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Week 7 - the bank of canada: financial institutions, laws and policies in canada [p2]

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Administrative Studies
ADMS 1010
Yong Troy

Week 7The Bank of Canada Financial Institutions Laws and Policies in Canada ADMS 1010TroyPart IIThe Bank of CanadaCanada followed the British banking system with a limited number of larger banks with multiple branchesIn the US independent local banks was the norm With our relatively small population spread out in rural centres the British model made more sense o Branch banks required less capital than a full independent bank The branch banking system lead for a very stable banking system since the branches spread the risk around the country There was little need for a lender of last resort o In the US with its small banks they would often find themselves with seasonal cash flow problems and a central bank the United States Federal Reserve was a necessityThe US Federal Reserve SystemThe US Federal Reserve System the Fed was set up in 1913 The Fed was set up in part due to a financial crisis in 1907 called the Panic of 1907 o The New York Stock Exchange fell 50 in tradingo Bank runs were numerous o Many regional banks had invested money in the larger NYC banks When they started to struggle the smaller banks joined the bank runso Many regional banks and businesses declared bankruptcyo New York financiers led by JP Morgan invested their own money to keep the banking system from collapsingo A central bank was needed to prevent this from happening in the futureDuties of the US Federal Reserve o Maintain employmento Keep prices stable o Keep interest rates at a moderate level by regulating monetary policyo Supervise bankso Provide financial serviceso Conduct research on the United States economy and the economies in the surrounding region
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