Banking History

The earliest forms of banking came into existence when merchants became money lenders to farmers and traders. In Assyria, India, and Sumeria as
early as 2000 BC. Later, money lenders lent money to Grecian and Roman Temples. They also accepted deposits and changed money from the traders. Even China was involved in money lending.

Banking really began to grow during the Renaissance period in Italy and the affluent cities of Florence, Venice, and Genoa.

Our banking history began early since our country’s inception. During the Revolution, it became apparent very quickly, that our resources were thinly stretched. Money was coming from private sources and needed to be centralized to aid in the costs.

The Bank of Pennsylvania was chartered in 1780 by merchants to aid in the financing of the Continental Army during the War. This was an underfunded attempt to aid in the war efforts, but the charter for it was not renewed.

First Official Bank to Centralize Funds for the War

The first bank set up in the US was the Bank of North America. In 1781, the Congress of the Confederation (Prior to the ratification of the Constitution) passed an act to set up this bank as its first central bank.

Robert Morris,  the first Superintendent of Finance appointed under the Articles of Confederation, proposed the Bank of North America as a commercial bank that would act as the sole fiscal and monetary agent for the government.  He has accordingly been called “the father of the system of credit, and paper circulation, in the United States.”It was then succeeded by the First Bank of the United States. in 1791.

After the war, a number of state banks were chartered.  In the last decade of the eighteenth century the United States had just three banks but many different currencies in circulation: English, Spanish, French, Portuguese coinage, scrip issued by states, and localities. The values of these currencies were approximated and fluctuations in exchange rates were published.

After many ups and downs in the economy, another central bank was established in 1816. By 1815, the United States found itself heavily in debt, much like it had been at the end of the Revolutionary War thirty years earlier.  After much debate and a couple of additional attempts, Madison finally signed in April 1816 an act establishing the second Bank of the United States.

Bank Structure and Operations

The Bank opened for business in Philadelphia in January 1817. It had much in common with its forerunner, including its functions and structure. It would act as fiscal agent for the federal government — holding its deposits, making its payments, and helping it issue debt to the public — and it would issue and redeem banknotes and keep state banks’ issuance of notes in check.

National Banks

The creation of national banks had to be chartered and established. By Definition, National banks, in the United States, were any commercial bank chartered and supervised by the federal government and operated by private individuals. The National Bank Act of 1863 provided for the federal charter and supervision of a system of banks known as national banks; they were to circulate a stable, uniform national currency secured by federal bonds deposited by each bank with the comptroller of the currency (often called the national banking administrator). The act regulated the minimum capital requirements of national banks, the kinds of loans they could make, and the reserves that were to be held against notes and deposits; it also provided for the supervision and examination of banks and for the protection of note-holders. The 1863 act did not prohibit state banks from issuing their own currency, but Congress did impose a 10 percent tax on state banknotes that effectively eliminated such a rival currency.

Plans for a new Federal System

In November 1910, six men  – Nelson Aldrich, A.Piatt Andrew, Henry Davison, Arthur Shelton, Frank Vanderlip, and Paul Warburg — met at the Jekyll Island Club, off the coast of Georgia, to write a plan to reform the nation’s banking system. The meeting and its purpose were closely guarded secrets, and participants did not admit that the meeting occurred until the 1930s. But the plan written on Jekyll Island laid a foundation for what would eventually be the Federal Reserve System.

Many different banks were chartered between then and the great depression. When the depression struck, banking became a major problem because everyone lost faith in their local banks and ran over to get their money out. This run on the banks and other issues caused the banking industry to fail. The presidential intervention was needed and bold steps were taken to plug the hemorrhaging that was taking place.

Emergency Banking Act of 1933

Signed by President Franklin D. Roosevelt on March 9, 1933, the legislation was aimed at restoring public confidence in the nation’s financial system after a weeklong bank holiday.


“The emergency banking legislation passed by the Congress today is a most constructive step toward the solution of the financial and banking difficulties which have confronted the country. The extraordinary rapidity with which this legislation was enacted by the Congress heartens and encourages the country.”

A statement by during one of President Fireside Chats – Secretary of the Treasury William Woodin, March 9, 1933

“I can assure you that it is safer to keep your money in a reopened bank than under the mattress.”

Immediately after his inauguration in March 1933, President Franklin Roosevelt set out to rebuild confidence in the nation’s banking system. At the time, the Great Depression was crippling the US economy. Many people were withdrawing their money from banks and keeping it at home. In response, the new president called a special session of Congress the day after the inauguration and declared a four-day banking holiday that shut down the banking system, including the Federal Reserve. This action was followed a few days later by the passage of the Emergency Banking Act, which was intended to restore Americans’ confidence in banks when they reopened.

