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Banking
Temple University School of Law
Harvey, Hosea H.

Regulation of Bank Financial Service Activities Outline
 
I.     Chapter One – The History of Banking Regulation in America
a.       The Role of Banks in Early America
                                                              i.      Medium of Payment
1.      Intro
a.       The traditional role of banks is to facilitate the transfer of money, lend money, and help implement monetary policy
b.       Legal tender is particular form of money or currency that a government had decreed must be accepted in payment of government of private debt
2.      Mixed Money in Ireland
a.       Case
                                                                                                                                      i.      Her majesty declared a particular money legal tender and if anyone should not accept the money they should be punished by the government
                                                                                                                                    ii.      The government is going to melt gold coin into gold bullion and they have the exclusive right to mint new coin
b.      Take away
                                                                                                                                      i.      Governments establish legal tender and minting ability
                                                                                                                                    ii.      America followed with Article I, Section 10 of the Constitution
1.      no State shall “coin money, emit bills of credit; or make anything but gold or silver tender in payment of debts”
3.      Craig v. Missouri
a.       Issue: Is the act of the legislature of Missouri repugnant to the Constitution?
                                                                                                                                      i.      Article 1 Section 10 Clause 1
1.      No state shall … coin money emit bills of Credit
                                                                                                                                    ii.      Missouri attempted to issue certificates to pay debt
b.      Court
                                                                                                                                      i.      No state shall emit bills of credit
                                                                                                                                    ii.      If that means anything then it must comprehend the emission of any paper medium, by state government for the purpose of circulation
c.       Take away
                                                                                                                                      i.      Fed wins, before this case states regularly created bills of credit
                                                            ii.      Lending Money
1.      Began in ancient times and goldsmith notes laid the foundations for modern banking lending practices
b.      The Creation of Banks in Early America
                                                              i.      Intro
1.      The Constitution precluded the use of state bills of credit, but there was no federal currency
2.      Banks had to create the supply of money for commerce in the US
                                                            ii.      The Bank of the United States and Early Charter Banks
1.      Hamilton was leading advocate of the “Bank of the United States”
a.       Congress authorized in 1791
b.      Congress refused to renew charter in 1811 due to conflicts with state banks
c.       State bank notes varied and created instability in the currency
                                                                                                                                      i.      Bank notes which were suppose to be equal value were not depending on the other banks evaluation of that bill. For example, a Philadelphia note was worth less in Baltimore and even less in DC
                                                          iii.      The Second Bank of the United States
1.      Intro
a.       The War of 1812 created runs on banks and many had to suspend payments
b.      This lead to the Second Bank of the United States (1816 – 1836)
2.      M'Culloch v. Maryland
a.       States attempted to enact taxes on the federal banks
b.      Court
                                                                                                                                      i.      First issue: The Federal government has the power to charter Bank of the United States
                                                                                                                                    ii.      Second issue: The states may not tax the Bank of the United States
1.      The power to tax is the power to destroy
                                                          iv.      The Fight Over the Second Bus
1.      Because of political and state bank opposition, the second Bank of the United States met the same fate as its predecessor, and its charter was not renewed in 1836 by Andrew Jackson's veto
2.      Regulation during this period
a.       Some States began by having a charter, supervisory authority, reserve requirements
c.       The Civil War Era
                                                              i.      Bank Currency
1.      Not uniform and fluctuating value from thousands of banks  
2.      Marine Bank v. Fulton Bank
a.       Facts
                                                                                                                                      i.      NY bank requested collection on two notes from IL bank
                                                                                                                                    ii.      IL bank refused because the NY bank would not accept IL currency which was 50% below par value
b.      Court
                                                                                                                                      i.      Decides as a matter of equity because IL bank can game the depositor with the currency with less value
                                                                                                                                    ii.      The NY bank is owed the sum collected rather then the now depreciated IL notes
                                                            ii.      Shinplasters and the Stamp Payments Act
1.      Intro
a.       Some small banks issued small bank notes without the proper backing and the Treasury refused to accept the “shinplasters” under $5
b.      Congress then prohibited “shinplasters” in the Stamp Payment Act in 1862
c.       This caused problems because there wasn’t a alternative currency around to pay smaller debt
2.      United States v. Van Auken
a.       With the Stamp Payment Act passed, a corporation created a note that was one payable by goods only, not money
b.      The Court found that the note did not violate the Stamp Payement Act because the Act only limited to control notes as money and this note was payable in goods only
                                                          iii.      Greenback as Legal Tender
1.      Intro
a.       In 1862, Congress created the “greenback” notes and they were made legal tender, one reason was to finance the Civil War
                                                                                                                                      i.      People would not accept greenbacks because they were inflated, the vale fluctuated, and people would not accept them
b.      The legality of this form of legal tender was challenged in the Legal Tender Cases in front of the Supreme Court
2.      Hepburn v. Griswold
a.       Found that the legal tender requirement was unconstitutional
3.      Legal Tender Cases Knox v. Lee and Parker v. Davis
a.       Issue
                                                                                                                                      i.      Are the acts of Congress making greenbacks legal tender constitutional?
b.      Court
                                                                                                                                      i.      Hold that the Acts of Congress are constitutional
1.      The argument against legal tender cite that the Consttution refers to “coining money, regulate the value thereof, and of foreign coin” and that “coin” has never meant paper money
2.      The Court effective rules that “coin” means coins and paper
                                                                                                                                    ii.      The Hepburn v. Griswold case is overruled
                                                          iv.      The National Bank Act
1.      Intro
a.       The National Currency Act created a system of national banks with federal charter to provide a uniform circulating currency and financial stability
b.      This was replaced with the National Banking Act (NBA), which set forth much of the modern regulation of national banks
c.       The NBA defined bank as including the activities of discounting and negotiating evidence of debt; rec

