Question

under the national banking acts of 1863 and 1864, the U.S monetary system

Answer 1

Notwithstanding these private and state-sponsored reform efforts, the state banking system often showed the previously mentioned undesirable assets. The 1863 and 1864 National Banking Acts were efforts to claim some degree of federal control over the banking system without another central bank being established. The Act had three main purposes: (1) establishing a network of national banks; (2) creating a standardized national currency; and (3) creating an effective secondary market for Treasury securities to help finance the Civil War (on the side of the Union).

The Acts ' first clause was to require national banks to be incorporated. Such banks are exactly the same as state banks, except that the federal government and not a state government obtained their license from national banks. This arrangement gave regulatory jurisdiction over the national banks it created to the federal government, whereas it did not assert control over state-chartered banks. National banks had higher requirements for capital and higher requirements for reserves than their counterparts. In order to improve liquidity and security, they were restricted from making real estate loans and could not lend a sum exceeding 10% of the bank's capital to any single person

National Banking Acts ' second objective was to create a uniform national currency. Rather than having several hundred or several thousand types of currency circulating in the states, if a standardized currency existed, performing transactions could be greatly simplified. All national banks were required to accept the banknotes of other national banks in order to achieve this. This meant that national banknotes would not be affected by the same discounting problem that plagued state banknotes.

While the tax ultimately ended the circulation of state banknotes, it did not completely destroy state banking as state banks continued using banknote checking accounts as a substitute. Checking accounts became so widespread that by 1890, the Currency Controller reported that in the form of currency only ten percent of the nation's money supply. Combined with lower requirements for capital and reserve, as well as the ease with which states issued bank charters, by the late 1880s state banks again became the dominant banking structure. As a result, the changes in protection provided by the national banking system were somewhat mitigated by the introduction of state banking.