The American Banking System

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The current banking system in the United States is one of thousands of local banks, all of which are connected to state or federal banks. The national banking system is the product of a 20th Century law called the Federal Reserve Act. Signed into law in 1913, the act set up the Federal Reserve system, which consists of one primary governing body, the Federal Reserve Board, and 12 regional Federal Reserve Banks. A regional bank can be found in Atlanta, Boston, Chicago, Cleveland, Dallas, Kansas City, Minneapolis, New York, Philadelphia, Richmond, St. Louis, and San Francisco.

Local banks are required to be members of the federal system in some way. The most common way is to join the Federal Deposit Insurance Commission (FDIC), which, among other things, guarantees banks money in times of bank panics.

This was not always the case. The idea of a central bank for the new United States was considered a good idea by many of the important Americans in colonial days, so much so that the Articles of Confederation created a Bank of North America, which became the First Bank of the United States. Struggles over federal supremacy in economic matters resulted in the closing of the First Bank of the United States, the creation of the Second Bank of the United States, and the closing of that bank, all within a 40-year period.

Calls for a national bank resumed after the Civil War, and Industrial Revolution made necessary some sort of national financial system. The result was the Federal Reserve System.

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David White