group6 classe20_1930's economic crisis in usa

7/31/2019 Group6 ClassE20_1930's economic crisis in USA

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AMERICAN STUDIES

Group 6: T Vn n

Phm Thu Trang

Phm Th Nhn

Topic:Throughout American history, economic crises have played critical roles in

reshaping the nations economic system. Choose either the Great Depression in the 1930s or

the ongoing economic downturn to prove this point.

Essay:

Throughout American history, economic crises have played critical roles in reshaping the

nations economic system. We see it clearly via the changes of banking system after Great

depression. Two most changes in USA banking systems is operating branch banking more

instead of weak unit banking and the development of banking insurance within each state.

At this time, the three most important regulatory policy responses to the Great Depression

(Regulation Q, the separation of investment banking from commercial banking, and the

creation of federal deposit insurance which was designed to perpetuate unit banking) were to

preserve and enhance two of the most disastrous policies that contributed to the severity and

depth of the Great Depression unit banking and the real bills doctrine.

Unit banking refers to a single bank which renders services and operates without any branches

anywhere. The unit banking was understood to be responsible for many problems that

contributed to the peculiar instability of U.S. banking. First, the unit banking brought the

barriers to entry prevented productive competition among banks. Unit banks could only face

competition from other unit banks, all of which faced high overhead costs that limited entry,

especially in rural areas; low-overhead branching by banks headquartered elsewhere was

prohibited. Second, unit banking produced lack of diversification of loan risk within banks, as

each banks portfolio risk reflected the operations of its local economy. In agricultural areas,


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that meant that the income of banks was closely related to changes in the prices and harvests of

one or two crops. Third, unit banking inhibited financial integration across regions, which

resulted in large differences in interest rates between the East and the West, and high seasonal

volatility in liquidity risk. Such bad effects of unit banking system, many states had relaxed

branching restrictions within their states in reaction to the banking distress of the 1920s. Fifteen

states changed their regulations between 1920 and 1939 to allow expanded branching (Branch

banking center or financial center refers to a single bank which operates through various

branches in a city or in different locations or out ofthe cities.).

When Franklin Delano Roosevelt (FDR) was inaugurated in March 1933, FDR's first act as

President was to declare a national "bank holiday" closing the banks for a three-day cooling

off period. America launched a vast economic stimulus program called the New Deal

containing Emergency Banking Act. To ensure an adequate supply of currency, the Act

provided for the issuance of Federal Reserve Notes, which were to be backed by U.S.

government securities. The Federal Reserve Banks were empowered to advance the new

currency to member banks without requiring much collateral. Besides, the new Federal Deposit

Insurance Corporation (FDIC) lured people back to banks. The creation of the FDIC as part of

the New Deal certainly contributed to the recovery. These principles included financing the

federal deposit insurance fund through assessments; the use of rigorous bank examination and

supervision to limit the exposure of the fund; and other elements, such as standards for failed-

bank payoffs and liquidations, intended to minimize the economic disruptions caused by bank

failures.

Great Depression had big influences on US banking system. From that time, US banking

system have focused on developing both unit banking and branch banking. Besides, the

Government concerned more about the insurance for banking system to ensure it operates well.

References:


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1. http://www.diffen.com/difference/Branch_Banking_vs_Unit_Banking

2. https://www.google.com.vn/search?sourceid=chrome&ie=UTF-

8&q=banking+system+befroe+and+after+depression+U%CC%81

3. Political lessons of Depression Era banking reform. Retrieved from

http://www0.gsb.columbia.edu/faculty/ccalomiris/papers/CalomirisGreatDepressionBankRegul

atoryReform2010.pdf

4. Federal Deposit Insurance Corporation (FDIC) (1998), A brief history of deposit insurance

in the US. Retrieved from http://www.fdic.gov/bank/historical/brief/brhist.pdf
http://www.diffen.com/difference/Branch_Banking_vs_Unit_Bankinghttps://www.google.com.vn/search?sourceid=chrome&ie=UTF-8&q=banking+system+befroe+and+after+depression+U%CC%81https://www.google.com.vn/search?sourceid=chrome&ie=UTF-8&q=banking+system+befroe+and+after+depression+U%CC%81http://www0.gsb.columbia.edu/faculty/ccalomiris/papers/CalomirisGreatDepressionBankRegulatoryReform2010.pdfhttp://www0.gsb.columbia.edu/faculty/ccalomiris/papers/CalomirisGreatDepressionBankRegulatoryReform2010.pdfhttp://www.fdic.gov/bank/historical/brief/brhist.pdfhttp://www.fdic.gov/bank/historical/brief/brhist.pdfhttp://www.fdic.gov/bank/historical/brief/brhist.pdfhttp://www.diffen.com/difference/Branch_Banking_vs_Unit_Bankinghttps://www.google.com.vn/search?sourceid=chrome&ie=UTF-8&q=banking+system+befroe+and+after+depression+U%CC%81https://www.google.com.vn/search?sourceid=chrome&ie=UTF-8&q=banking+system+befroe+and+after+depression+U%CC%81http://www0.gsb.columbia.edu/faculty/ccalomiris/papers/CalomirisGreatDepressionBankRegulatoryReform2010.pdfhttp://www0.gsb.columbia.edu/faculty/ccalomiris/papers/CalomirisGreatDepressionBankRegulatoryReform2010.pdfhttp://www.fdic.gov/bank/historical/brief/brhist.pdfhttp://www.fdic.gov/bank/historical/brief/brhist.pdfhttp://www.fdic.gov/bank/historical/brief/brhist.pdf

group6 classe20_1930's economic crisis in usa

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