The legislation, which provided for the reopening of the banks as soon as examiners found them to be financially secure, was prepared by Treasury staff during Herbert Hoover’s administration and was introduced on March 9, 1933. It passed later that evening amid a chaotic scene on the floor of Congress. In fact, many in Congress did not even have an opportunity to read the legislation before a vote was called for.


Roosevelt used Fireside Chats to Reassure Public

In his first Fireside Chat on March 12, 1933, Roosevelt explained the Emergency Banking Act as legislation that was “promptly and patriotically passed by the Congress … [that] gave authority to develop a program of rehabilitation of our banking facilities. … The new law allows the twelve Federal Reserve Banks to issue additional currency on good assets and thus the banks that reopen will be able to meet every legitimate call. The new currency is being sent out by the Bureau of Engraving and Printing to every part of the country.”

The Act, which also broadened the powers of the president during a banking crisis, was divided into five sections: 

  • Title I expanded presidential authority during a banking crisis, including retroactive approval of the banking holiday and regulation of all banking functions, including “any transactions in foreign exchange, transfers of credit between or payments by banking institutions as defined by the President, and export, hoarding, melting, or earmarking of gold or silver coin.”
  • Title II gave the comptroller of the currency the power to restrict the operations of a bank with impaired assets and to appoint a conservator, who “shall take possession of the books, records, and assets of every description of such bank, and take such action as may be necessary to conserve the assets of such bank pending further disposition of its business.”
  • Title III allowed the secretary of the treasury to determine whether a bank needed additional funds to operate and “with the approval of the President request the Reconstruction Finance Corporation to subscribe to the preferred stock in such association, State bank or trust company, or to make loans secured by such stock as collateral.”
  • Title IV gave the Federal Reserve the flexibility to issue emergency currency—Federal Reserve Bank Notes—backed by any assets of a commercial bank.
  • Title V made the act effective.

In light of the banking crisis of March 12, 1933, President Roosevelt created the Federal Deposit Insurance Corporation under the Banking Act of 1933. The government hoped this agency would quell Americans’ worries over the stability of the banking organization and the money supply in the face of nationwide bank failures. The FDIC’s solution was to develop insurance coverage for banking deposits, guaranteeing citizens financial stability. The agency has since expanded to regulate various other banking practices as well.

From 1933, all members of the Federal Reserve System were required to insure their deposits, while nonmember banks—about half the United States total—were allowed to do so if they met FDIC standards. Almost all incorporated commercial banks in the United States participate in the plan. The FDIC is managed by a board of five directors who are appointed by the U.S. president; the five board positions are chairman, vice chairman, director, comptroller of the currency, and director of the Office of Thrift Supervision.* Courtesy of Britannica online services

Now, let us move to a more modern time period. With the introduction of the internet, interesting ways to communicate with one another and with various institutions became available.

In 1980, a bank in Knoxville, TN became the first bank to offer online transactions. Although the consumers had to pay a monthly fee for the convenience, it seemed to go well. The following year, larger banks tried to duplicate the processes using a different platform but failed to intrigue customers due to the platform’s inconsistent behavior.

Websites popped up and soon our banking institutions were marketing their services online. In 1995, banks started to place their banking services directly on their websites. This new feature caught on with customers and also allowed banks to offer the services in bundled packages at reduced rates. 

By the year 2000, almost 80% of all American Banks offered online services. People were becoming more comfortable with the convenience of bill pay and transferring of funds without ever leaving their home. Many customers were using this service and those customers actually brought in more money to the banks than the non-online customers.

Enter the newest convention – WiFi phones. As the wifi became more available and secure, banks started to look to add services that could be carried to the customers’ phones. In late 2006 and during 2007, mobile banking started its infancy. This required a few more steps as applications needed to be designed to fit the type of phone a customer-owned. Androids and iPhones were the predominant ones to launch platforms that would accept specific types of services. 

Now we can do our banking on our computers, on our phones, and in person. Many banks have closed branches to save money;  because their customer base uses these alternate services, they feel they can still service the customer as fully as if they came into the bank. Direct deposits from employers and governmental facilities plus wifi banking have made the need for brick and mortar banks almost negligible. 

Enter, mobile payment systems. This is one more way we can pay and purchase goods and services on a mobile device without using credit cards, cash, or checks. This requires the use of an e-wallet, which is used, amongst other things, in cryptocurrency purchases and exchange.



We want to thank Britannica Encyclopedia online services, Wikimedia and the Federal Reserve for all the information contained within this article.