Historical Evolution of Financial systems

Which historical events show that financial intermediaries

4
were not developed in the US?
Emergence of 2 systems
(1719-1720)
The US
Civil War
 Began in 1861 and ended in 1865

 The National Bank Acts of 1863 and 1864 set up a

national banking system 
      => Excessive centralization: limited power of
banks. Banks were prohibited from holding equity or
paying interest on demand deposits

 New York’s financial market was developed

=> Capital markets were more important than banks.

 Historical Evolution of Financial systems

Which historical events show that financial intermediaries

were not developed in the US?

World
War I
 Lasted from 28 July 1914 to 11 November 1918

 Before the war, the center of the world capital

market was London, and the Bank of England was the
world’s most important financial institution

 After the war, leadership shifted to New York and the

role of the Federal Reserve was enhanced

=> The strength of the role of the USA’s financial markets

are more than financial intermediaries. 
 Historical Evolution of Financial systems

Which historical events show that financial intermediaries

were not developed in the US?
Banking
panics
 The nationwide U.S. Panics of 1873, 1884, 1893, 1907 led to the
establishment of the Federal Reserve System in 1913

  In 1933 another major banking panic led to the closing of banks
for an extended period 

 The Glass- Steagall Act of 1933 introduced deposit, required the

separation of commercial and investment banking operations,
prohibited universal banking and prevented banks from
underwriting securities.

=> The US banking system was highly fragmented, without a

nationwide  system with extensive branch networks. 
 Historical Evolution of Financial systems

Which historical events show that financial intermediaries

were not developed in the US?
The great
crash of
1929
 The Great Crash of the stock market

 Devastate the U.S. economy with a third of all banks failed

 The Securities Exchange Act of 1934 created the SEC -> gave the
SEC extensive power to regulate the securities industry,
including the New York Stock Exchange.

=> The US banking system was highly fragmented, without rules

for money management and risk management