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r https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis F II BANK K M05T OF U5 TEND TO v,e.w BANK5 A5 THEY ARE PORTRAYED HERE ••• AS FINANC1AlSUPERMARKET5 5E:RVICING OUR INDIVIDUAL FINANCIALNEED5. BUT BANK5 PLAY A MORE IMPORTANT ROf...E IN OUR f:CONOMY BY ACTING AS FINANCIALINTERMEDIARIE5... GO-BETWEEN5 LINKING 5AVER5 AND BORROW~R5 ,ANO, AT THE SAME TIME, PERFORMING A VARIE.TY OF SERVICES FOR PEOPLE AND 8USINE.55E5 PA)'ING AND RSCEIVING MONE.Y. ART BY AL WENZEL https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SCRIPT BY C . .:T. PARNOW . .... :.. ~ ~49 r !'J LI OCT l C~N I EXCHANGE MY L.E:FTOVER PE505 FOR OOI..L-AR5? https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis W~AT DO YOU MEAN NO LOANS 'FOR MONKEY BU51NE55? TWO MAJOR TYPE5 OF BANKING BUS1Nf=5Sf=5 EX15T IN THE U.5.-- COMMERCIAL 8ANK6 AND THRIFT /N5T/TUTION5. "THRIFT5" INCLUDE SAVING5 A~D LOAN A5~0CIATION5, MUTUAL SAVINGS BANKS AND CREDIT UN/ON5. GENERALLY, THRIFTS HAVE CONCENTRATED ON PROVID· ING 5AV/NG5 ACCOUNTS AND MAK/NG LOANS FOR HOME BU/1..DING AND MORTGAGEt;. /N RECENT YEARS, THRIFTS 1~ SOME STATE.5 HAVE= BEEN AL.f..OWED TO DIVER?IFY THEIR 5ERVfCE:S. -----11- BY LENDING EXl5T1NG FUNDS DEP051Tf:=D BY CUSTOMERS, THRIFTS ESSENTIALLY TAKE= MONEY IN THROUGH ONf= WINDOW AND LEND IT THROUGH ANOTHER. COMMERCIAL BANK5, HOWE=VER, I-END IN A DIFFERf=NT WAY. THEY CREATE NEW CHECKBOOK DOLL.AR5 AND ADD THEM TO A 80RROWER'5 CHECKING ACCOUNT. BECAUSE COMMERCIAL BANK5 HAVE THE POWER TO CREATE NEW DOL- L.AR5, THEY PLAY A 5PECIAL ROL-E IN OUR FINANCIAL 5Y5Tr3.M. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis PEOPLE WANT THEIR CASH WELL PRO· TECTED, AND 8ANK5, WITH THEIR VAULT5, GUARDS AND At.ARMS, OFFER GREATER. 5AFE=TY lHAN KEEPING MONEY AT HOME THE TYPE OF ACCOUNT YOU PUT )'OUR MONEY IN DEPENDS ON HOW SOON YOU INTEND TO use. IT. IF YOU PLAN ON SPENDING YOUR MONEY IN THE NEAR FUTURE, YOU'RE BETTER OFF PUTTING IT IN A CHECK/NG ACCOUNT. IF YOU'RE: ,AVING FOR A NEW CAR, YOU MIGHT NOT Pf..AN TO 5PEND THE MONEY IMME=DIATEI-Y. 50, A SAVINGS ACCOUNT 15 WHAT YOU WANT. \ I / / CHECKING ACCOUNT MONE:Y IS CALLED A ''DEMAND DEPOSIT" BECAUSE IT CAN BS. WITHDRAWN ON DEMAND. DEMAND DEPOSITS MAKI: UP THE BULK OF THE U.~. MONEY 5UPPI-Y. THE REST 15 CURRENCY AND COIN. SIMPLY BY WRITING A CHECK, WE TELL THE BANK TO TRANSFER. MONEY FROM OUR CHECKING ACCOUNT TO SOMEONE E~SE. , 11 Fut.JDS ARE DEPOSITED AND WITHDRAWN FROM BANKS ALL. THE TIME. HOWEVE:R, ONLY A SMALL.. FRACTION IS WITHDRAWN ON A GIVEN DAY. