to its regional banks. Its liabilities include U.S. currency in circulation

Bank Run:

A bank run occurs when many clients withdraw their money from a bank, because they believe the bank may cease to function in the near future

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