Banking: After World War II - Business in United States of America

Banking

Banking: Early Banking

Banking: From 1800 to the Civil War

Banking: From the Civil War to World War II

Top Twenty Banks in the World, 2008, by Assets, in Millions of U.S. Dollars

In the latter half of the 1940’s and the 1950’s, returning U.S. service personnel used their wartime earnings and increased wages from new jobs to purchase homes and consumer goods. A major benefit was provided to returning soldiers by the G.I. Bill of 1944, formally known as the Servicemen’s Readjustment Act. This act provided for mortgage insurance from the Veterans Administration for home loans taken out by service members. This had the effect of reducing the risk to banks, giving them the incentive to lend to more people. 

Minimal changes occurred in general banking laws or practices over the following four decades. Few banks undertook anything but the most basic forms of lending or other services, with some notable exceptions: Car loans were developed during the 1950’s, with terms increasing from twenty-four months during the early 1950’s to forty-eight and sixty months during the 1980’s. The credit card was also fully developed during this period. The first credit cards were issued during the 1930’s as charge cards designed to increase sales of gasoline. The cards evolved into general-purpose credit instruments, as the first such card was issued in 1958 by Bank of America as the BankAmericard (later known as Visa). 

By the 1980’s, banks and other financial institutions were looking for ways to increase their revenues, and they were beginning to chafe at the restrictions still in place from the Glass-Steagall Act. Some relief was provided by the Depository Institutions Deregulation and Monetary Control Act of 1980 and the Depository Institutions Act of 1982. These laws increased competition and innovation in the financial services industry by allowing the development of new types of deposit accounts, such as interest-bearing checking accounts and money market deposit accounts. The acts also allowed savings and loans (S&Ls) to begin lending to businesses. The sudden expansion of lending by inadequately trained lenders resulted in huge loan losses for these institutions. The subsequent failures of many savings and loans resulted in such large losses that the obligations of the Federal Savings and Loan Insurance Corporation (FSLIC) had to be transferred to the FDIC in 1989. 

In 1985, national branch banking was declared constitutional after more than two hundred years of banks being limited to maintaining branches in only one state. This change prompted the bank merger mania of the 1980’s and 1990’s, as it suddenly made sense for banks in multiple markets to merge operations. The mergers allowed better utilization of overhead and gave banks access to a more diverse customer base spread across a much larger geographical area. Both of these effects reduced risk and generally resulted in banks issuing more loans. The individual states remained in control of whether banks within their borders would be allowed to branch; Colorado became the last state to authorize full branch banking with the passage of legislation in 1993.

Automated teller machines (ATMs) came into widespread distribution, increasing consumer access to funds while providing banks with both a source of fee income and a way to reduce overhead, as fewer tellers and other staff members were required to service customers. Banks continued to expand on automated services, offering Internet banking and other electronic services, further enabling them to reduce staff levels and potentially to generate fee income.

In 1999, the Gramm-Leach-Bliley Act repealed many of the restrictions enacted by the Glass-Steagall Act, once again allowing banks to maintain ownership in insurance companies, investment banks, and other financial service providers. The law led to another round of acquisitions and consolidations. Despite the continued consolidation of major banking companies, local banks have retained a healthy presence in their communities. These smaller institutions follow the same regulations and are afforded the same insurance coverage as their larger brethren, but they compete based on community attention, knowledge, and service. They remain major providers of credit to small and medium-sized businesses, as well as primary lenders to builders and developers within their communities.