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BANKERS HAVE L..EARNED THAT IF THEY KEEP A SMALL FRACTION OF DEPOSITS ON RESERVE: TO MEET WITHDRAWALS, THEY CAN t..END THE RE5T. BANKS EARN ENOUGH FROM LOANS TO PAY OEP051TOR5 FOR. THE U5E OF THEIR MONEY AND. STILL MAKE A PROFIT. GUPPOSE WESTSIDE BANK, WITH DEPOSITS OF $1000, KEEPS A RE5ERVE OF 15 PERCENT OR$I~0. IT HAS THE DIFFERENCE=·-$8SO--TO I-END. ECAU5E OF THE "FRACTIONAt' E':?l=RVE SYSTEM, BANKS, AS A WHOLE, CAN J=XPAND OUR ONEY SUPPLY SEVERAL EG·-BY MAKING LO E I HOPE:: THE=- PAYMENTS WON'T BE TOO WRENCHIN6. WHEN WE=ST,1D1:: l-E=ND5 JAKE THE= Pl-UMBER $850, THE FUNDS ARE PUT INTO A NEW OR EX/5TING CHECKING ACCOUNT FOR JAKE. JAKE WRITEG A CHECK FOR $0SO TO 5l.lCK U5ED TRLJCK CO., WHICH PUTS JAKE'S CHECK IN ITS CHECKING AC· t - - - - -... COUNT AT EA5T5IDE. BANK. EA5T51DE GAINS $850 IN DEPOSITS AND HOLD5 A RESERVE OF I50/o OR $127. 50, LEAVING $622.50 TO LENO TO HEJ..EN'S BEAUTY SPA. - - - THAT'S WHAT I NE=EDED·· // "PERMANENT" CAPITAL! https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis AS THE= PROCESS CONTINUES, WITH BORROWERS' FUNDS ENDING UP IN DIFFERENT BANK45, THE -ORIGINAL.. $1,000 DEPOSIT CAN EXPAND iO MORE iHAN $6,000, L-OAN5 TO BUS'INES5E5 HEl..P CREATE JOBS, $TOCK $HELVES, BUILD FACTORIES ;:\ND BUY NEW GQUI PMENT. ACE DEPARTMENT STORES vJli:.ED~ TRUCKING CO. LOANS TO INDIVIDUAL5 HELP THEM BUY WHAT THEY WANT. HOWEVER, MONEY CREATION MUST BE CONTROI..LED. IF TOO MUCH MONEY IS PUMPED INTO THE ECONOMY, WE GET INFLATION. WITHOUT ENOUGI-I MONEY, ECONOMIC ACTIVITY SL.OWS AND UNEMPLOYMENT RISES. I WONDER IF THEY NEED SOMEONE TO PAINT TH15 PUMP https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis THE PURCHASES MADE POSSIBLE BY LOANS HELP KEEP OUR ECONOMY ACTIVE. Fl=NCE=! MONEY SUPPLY BANK RESERVES ARE USED TO HELP CONTROL- THE GROWTH OF BANK CREDIT. WE=.'LL- LOOK MORE CLOSEL..Y AT HOW CREDIT 15 CONTROLLED LATER, BUT, FlR5T, LE=T'5 SEE HOW BANKING EVOLVED. BANKttJG BEGAtJ THOUSANDS OF YEAR5 AGO. THE A5SYRIAN5, BA8YLONIAN5 AND ANCIENT GREEKS ALL. PRACTICED 5IMPt.E FORMS OF BANKING--SAFEKEE:PING, E.XCHANGING FOREIGN C0IN5 AND MAKING l-OAN5--MAINLY /N CONNECTION WITH TRADE. ANCIENT ROME HAD TWO TYPES OF BANKERS --THOSE WHO MADE LOANS AND THOSE WHO EXCHANGED FOREIGN MONIES. ~ - - f/}_ - - -- - fee ~~<-✓-- •• · :..___, '-- - -- - - - ~ ; ~,,/ BRITISH BANKING BEGAN ALMOST BY ACCIDENT IN THE MIO-16OO'5 WHEN KING CHAR LEG I HELPED H/·M 5ELF TO TH~ MON~Y THAT MERCHANTS LEFT IN Hl5 PROTECTION IN THE TOWER OF LONDON. ·1 . .