1 / Explain the dual banking system in the US. When and how does it start? 2 / G
ID: 2779530 • Letter: 1
Question
1 / Explain the dual banking system in the US. When and how does it start?
2 / Give the components of each system and explain how they are chartered.
3 / How do you explain the rapid development in financial innovation during the last decades? What are the advantages, risks and disadvantages of this trend?
4 / Explain the relationship between the development of ATMs and Bank holding companies on one hand and competition in the banking industry on the other hand
5 / What are the phases and the reasons of bank consolidation since the 1980s?
6 / Explain the reasons of the multiplication of small banks.
7 / What is the Glass-Steagall Act? When was it implemented? Is it still in application today?
Explanation / Answer
ans 1
The Dual Banking System in 1913 It is evident from the foregoing discussion that the developments after 1880 nullified the intention of the framers of the National Bank Act that this legislation should develop a uniform, united, nation-wide system of commercial banking. Early experience in the development of the national bank system seemed to indicate that this would be the result, but the rapid growth of State banks after 1880 and the extraordinary development of trust companies after 1900 turned the tide in the opposite direction. During the period from 1880 to 1913 the number of State banks and trust companies increased from about 65O to l6,S^l, while national banks increased from 2,076 to 7*^7 • Thus the number of State institutions was multiplied by twenty-six and that of national banks by three and a half. In 1880 there were only about one-third as many State as national banks, Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis -16 - ?ith only about a fourth of the resources. By 1913» when the Federal Reserve Act was under consideration, the number of State hanks was more than twice as great as the number of national "banks, and the aggregate resources of the State hanks were nearly as great as the aggregate resources of national hanks. Instead of a single system of hanking, there was a dual system, with the State chartered part of the system gaining in scope and power.
Some of the early proposals, such as the Baltimore plan presented before the American Bankers Association in 12>9^» the plan for an asset-secured currency fostered by the Indianapolis Monetary Commission of 1897 and 1898, and the Fowler bill of 1908, included only national banks in their scope. In the Muhleman plan for a central bank, however, and in the Warburg plan for a united reserve bank, no distinctions were made between State and national - 17 - Digitized for FRASER http://fraser.stlouisfed.org/ Federal Reserve Bank of St. Louis - IS - banks.'-1-' As these and other plans for banking reform were discussed, it came to be realized that it would be necessary to secure the cooperation of the State banks if an adequate and unified banking system was to be developed. However, neither in the Aldrich-Vreeland Act of 1908 which reflected tne influence of the reform movement nor in the original form of the Aldrich plan submitted in January, 1911, by its cnairman to the National Monetary Commission was provision made for the participation of State banks. The reason for this omission in the former case was the emergency character of toe legislation, and in the latter case, the uncertainty as to what recommendations to make. But in the revised form of the Aldrich plan and in the final report of the National Monetary Commission, it was contemplated that State banks and trust companies be permitted to become members of the proposed National Reserve Association, provided they conformed to requirements in respect to capitalization, reserves, examinations, and reports similar to tiiose imposed on nation
ans 7
The GlassSteagall Act, also known as the Banking Act of 1933 (48 Stat. 162), was passed by Congress in 1933 and prohibits commercialbanks from engaging in the investment business.
It was enacted as an emergency response to the failure of nearly 5,000 banks during the Great Depression. The act was originally part ofPresident franklin d. roosevelt's New Deal program and became a permanent measure in 1945. It gave tighter regulation of national banks tothe Federal Reserve System; prohibited bank sales of Securities; and created the Federal Deposit Insurance Corporation (FDIC), whichinsures bank deposits with a pool of money appropriated from banks.
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