Econ 2200 3-8 - 3-8-2011Econ 2200 Chpt 193.) Bank Reforms...

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Unformatted text preview: 3-8-2011Econ 2200 Chpt 193.) Bank Reforms and the Federal Reserve SystemA.) 1882 & 1890: more lenient requirements for nB chartersAn unsuccessful attempt to bring more banks under the central authority of NB rules & to create a more uniform banking systemB.) Bank Panic of 1893Widespread bank runsMoney decreases Y decreases (recession)C.) Bank Panic Depression of 1907Widespread suspension of payments: no cash withdrawalsoLasted up to 2months at some banksoLed to serve cash shortage (M decreases), esp. in the South and Midwest, which in turn led to a severe recession (Y decrease)1980 Aldrich-Vreeland ActNational Currency Association- private sector solution, NOT requiredassets=s collateraloNCAs were an attemptto create a potentiallender of last resort for banking systemoFeatures: A group of 10 or more banks that were certified as being in sound financial condition could apply to the federal govt to become a national currency associationNCAs were empowered, but not required to make emergency loans to banks experiencing reserve shortages (bank runs). These loans were backed by assets in the borrowing banks portfolio.oNational Monetary CommissionAppointed to study the US banking system & to make recommendation for reformsRecommendations1.) Create a central bank to hold commercial bank reserves & act as lender of last resort (designated!!).oLeads to the creation of the Federal Reserve!2.) Central bank should also serve as fiscal agent for federal government1913: Federal Reserve System (Fed) createdCentral bank = government-created bank that holds a monopoly on the issuing of bank-notes. Other functions may include:oLender of last resortoBankers bank- only hold deposits of banks and make loans to BANKS!...
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This note was uploaded on 09/21/2011 for the course ECON 2200 taught by Professor Moore during the Spring '07 term at University of Georgia Athens.

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Econ 2200 3-8 - 3-8-2011Econ 2200 Chpt 193.) Bank Reforms...

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