· I COUL.D USE THIS. li'5 JU5T • LYING AROUND =,~ ANYWAY/ /' ,, . II I, , BANKING GREW RAPIDLY IN THE MIDDLE:;. A6E5, WHEN TRADE BEGAN TO Ft.OURl5H. ONE OF THE Ot.DE5T BANKING 5Y5TEM5 WA$ IN lTALY WHERE BANKS WERE= ESTABL-15HED IN VENICE IN 1171, AND IN GENOA IN 1320. I • -,,.--,c--...t.1 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis ALTHOUGH THE: KING LATER RETURNED THE. MONEY, THE MERCHANTS DIDN'T TRU5T HIM AND HAD THEIR CLERKt; PROTECT THE:: MONl=Y. BUT, BOYS BROUGHT BUT THE Cl-ERK5 OFTEt-J STOLE OR SECRETLY BORROWED THE MERCHANTS" MONEY AND LENT IT TO GOL.DGMITH5. PSST. HAVE IT BACK BY FRIDAY A~D I'I.-L. ONLY CHARGE YOU 2o/o! BORROWING AND LENDING THl5 WAY WA5 50 PROFITABLE, THE= GOI-D5MITHS E:XPANDED, THEIR OPERATIONS BY 501.ICIT/NG MONEY FROM THE PUBt..lC. I'LL. HDL. ,. YOUR 5TA51-1 A THE GOL.D5MITH5 GAVE DEPOSITORS RECEIPTS FOR THEIR FUNDS. THESE RECEIPTS, WHICH COULD BE USED A5 MONEY, WERE: THE BEGINNING OF MODERt-J·DAY CHECK5. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis THE GOLD5MITH5 PAID A I.OW INTEREST RATf=. FOR THE BORROWED MONEY AND I.ENT /TAT A HIGHER RATE. DON'T FORGET-I'LL. NEE:D IT FRIDAY, AND IT'Li.. COST YA 4o/o! ES, WHY TAK NCE ON GETT! SINCE THE RECEIPTS WERE ACCE:PTED A5 MONEY, THE GOLDSMITHS 500N MADE 1.0ANS WITH RECEIPT5 INSTEAD OF 60l-D. ,HEY WERE "CREATING MONEY," A JOB WHICH MADE THEM BANKERS RATHER THAN 60LDSMITH5. HERE.'5 A RECEIPT FOR 20 GOLD PIECES TO TIDE YOU OYER, MOf:;. THANKEE:.. BANKING A~ Wf= KNOW IT TODAY STARTED IN ·AMERICA WHEN THf= BANK OF NORTH AMERICA WA5 FORMED IN PHILADELPHIA IN 1781 TO HEI-P FINANCE THE REVOLUTION. , Wf;. '--~--,.--------...,.- LETS NEED 6UN5, BUT WHERE - GTART A WILL WE GET BANK! POWDER AND ~~GONS! THE MONEY? FOR THE F/RST TIME, AMERICAN5 WITH IDLE FUNP5 DIDN'T HAVE TO MAKE LOANS DIRECTLY BUT COULD DEPOSIT THEIR FUNDS IN A BANK, WHICH LENT THEM OUT. GET UP--YOU'RE I ;:_- ~ --- - - RATS! r <"" - - OTHER BAt-lK5 GRADUALLY SPRANG UP AROUND THE COUNTRY: THI= BANK OF t-iew YORK WAS ONE OF THE FIRST, OPENING IN 1784 WITH A CHARTER DRAWN UP BY AI..EXANDER HAMILTON, HAMILiON BELIEVED AMERICP/S HOPE FOR THE FUTURE WAS INDUSTRIALrZATION, AND THAT THE COUNTRY NEEDED A STRONG BANKING 5Y5TEM· TO HELP BUILD INDUSTRIES. ~ - WE DE=PEND TOO MUCH ON FOR~/GN /MPORT5. WE OUGHT TO HAVE: OUR OWN FACTORIE5. