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Financial Literacy

LEGAL AND REGULATORY in Scotland in 1776 in An Inquiry into the Nature and
STRUCTURE Causes of the Wealth of Nations, his synthesis of a compet-
The key laws governing the U.S. financial institutions are: itive market system. The United States has structured its
National Bank Act of 1863; Federal Reserve Act of 1913; economic and financial systems on Smith’s economic
McFadden Act of 1927; Banking Act (Glass-Steagall) of model since its founding in 1776.
1933 and 1935; Securities Act of 1933; Securities The Financial Services Modernization Act, signed
Exchange Act of 1934; Federal Credit Union Act of 1934; into law by President Bill Clinton in late 1999, removed
Investment Advisers Act of 1940; Investment Company many of the restrictions on the banking and securities
Act of 1940; Bank Holding Company Act of 1956 and institutions imposed in the 1920s and 1930s. For exam-
Douglas Amendment of 1970; Bank Merger Act of 1966; ple, financial conglomerates were again be able to organ-
Employment Retirement Income Security Act of 1974; ize commercial banking, insurance business, investment
Depository Institutions Deregulation and Monetary Con- banking, securities underwriting, and other financial serv-
trol Act of 1980; Depository Institutions (Garn–St. Ger- ices under the umbrella of a holding/parent company. The
main) Act of 1982; Competitive Equality in Banking Act McFadden Act and the Glass-Steagall Act are now in the
of 1987; Financial Institutions Reform, Recovery, and history books. Financial innovation made possible by
Enforcement Act of 1989; Federal Deposit Insurance computer and communications technologies and spawned
Corporation Improvement Act of 1991; Interstate Bank- by competition and deregulation has brought U.S. finan-
ing and Branching Efficiency Act of 1994; and Financial cial institutions and the entire financial system to the
Services Modernization Act of 1999. exciting financial structure of the twenty-first century.
The federal agencies that regulate depository institu-
tions are: Office of the Comptroller of the Currency, Fed- SEE ALSO Federal Reserve System
eral Reserve System, Federal Deposit Insurance System,
National Credit Union Administration, and Office of BIBLIOGRAPHY
Thrift Supervision. The Securities and Exchange Com- Federal Deposit Insurance Corporation, Division of Research
and Statistics. (2005). Statistics on banking: A statistical profile
mission, the Commodity Futures Trading Commission,
of the United States banking industry. Washington, DC:
and the U.S. Department of Justice monitor and enforce
Author.
relevant laws and regulations concerning securities and
Federal Reserve System. (1994). Purposes and functions (8th ed.).
futures markets. State authorities regulate, monitor, and
Washington, DC: Board of Governors of the Federal Reserve
enforce laws concerning depository, insurance, finance System.
companies, and other financial institutions. The laws and Kidwell, David S., Blackwell, D. W., Whidbee, D. A., and Peter-
regulations on financial institutions in the United States son, D. W. (2006). Financial institutions, markets, and money
have made them competitive, efficient, fair, safe and (9th ed.). Hoboken, NJ: Wiley.
sound, and transparent with the use of both carrots and Kohn, Meir G. (2004). Financial institutions and markets (2nd
sticks. ed.). New York: Oxford University Press.
Madura, Jeff (2006). Financial markets and institutions (7th ed.).
Mason, OH: Thomson South-Western.
FINANCIAL SERVICES
MODERNIZATION ACT OF 1999 Mayo, Herbert B. (2004). Financial institutions, investments, and
management: An introduction (8th ed.). Mason, OH: Thom-
The U.S. financial system in the twenty-first century has son South-Western.
evolved into the largest, most developed, most efficient, Mishkin, Frederic S. (2004). The economics of money, banking,
and most sophisticated financial system in the world. The and financial markets (7th ed.). Boston: Pearson.
financial system has grown enormously since the founding Rose, Peter S., and Marquis, Milton H. (2006). Money and capi-
of the first insurance company by Benjamin Franklin, as tal markets (9th ed.). Boston: McGraw-Hill/Irwin.
Philadelphia Contributionship, in 1752. The first banks
in the United States were the Bank of New York, founded
by Alexander Hamilton in 1784; the Bank of Boston, also Surendra Kaushik
founded in 1784; and the First Bank of the United States,
chartered in 1791.
The economic structures and forces that have made
this success possible are the concepts (or the foundation FINANCIAL LITERACY
stones) of competition, specialization, thrift, entrepre- Financial literacy encompasses the knowledge and skills
neurial culture, and innovation. These concepts were just for personal financial planning, the selection of financial
as well understood and vigorously practiced in the Amer- services, budgeting and investing, developing an insurance
ican colonies as they were expounded on by Adam Smith program, credit management, consumer purchases, con-

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