The banking sector that is perceived to be the earliest in American history is commercial bank. Based on the customs, the US commercial banks were business entities with a purpose of making profits. It was the responsibility of the state legislature to grant corporate charters to numerous commercial banks. By 1800, there was increase in the assets that commercial banks owned.
In this regard, the state embraced commercial banks because they served as agents of economic development. Furthermore, these banks motivated citizens to save as a way to become wealth in society. Normally, commercial banks take funds from their clients to enhance riches. These funds are later used as capital to assist the customers in future. The purpose of this research is to depict the growth of commercial banks in America. It reveals how the banking system operates via regulations and use of money (Muraleedharan 60-61).
In 19th century, commercial banks in America had assets such as real estate and funds for public securities. In addition, the bank owned government bonds and business equities. In that period, the bank granted its clients with discount loans. Clearly, the banks were careful in handling their balance sheets to avoid a situation that would subject them to bankruptcy. At this stage, the bank felt that there was increase in number of clients who needed funds. Furthermore, the federal government regulated operations at the commercial banks.
This move was significant to ensure that the banks were safe from geographical, product and price competitions. The duty of commercial banks is to aid clients to keep their surplus earnings. However, time deposits subjected consumers to incur high rates of interest. According to the law, commercial banks should set aside funds in the Federal Reserve. The state agencies are also in charge of auditing financial performance in commercial banks.
“How should Central Banks Think about the Financial System?” The Economist (Online) Jan 29 2013ProQuest. Web. 2 May 2013.
Muraleedharan, D. Modern Banking: Theory and Practice. , 60-61, 2009. Print.
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