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis cotJGRE55 APPROVl=D THE IDEA AND CHARTERED THE BANK OF THE UNITED STATES IN 1791, DE5PITE= STRONG OPPOSITION FROM THOSE WHO FEARED CENTRAI.-IZED POWER OVER MONE~ LET'S GIVE IT A CHANCE. ~ - - - t IF IT DOESN'T WORK AFTER TWENTY YEAR5, WE'LL SCRAP IT/ L--------~,--------------,,---------- THE: BANK 155UED A MUCH NEEDED PAPf:R CURRl=NCY A ND HELPED 5UPPLY THE CREDIT NEEDED BY BUSINESS AND THE GOVERNMENT, BUT CRITICS DEFEATED ATTEMPT5 TO RENEW CONGRE55 APPROVED A SECOND BANK OF THE. UNITED STATES IN 1816 BECAUSE OF ECONOMIC PROBI.-E:MS AFTER 'THE WAR OF 1812, BUT IT, TOO, LAPSED AFTER 20 YEAR5. IT5 CHA RTl=R, AND THE BANK CLOSED. L-I KE ALI- BANKS BACK THEN, THE TWO BANKS OF THE UNITED STATE5 ISSUED THEIR OWN PAPER CURRENCY AND EXCHANGED CURRENCY FOR 511..VER OR GOLD. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis WHEN CUSTOMERS DEPOSITED NOTES ISSUED BY STATE CHARTERED 0ANK5, THESE: NOTES WERE QUICKLY RETURNED TO THE /$UING BANK AND REDEEMED FOR PRECIOUS METAi-. EA5TERNER5 WERE. PLEASED WITH THl5 REDEMPTION POLICY BECAU5E IT HELPED LIMIT THE AMOUNT OF PAPER CURRENCY CIRCULATING AND AVOIDED , INFLATION. 'AMAZING ... """"""'_ __ ,___ _ $5 IN PAPER 5TILL BUYS $5 IN GOLD! WESTERNERS lt-J FRONTrER 5TATE5, SUCH A5 KENTUCKY At..lD TEtJt-JE5SE:E, FELT THAT STATE BANK NOTES WERE REDEEMED TOO QUICKLY, LEAVING TOO LITTL.E MONEY FOR THEIR EXPANDING E:CONOMY. --:.:=.:=.=-=-- - i PRE51Df:NT ANDREW JACK50N FORCED THE . CLO51NG OF THE SECOND BANK .OF THE:. U.5. IN 18~6. THf= NUMBER OF STATE BANK,;, AND THE AMOUNT OF NOTES THEY ISSUED, ex• PAtJDED STE=ADILY AFTER.WARD5. THESE BANKS Pl-AYED AN IMPORTANT ROLE IN AMERIC/)f5 RAPID GROWTH. 5TATE BANK WANS HELPED FINANCE TH~ PURCHA5E OF FARM LAND, 5EED5, T00L.5 AND LIVEGTOCK . JUST THINK, MARTHA, 50ME DAY THIS wu..L. A LL BE OLJR5. THEY ALSO HELPED BUILD FACTORIES 1 PRODUCING SUCH NEW TOOLS AS THEa COTTON ,,,.~ GIN, THE STEEL PLOW AND THS REAPER. ,,. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis BANK~ AL50 H.E:LPE=D FINANCE THE: RAILROADS AND STEAMBOAT$ THAT BROUGHT FARM PRODUCTS TO THI:= CITIEG A~D MANUFACTURED GOOOG TO THE FARMS. ~ .,,-.....,,,.-., ~✓~~ ' --~ ~ WHEN THE CIVIL WAR STARTED,. AMERICA DIDN'T HAVE A UNIFORM NATIONAi.. CURRENCY. • SEVERAL THOUSAND DIFFERENT NOTE:5 CIRCUt..ATE:D. THEY WE.RE DIFFERENT SIZES, COLORS ...,.._ _ _ _ _ _ ANO DESIGNS. - - - - - - - - i I'LL. GIVE - - - - - - - - 50RRY, YOU THREE PINK FIVE=5 I'VE ONLY GOT AND ONE YEIJ..OW FIVE: BL.UE TE=N5. FOR TWO GREE=N TEN5. TRUST WAS AL50 A PROBLEM FOR BANK5. T"4E.Y WANTED TO BE 5URE THEIR NOTES WERE= AC· CEPTED AT FACE VALUE, AND THAT ANY NOTES THEY ACCEPTED FROM OTHER BANKS WERE WORTH FACE VALUE. