BANK STREET COLLEGE OF EDUCATION

privately supported coeducational teachers college in New York, New York, U.S. It offers graduate courses only, operating a laboratory (elementary) school and conducting basic research in education. Established in 1916 by Lucy Sprague Mitchell, first dean of women at the University of California and a disciple of philosopher and educator John Dewey, the institution was originally called the Bureau of Educational Experiments; it incorporated a nursery school in which child development was studied. In 1930 the bureau opened an elementary school and a teacher-training school at 69 Bank Street, where new curriculums were developed, classroom material was produced, and children's books were written. In 1950 the school's name was changed to the Bank Street College of Education. In 1964 Bank Street helped launch the National Head Start Program for disadvantaged preschool children; beginning in 1965 the school published the Bank Street Readers, an early contribution to multiracial, urban-oriented teaching materials. It acted as a consultant for children's television and for school and child-care facilities throughout the world and developed mainstreaming programs for handicapped children. Total enrollment in the graduate school is about 900. The business of banking The business of banking consists of borrowing and lending. As in other businesses, operations must be based on capital, but banks employ comparatively little of their own capital in relation to the total volume of their transactions. The purpose of capital and reserve accounts is primarily to provide an ultimate cover against losses on loans and investments. In the United States capital accounts also have a legal significance, since the laws limit the proportion of its capital a bank may lend to a single borrower. Similar arrangements exist elsewhere. Functions of commercial banks The essential characteristics of the banking business may be described within the framework of a simplified balance sheet. A bank's main liabilities are its capital (including reserves and, often, subordinated debt) and deposits. The latter may be from domestic or foreign sources (corporations and firms, private individuals, other banks, and even governments). They may be repayable on demand (sight deposits or current accounts) or repayable only after the lapse of a period of time (time, term, or fixed deposits and, occasionally, savings deposits). A bank's assets include cash (which may be held in the form of credit balances with other banks, usually with a central bank but also, in varying degrees, with correspondent banks); liquid assets (money at call and short notice, day-to-day money, short-term government paper such as treasury bills and notes, and commercial bills of exchange, all of which can be converted readily into cash without risk of substantial loss); investments or securities (substantially medium-term and longer term government securitiessometimes including those of local authorities such as states, provinces, or municipalitiesand, in certain countries, participations and shares in industrial concerns); loans and advances made to customers of all kinds, though primarily to trade and industry (in an increasing number of countries, these include term loans and also mortgage loans); and, finally, the bank's premises, furniture, and fittings (written down, as a rule, to quite nominal figures). All bank balance sheets must include an item that relates to contingent liabilities (e.g., bills of exchange accepted or endorsed by the bank), exactly balanced by an item on the other side of the balance sheet representing the customer's obligation to indemnify the bank (which may also be supported by a form of security taken by the bank over its customer's assets). Most banks of any size stand prepared to provide acceptance credits (also called bankers' acceptances); when a bank accepts a bill, it lends its name and reputation to the transaction in question and, in this way, ensures that the paper will be more readily discounted. The principles of central banking The principles of central banking grew up in response to the recurrent British financial crises of the 19th century and were later adopted in other countries. Modern market economies are subject to frequent fluctuations in output and employment. Although the causes of these fluctuations are various, there is general agreement that the ability of banks to create new money may exacerbate them. Although an individual bank may be cautious enough in maintaining its own liquidity position, the expansion or contraction of the money supply to which it contributes may be excessive. This raises the need for a disinterested outside authority able to view economic and financial developments objectively and to exert some measure of control over the activities of the banks. A central bank should also be capable of acting to offset forces originating outside the economy, although this is much more difficult. Responsibilities of central banks The first concern of a central bank is the maintenance of a soundly based commercial banking structure. While this concern has grown to comprehend the operations of all financial institutions, including the several groups of nonbank financial intermediaries, the commercial banks remain the core of the banking system. A central bank must also cooperate closely with the national government. Indeed, most governments and central banks have become intimately associated in the formulation of policy. The structure of modern