Free Essay Example: Banking in the Early Development of United States

Published: 2022-11-04
Free Essay Example: Banking in the Early Development of United States
Type of paper:  Essay
Categories:  United States Banking American history
Pages: 6
Wordcount: 1573 words
14 min read

For many years, banking has experienced several changes. Today, banks provide a wide range of services and products that they did before and deliver them in a more efficient and faster way. However, the function of the bank has remained as a central function as it has for many years been. The banks put the society's surplus funds to work through lending to individuals who start investing in using the money. Therefore, the banks are considered as been significant to the economy of the country. For most of the citizens in the United States, they consider banks as their first choice for borrowing, investing and saving. This paper will discuss banking in the early development of the United States by explaining how banking has shaped the United States after it gained independence.

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Historical Context

From the starting of the 1990s up to middle of 2007, the changes in the United States banking industry was mainly driven by the integration of two forces of technological and deregulation change. Deregulation primarily aimed at minimizing the barriers to the competition found in tradition and the non-banking product areas and geographically. Similarly, legislative developments that were realized in the United States that replaced the long-standing laws which separated the commercial from the investment banking, the single market program legislated for having the possibility of a universal banking system and one license for banking in 1992. Up to until in 2007, the consensus was perceived to be that of the banking systems that are high-performing that were mainly supported by having excess capital and the capabilities of managing risks (Bodenhorn, 2002). However, in the last few years, the turmoil in the worldwide financial systems got impacted extremely on what at a given time was perceived as being profitable, dynamic, highly innovative, and fast-growing banking sector. While the major banks have experienced significant losses, several of the largest organizations facilitating banking services have faced additional capital which has been bailed out by the national government. The bank of the United States was the central bank which was founded in 1971 as a result of the initiative provided by the first treasury secretary of the country. The congress of the Bank of the United States expired during 1811. Under these days

In most of the states in the United States, the bank organizers required to, first of all, to obtain special permission from the government to open and start operating. For a while, there was an extra oversight layer that was offered by the bank through the city bankers had the tendency of being extremely cautious concerning to whom they lend and for how long they used to give. In efforts to ensure that they had adequate cash that was available to cater for the unexpected demands from the depositors, the bankers generally were made to apply for only the short-term loans (Frieden, 2015). The short-term investments followed a duration norm of 30-60 days. The typical shopkeepers and manufacturers would make use off of the funds to pay the workers and suppliers until they could sell their goods to the customers. After making the sales, they would later pay off the loan that they owed the bank. In the less settled regions of the country, the lending standards frequently tended to be more liberal (Gelos, 2009).

At the time when the second United States' bank went out of the business during 1832, the state governments mainly took over the role of supervising jobs. The kind of supervision that was done often proved that it was inadequate. During those days, the banks made the loans by providing their single currency (Miller-Adams, 2002). The notes of the banks were supposed to be on demand, be convertible, and to cash to silver or gold. The job of the bank examiners had the role of visiting the bank and certifies that the bank had sufficient cash on the hand which the bank would then use to redeem all its outstanding currency (Olivero, Li, & Jeon, 2011). As a result of not always following this procedure, several holders of the bank currency used to find themselves stuck with holding worthless papers. This was at times challenging or even impossible to detect the kind of notes which were sound due to the ban staggering variety. By 1860, there were more than 1000 distinct notes which were confirmed to have already started circulating throughout the nation. As a result, the business was the one that suffered most.

Moreover, there was the rise of the issue of counterfeiting which made many banks that had been established to fail. Throughout the nation, there was recorded to the increase of persistent demand that was meant for a uniform of a national currency which was acceptable in any given place without holding much risk. N the last quarter of the century from the 1970s, banking in the United States has undergone several stages of the revolution. Technology transformation has been experienced which provide an easy way through which the American citizens can acquire financial services. Credit and debit cards, telephone banking and the use of automated teller machines are standard. Additionally, the techniques used to provide for bank examination have also changed.

Literature Review

It is challenging to consider living in a world that is with no banks because banking is much ingrained into the social fabric. There would be several aspects in people's lives which would not exist or would become much different when there would be no banking. In the modern sense, there is no something that has no intrinsic worth which appears to be operating as a store of value as money does (Fitch, Kellner, Simonson, & Weberman, 2000). The paper money exists today because there is an institution which honors the money and controls its supply (Bodenhorn, 2000). The earliest type of paper money which existed was the bills of exchange which were mainly circulated by the gold merchants. Individuals began settling of their debts through using these and from there, the idea of money supported by gold started to emerge.

In a situation whereby the world that people are living would lack the banking services in the United States, saving would become comparatively challenging (Vives, 2001). Individuals could accumulate a lot of, but there would be an increase in personal risk because there would be no given place that individuals would securely store their wealth. As a result, there would be an increased tendency for the wealth to become stored in the form of a few assets that are believed to be safe such as land. However, by saving of the wealth into safe assets such as land, it poses a threat as these assets are not easily divided as the wealth will be required to be traded by distributing the wealth into small portions (Caprio & Klingebiel, 2002).

Given that banking systems would not exist in the United States, most likely, the credit services would not be available to all people in any of the organized formal way. The individuals would not have the opportunity of borrowing as much as they require from the wealthy individuals and companies. When wealthy individuals or companies decide to offer credit to people who are in need, they will subject the borrowers to high-interest rates, and it would be strictly restricted and not available to all people. These aspects of the non-banked based society would not contribute to preventing of the commercial operation taking place, but it will be a stage that all the developing economies that would be subjected to.


The method that can be used to provide a quantitative analysis of the banking sector in the United States is a meta-regression model. The meta-regression method helps in focusing on estimating the policy-relevant parameters, qualifying the potential biases, and testing of various economic theory (Stanley & Doucouliagos, 2012). In the context of the development of the banking system of United States, the meta-regression analysis will be valuable in examining of the impact caused by the moderator variables that can be used to study the effect size through the use of regression-based approaches. The goal of the meta-regression approach is illustrating the variation behind the efficiency of the banking system.

American Banking Sector's Aveff

Aveff is used to represent the average of the banking efficiency in a time horizon. The aveff distribution in the graph depicts that the average estimate attains most scores of 0.8-0.9. This implies that commercial banks are usually distinctive from the average bank regarding cost management.


Bodenhorn, H. (2000). A history of banking in Antebellum America: financial markets and economic development in an Era of Nation-Building. Cambridge University Press.

Bodenhorn, H. (2002). State banking in early America: A new economic history. Oxford University Press.

Caprio, G., & Klingebiel, D. (2002). Episodes of systemic and borderline banking crises. Managing the real and fiscal effects of banking crises, World Bank Discussion Paper, 428, 31-49.

Fitch, T. P., Kellner, I., Simonson, D. G., & Weberman, B. (2000). Dictionary of banking terms.

Frieden, J. (2015). Banking on the world: the politics of American international finance. Routledge.

Gelos, R. G. (2009). Banking spreads in Latin America. Economic Inquiry, 47(4), 796-814.

Miller-Adams, M. (2002). The World Bank: new agendas in a changing world. Routledge.

Olivero, M. P., Li, Y., & Jeon, B. N. (2011). Consolidation in banking and the lending channel of monetary transmission: Evidence from Asia and Latin America. Journal of International Money and Finance, 30(6), 1034-1054.

Stanley, T. D., & Doucouliagos, H. (2012). Meta-regression analysis in economics and business. Routledge.

Vives, X. (2001). Competition in the changing world of banking. Oxford review of economic policy, 17(4), 535-547.

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