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis AROUI-JD THIS TIME=, THE= GOVERNMENT WA5 HAVING TROUBLE GETTING 1NVESTOR5-MAINLY BANK5--TO BUY BONDS BEING SOLD TO FINANCE THE= WAR. , - - - - - - - ~---t LEA5f:= BU IN 1863, THE TREA5URY SOLVED 60TH PROBLEMS WITH FEDERALLY CHARTERED NATIONAL BANKS THAT WOULD BE ALLOWED TO ISSUE THEIR OWN NOTE5 BASED ON THE= AMOUNT OF GOVERNMENT BONDS THE=Y HELD. TH.£:; NOTES WOULD ALL LOOK ALI KE, EXCEPT FOR THE NAME OF THE ISSUING BANK. AND SINCE THEY WERE BACKED BY GOVERNMENT BONDS, PEOPLE WOULD HAVE FAITH IN THEM. AT FIRST, 50ME 5TATE BANKS WERE INDIF FERENT TO THE IDEA, BUT SOME 5/GNED UP A5 NATIONAL BANK5 WHEN CONGRESS JNCREA51NGLY TAXED STATE:- NOTES. ALTHOUGH THE5E STATE BANK5 DIDN'T NOTES WERE TAXED OUT HAVE TO 155U£::.. OF CIRCULATION, MANY NOTES TO I-END BUT 5TATE BANK? FLOURISHED, COULD $IMPLY "CRE=ATE.'' LARGELY BECAU5E THE DEMAND DEP051T5 U5E OF CHECK~ THAT WERE R EDUCED THE ACCEPTABLE IMPORTANCE OF AS MON~Y. B ANK NOTE5. TAXES, TAXES! OKA~ I 1 1-I' GIGN UP/ WE'-1- AH'L.L. BE--NO'THERN MONEY I...OOK5 I Ii E:ED, UNDER TH/5 ''DUAL" SYSTEM OF BOTH ~TATE AND FEDERALLY CHARTERED BANK5, THE NUMBER OF STAT~ BANK~ CLIMBED. 15, 000 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 1890 1900 1910 1920 NATIONAL BANKS HE/...PED STRENGTHEN OUR BANKING GY5TEM AND CREATED A NATIONAL CURRENCY, BUT THERE WERE 5TILI- WEAKNE9.3EG. ONE PROBLEM WAS THAT SMALLER BANK5 AROUND THE COUNTRY 5ENT THEIR RESERVES TO MAJOR MONEY Cf=NTE=R BANKS, WHERE THEY WERE LENT TO BU5/NE65E5. THIS LED TO 50ME OF THE SMALLER BA.NK5 RUNNING OUT OF CA5H AND HAVING TO Cl05E THEIR DOORS. 50METIME5, WHEN THE: SMALLER BANK5 TRIED TO GET THEIR RESERVES BACK TO U$f= IN THEIR OWN AREA5, THEY FOLJND Tt4AT THe BIGGER BANK~ HAD LENT TH05E FUNDS AND THERE WOULD BE A DELAY. - - - - - - - 4 THE CLOSING OF ONE BANK 50MET/MES LED DEPOSITORS AT OTHER BANK5 TO DEMAND THEIR MONEY, FORCING YET ANOTHER CLOSING. SOON MANY BANKS Cf..05ED. WE WANT OUR MONEY! THE. WORST OF THESE ECONOMY-SHAKING ''BANK PANICS'' HAPPENED IN 1907, WHEN CURRENCY ALMOST COMPLETELY D/5APP~RED FROM CIRCULATION. