ask your kids if they have learnt any of this at school, please do.
Creation of the FDIC and FSLIC[edit]
In June 1933, over Roosevelt's objections, Congress created the FDIC, which insured deposits up to $2,500 beginning January 1, 1934. On June 16, 1933, President
Franklin D. Roosevelt signed the Banking Act of 1933. This legislation:
[45]
- Established the FDIC as a temporary government corporation
- Gave the FDIC authority to provide deposit insurance to banks
- Gave the FDIC the authority to regulate and supervise state nonmember banks
- Funded the FDIC with initial loans of $289 million through the U.S. Treasury and the Federal Reserve
- Extended federal oversight to all commercial banks for the first time
- Separated commercial and investment banking (Glass–Steagall Act)
- Prohibited banks from paying interest on checking accounts
- Allowed national banks to branch statewide, if allowed by state law.
The
National Housing Act of 1934 contained provisions to create the FSLIC in order to insure deposits in savings and loans, a year after the FDIC began to insure deposits in commercial banks. It was administered by the
Federal Home Loan Bank Board (FHLBB).
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Abandonment of the gold standard[edit]
To deal with deflation, the nation abandoned the gold standard. In March and April in a series of laws and
executive orders, the government suspended the
gold standard for the U.S. dollar.
[49] Anyone holding significant amounts of gold coinage was mandated to exchange it at the existing fixed price of US dollars, after which the US would no longer pay gold on demand for the dollar, and gold would no longer be considered valid
legal tender for debts in private and public contracts. The dollar was allowed to float freely on
foreign exchange markets with no guaranteed price in gold, only to be fixed again at a significantly lower level a year later with the passage of the
Gold Reserve Act in 1934. Markets immediately responded well to the suspension, in the hope that the decline in prices would finally end.
[50]
Glass-Steagall Act of 1933[edit]
The
Glass–Steagall Act of 1933 was passed in reaction to the collapse of a large portion of the American commercial banking system in early 1933. One of its provisions introduced the separation of bank types according to their business (
commercial and
investment banking). To comply with the new regulation, most large banks split into separate entities. For example, JP Morgan split into three entities: JP Morgan continued to operate as a commercial bank, Morgan Stanley formed to operate as an investment bank, and Morgan Grenfell operated as a British merchant bank.
[51]
Banking Act of 1935[edit]
The Banking Act of 1935 strengthened the powers of the Federal Reserve Board of Governors in the area of credit management, tightened existing restrictions on banks engaging in certain activities, and expanded the supervisory powers of the FDIC.
Together, the increased regulations of the New Deal era ushered in a period of stability in retail banking. The term
3-6-3 Rule (paying 3 percent interest on deposits, lending money out at 6 percent, and being able to "tee off at the golf course by 3 p.m.") has been used to describe the post-World War II period until the deregulation of the 1980s.
[52][53]
Bretton Woods system[edit]
Main article:
Bretton Woods system
The Bretton Woods system of monetary management established the rules for commercial and financial relations among the world's major
industrial states in the mid-20th century. The Bretton Woods system was the first example of a fully negotiated monetary order intended to govern monetary relations among independent nation-states.
Setting up a system of rules, institutions, and procedures to regulate the international monetary system, the planners at Bretton Woods established the
International Monetary Fund (IMF) and the
International Bank for Reconstruction and Development (IBRD), which today is part of the
World Bank Group. The chief features of the Bretton Woods system were an obligation for each country to adopt a
monetary policy that maintained the
exchange rate by tying its currency to the U.S. dollar and the ability of the IMF to bridge temporary
imbalances of payments.