ct in this capacity is challenged because it is competition from other check clearing houses
c.       Court
                                                                                                                                      i.      Federal reserve banks are authorized by Congress to collect for other reserve banks, for members, and for affiliated nonmember, checks on any banks within their respective district, if the check is payable on presentation
                                                                                                                                    ii.      The Federal Reserve system has the same right to present a check to the drawee bank for payment over the counter as any other bank (state or national) would have
                                                          iii.      Federal Reserve Notes
1.      Intro
a.       The Federal Reserve Act authorized the Federal Reserve to issue Federal Reserve Notes
                                                                                                                                      i.      It also rescinded the power of national banks to issue their own notes which had previously served as currency
2.      Milam v. United States
a.       Facts
                                                                                                                                      i.      Appellant refuses to accept Federal Reserve notes and demands the payment be in gold or silver
1.      Does not accept Federal Reserve Notes as lawful money
b.      Court
                                                                                                                                      i.      Looks at precedent and the Federal Reserve Act
                                                                                                                                    ii.      “Congress is authorized to establish a national currency, either in coin or in paper, and to make that currency lawful money for all purposes, as regards the national government or private individuals”
                                                          iv.      Monetary Policy
1.      Raichle v. Federal Reserve Ban of New York
a.       Court explains the authority of the Fed at this time
                                                                                                                                      i.      Inter-bank lending
1.      To act as depositors and fiscal agents
2.      To receive and maintain the legal reserves of member banks
3.      To discount notes, drafts, and bills of exchange arising out of actual commercial transactions
a.       but not notes, drafts, and bills covering merely investments or issuing for the purpose of issuing stacks, bonds, and notes of the government
                                                                                                                                                                                                              i.      except for the US government
4.      To make advances to member banks
5.      To provide notes, given the proper reserve requirement
                                                                                                                                    ii.      Open market operations
1.      May purchase and sell in the open market cable transfers and banker’s acceptances and bills of exchange of the kind and maturities eligible for rediscount
2.      May deal in gold coin and bullion
3.      May buy and sell bond notes of the US
4.      May establish discount rates
5.      May adjust the general credit situation by purchasing and selling in the open market the class of securities that they are permitted to deal inn