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis CONGRESS, AFTER LONG STUDY AND DEBATE, ESTABI..ISHED THE FEDERAL. RESERVE 5Y5TEM IN 1913 TO DE=AL WITH THE CAU5E5 OF THE51:: PANICS. THE SYSTEM WAS TO INCLUDE 12 REGIONAL RESERVE BANK5 AND A BOARD OF GOVERNORS IN WA5HINGTON, D.C. STATE-CHARTERED BANKS, BECAU5E THEIR AUTHORITY CAME=. FROM THE STATES, WOULDN'T SE REQUIRED TO JOIN BUT ' COUL.D BECOME MEMBERS JF THf=.Y WERE QUAL.IFIED. ONGRE55 DECIDED THAT,51NCE NATIONAL ANKS WERE CHARTERED BY THE FEDERA EY WOULD HAVE:. STATE BANK ~~ RE~ERVf= BANKS WOULD HOL.D ME=MBER BANKS' RESERVES. ' • /===\ - MINNEAPOLIS DALLAS https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis .. .....• .••• •• ••• ■ THEY WOUL.D AL50 155UE A NEW CURRENCY-FEDERAL RESERVE BANK NOTES. THE FEDERAL RESERVE WOULD AL50 5LJPERVISE ITS MEMBER BANKS, ISSUE REGULATIONS AIMED AT PROMOTING SOUND BANKING PRAC· TICE5 AND MAKE LOAN5 TO BANK5 IN TEMPORARY NEED. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis THE NOTES 500N MADE UP THE BULK OF THE ~ATION'G PAPER CURRENC~ AND THE CURRENCY-15SUIN6 POWER OF PRIVATE. BANK5 WA5 ON ITS WAY OUT. AMER/CA WAS NOW ON ITS WAY TO A REASONABLY SOUND BANKING SYSTEM. 0UT ANOTHER HARDSHIP FOLLOWED. A5 THE EVER DEEPENING DEPRESSION THREATENED EVE=N SOUNDLY MANAGED BANK5, NEWLY f:LECTED PRESIDENT FRANKJ..l"1 D. ROO~EVEL.T, ltJ MARCH, 1933, CL05ED THE NATION'S 8ANK5 LlNTIL ORPER WAS RESTORED. COIJGRE55 MOVED QUICKLY TO FIND OUT WHAT THE PROBLf=MS WERE AND TO CORRECT THEM. A MAJOR. 5TEP WAS THE E5TABt..l5HMENT OF THE FEDERAI.DEP051T IN5URANCE: CORPORATION TO INSURE CUSTOMERS' DEP051T5, UP TO A CERTAIN AMOUNT, AND REPAY THEM IF A BA~K FAILED. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis 4 LA~~ MEMBER FDlC // ,/ // / i=REE "TOASTER WITH EVERY NEW ACCOUNT Al='TER WORl...0 WARJI,CONGRES~ 5PELI..ED OUT THE= NATION'5 ECONOMIC OBJECTIVES IN THE:. EMPLOYMENT ACT OF 194-6THES~ GOAL5 HAVE .EVOLVED INTO .•• .. . .. susTAINtNG BALANCa 1tJ \ OU~ TRAD£:. AND FINANCIAL. DEALING5 WITl-4 OTHE:12. NATION5. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis THE FEDERAL RE5ERVE DOES IT5 JOB BY EXPANDING OR CONTRACTING THE AMOUNT OF RE5ERVE5 BANKS HOLD. • HOWEVER, IF THE= RESERVE= REQUIREMENT /5 RAIGED TO 20o/o, THE= BAtJK MU5T HOLD $20 OUT OF EVERY $100 OF DEPOSITS. IT THE:N HA5 ONLY$80 OF LEtJDING POWER. RE5ERVE. BANK'S CAN AL50 CHARGE A HIGHER OR LOWER INTEREST RAW ON THE. TEMPORARV LOAN5 IT MAKES TO BANK-5. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SUPPLYING BANK~ WITH MORE RESERVES ALLOWS THEM TO MAKE= MORE t.OAN5. FEWER RESERVES MEAtJ5 LESS LENDING. FOR EXAMPLE, A BANK WITH A 10~ RESERVE. REQUIREMENT MU5T HOLD $10 OUT OF EVERY $100 OF DEPOSITS. IT HA5 $90 OF L.ENDING POWER. THE FEDERAL. RSERVE AL.SO BLJY5 AND SELLS U.S. GOVERNMENT ~ECURITIES. BUYING ADP5 TO RE!:>ERVES. 