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The History of Banking

The History of Banking. 11/10/2009. So why the history lesson in Economics?.

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The History of Banking

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  1. The History of Banking 11/10/2009

  2. So why the history lesson in Economics? The current banking system that our country has, was shaped by drastic financial overhauls that happened in our past. This lesson will give you a better understanding of what happened in our country’s past to cause the financial restrictions, institutions and situation we have now.

  3. Banking and the Great Depression • Roaring 20’s • 1920’s turmoil • Banks were risky and reckless with their practices frequently accepting high-risk loans. • 1 - Businesses collapse 2 - farmers have crop failures 3 - the stock market crash. • When the Stock Market Crashed panic spread • Bankers rushed to withdraw their money, this with the non-returned loans resulted in thousands of bank failures across the country.

  4. Banking Reforms • FDR became president in 1932. • In 1933, Congress passed the act that created the Federal Deposit Insurance Corporation (FDIC) • The FDIC insures customer deposits if a bank fails - $250,000

  5. Banking Today • Savings accounts – pay a small amount of interest – usually less then 1% annually • Checking Accounts – place to save your money without any interest, easy to take out money with checks/cards • Money Market Accounts – Usually have a minimum balance but have a higher interest rate then savings accounts • Certificates of Deposit (CD’s) – offer a guaranteed rate of interest over a certain period of time, they cannot be removed until that time is up or a fee must be paid.

  6. Loans • Banks often provide loans. • Loans allow for banks to make money. • They earn money by charging interest on loans. • Principal – the amount of money that is borrowed • Interest is the price paid for the use of a loan • Get a loan for • House • Car • School • Boat • Business

  7. Types of Interest • There are two types of interest, each has its advantages • Simple Interest – interest paid only on your initial deposit • If I deposit $100 in a savings account at 5% simple interest, I will make $5 in annual interest forever • Compound Interest – Interest paid on both principal and accumulated interest • In the example above, in the second year I will be paid interest on $105

  8. More Banking • Debit • ATM • Direct Deposit • Automatic Withdraw • Safety Deposit Box

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