Commercial Banks and Underwriting Securities

Historically, banks in the US were relatively unregulated and control was exercised mainly by the states (Trescott, 1963). In contrast, in Europe and other developed lands, banking has been relatively centralized and controlled by the national government and/or was not a stable business, making big profits in boom times through speculation in land and industry, but often going bankrupt in recessions when "financial panics" force the calling in of loans because uneasy depositors wanted or needed to convert their savings into cash. The result invariably was a large contraction of the US money supply in the aggregate, which exacerbated any economic recession. Rural, small institutions, called "wildcat banks," were particularly subject to such "runs" by depositors, which often led to insolvency by such banks. Indeed, such financial panics occurred in the US in the 1830s, 1850s, 1870s, 1890s, and 1907, the latter leading to the creation of the Federal Reserve. While this was not the first attempt at federal regulation of banking in the US, it has been the most lasting and significant.

In the 1800s, banks could be involved in investments and loans for land, business, and similar ventures (Trescott, 1963). It was largely up to the individual states, and the result was the instability and cyclicality of the industry. Yet banks are a unique institution, affecting the nation's currency, which eventuall

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lacks experience in the field, which too has contributed to the spate of failures. Outright fraud has also played a role, with dealmakers an con artists getting into the fray with speculative investments in real estate, foreign currencies, and junk bonds, sometimes resulting in Ponzi/pyramid schemes. In retrospect, the banking industry's problem in the past ten to fifteen years, can be traced back to the 1970s. During that time, banks over-lent to less developed countries after the OPEC (Organization of Petroleum Exporting Countries) oil price hikes (Mayer, 1974). Many such loans were never repaid, resulting in huge losses for the lenders. In addition, banks in the Midwest experienced losses and failures because many farmers to whom they lent overborrowed for land and equipment. With the subsequent overproduction, agricultural prices plummeted, pushing farmers into bankruptcy. Also, loans to oil producers in the "oil patch" of Texas, Oklahoma, and Louisiana turned sour in significant numbers as prices plunged, creating a regional recession that impacted real estate and savings and loans negatively. The problem for the savings and loans had its roots in granting long-term mortgages with short-term deposit funds. Tied to rel
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Some common words found in the essay are:
Glass-Steagall Act, Lincoln Savings, Reform Proposals, Insurance Corporation, Introduction Historically, Federal Reserve, Oklahoma Louisiana, Britain Sweden, Congress President, Latin American, commercial banks, savings loans, deposit insurance, savings loan, banks savings loans, banks savings, federal government, real estate, financial services, trescott 1963, mayer 1974, reserve bank st, bank st louis, federal reserve bank, and/or securities underwriting,
Approximate Word count = 2998
Approximate Pages = 12 (250 words per page)

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