5E.L!.-I~ LOWERG REGERVEG. THEY CAN ,ALSO MAKE IT EITHER EASIER OR MORE DIFFICULT FOR BANKS TO GET LOANS. BAt-lKING TODAY IS VASTLY DIFFE=RENT THAN IT WA5 100 OR EVEN 50 YEARS AGO, WHEN BANKS SERVED ONLY THE 8USINE55MAN AND THE WEALTHY. TODAY, BANKS SERVE A WIDE RANGE OF PEOPI-E FROM ALL ECONOMIC I-EVEL5, AGES AND OCCUPATION5. MORE ELECTRONIC DEVICS ARE BEING U5ED 6ANK5 NO LONGER 5/T BACK AND WAIT FOfl.. : FUNDS TO COME IN. THEY ACTIVELY COMPETE' ~ • TO IMPROVE 5ERVICE5. 50Me. BANKS U5E FOR BU9/NE55 AND CON5UMER Ot=P05ITS BY COMPUTERS TO TRANSFER FUNDS IN5TAN· Of:::FERING HIGHER /NTE:RE5T RATES AND eerTAtJEOU5l-Y BETWEEN 5AVINGS AND CHECKING ACCOUNTS OF INDIVIDUALS AND BUSINESSES. GET 5% INTEREST /- ,JJ"'' -· . MAGAZINEG EVEN THE GRANTING OF CREDIT HAS CHANGED DRAMATICALI-Y. BANK CREDIT CARDS NOW GIVE IMMEDIATE CREDIT FOR AMOUNTS Tf.#AT A FEW YEARS AGO TOOK PAYS TO APPROVE. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis THE STRUCTURE OF BANK'5 AND THE WAY THE:;Y OPERATE HA5 AL50 CHANGED. ALTHOUGH THE. NUMBER OF BANKS HA5 FALLEN 5/NCf: 1934, THE ~UMBE:R OF BRANCHES HAS GROWN. 1934 1944 1954 1964 1974 1984 EACH STATE SETS ITS OWN RULES REGARDING BRANCHING WITHIN ITS BORDER5. 50ME ALLOW WIDESPRE:AD BRANCHING. OTHERS ALLOW A BANK ONLY ONE= OFFICE. FEDERAL LAW PRO. HIBITS BRANCHING ACR055 STATE 1-INE:5. AT THE= SAME TIME, LARGf: FOREIGN BANK5 HAVE OPENED U.S. 0FFICE5. u...iDER FEDERAL RESERVI= REGULATIONS, BANKS AND THEIR HOI..D/NG COMPANIES HAVE DIVERSIFIED INTO BUSINESSES REL-ATED TO BANKING; 5'UCH AS LEASING OR PROVIDING DATA PROCESS/NG 5ERVICE5. _ _ _ _ __.. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis SOME=. OF THE L.ARGER CITY BANK5 OPE:-NED OVER5EA5 BRANCHES A5 THE=IR CU5TOMERS BECAME MORE= ACTIVEI-Y INVOLVED IN INTERNATIONAL. TRADE. A FE:W BANK5 HAVE OFFICES AROUND THE GLOBE. E-"1!!!111- BANK/NG HA5 UNDERGONE VAGT CHANGES IN RECENT YEAR5 IN TERMS OF /T5 STRUCTURE, MARKETS, HARDWARE: AND -GERVICE5. HOWE:VER, DE5PITE:. THESE CHANGEG, AND THOSE THAT MIGHT COME IN THE FUTURE, BANK5 WILL. CONTINUE: THEIR FUNDAMENTAi.- ROLE A5 THE GOBETWEEN FOR 5AVER5 ANO BORROWERS, AND TH05E PAY/NG AND TH05E RECEIVING MONEY. https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis FEDERAL RESERVE BANK OF NEW YORK Public Information Department 33 Liberty Street• New York, N.Y. 10045 1979 https://fraser.stlouisfed.org Federal Reserve Bank of St. Louis