banking systems The banking systems of the world have many similarities, but they also differ, sometimes in quite material respects. The principal differences are in the details of organization and technique. The differences are gradually becoming less pronounced because of the growing efficiency of international communication and the tendency in each country to emulate practices that have been successful elsewhere. Banking systems may be classified in terms of their structure as unit banking, branch banking, or hybrids of the two. For example, unit banking prevails in large areas of the United States. In other countries it is more usual to find a small number of large commercial banks, each operating a highly developed network of branches. This is the system used in England and Wales, among others. Examples of hybrid systems include those of France, Germany, and India, where banks that are national in scope are supplemented by regional or local banks. Some of these hybrid systems are slowly changing their character, the banks becoming fewer in number and individually larger, with a larger number of branches. Unit banking: the United States Bank organization in the United States during the years after World War II was still passing through a phase of structural development that many other countries had completed some decades earlier. Development in the United States has been subject to constraints not found elsewhere. The federal Constitution permits both the national and state governments to regulate banking. Some states prohibit branch banking, largely because of the political influence of small local bankers, thus encouraging the establishment and retention of a large number of unit banks. Even in its early years, the United States had an unusually large number of banks. As the frontiers of settlement were pushed rapidly westward, banks sprang up across the country. One reason for this was the demand for capital in the expanding frontier economy. There was also an obvious need for a large number of banks to serve the diverse and rapidly expanding demands of a growing and constantly migrating population. It must be remembered, too, that at this time communications between the frontiers of settlement and the established centres of commerce and finance were still inadequately developed. As long as communications remained imperfect, the existence of large numbers of competing institutions is not difficult to explain. The subsequent failure of bank mergers or amalgamations to produce a concentration of financial resources in the hands of large banking units can be attributed in part to the character of the federal Constitution as noted above. Among the people, moreover, there was a widespread distrust of monopoly and a deep-rooted fear that a money trust might develop. This went hand in hand with a political philosophy that emphasized the virtues of individualism and free competition; restrictions on branching, merging, and on the formation of holding companies were a feature of both the state and the federal banking laws. Where permitted, however, bank branches are numerous in the United States (especially in California and in New York); in states in which branching is prohibited, one often finds local bank monopolies in small towns. Interstate banking is prohibited by federal law, but large banking organizations have provided financial services (e.g., through loan offices and offices of nonbank subsidiaries) for many years across state lines. A number of states have passed limited interstate or reciprocal banking laws, so that banks in other states with similar laws can acquire or merge with local banks. The banking system of the United States would not work without a network of correspondent bank relationships, which are more highly developed there than in any other country. From the 1970s there was an acceleration in the evolution of U.S. banking patterns. Unregulated financial institutions (and some nonfinancial institutions) moved into traditional banking activities; at the same time, depository institutions began offering a fuller range of financial services. Money-market mutual funds, for example, secured access to open-market interest rates for investors with relatively small amounts of money. Securities firms and insurance companies moved aggressively into providing a range of liquid financial instruments. Likewise, large manufacturing and retail firms moved into the commercial and retail lending businessese.g., by acquiring a savings and loan association, a securities brokerage house, an industrial loan company, a consumer banking business, or even a commercial bank. Meanwhile, depository institutions developed a number of new services, most notably the Negotiable Order of Withdrawal (NOW) account, an interest-bearing savings account with a near substitute for checks. These appeared first in 1972 in New England and after 1980 spread to the whole nation; they were offered both by commercial banks and by thrift institutions. Share drafts at credit unions also became a means of payment, and after 1978 the automatic transfer services of commercial banks permitted savings account funds to be transferred automatically to cover overdrafts in checking accounts. So-called Super-NOW accounts (with no interest rate ceilings and unlimited checking facilities with a minimum balance) were subsequently introduced, along with money-market deposit accounts, free of interest rate restrictions but with limited checking. Rapid changes in financial structure and the supply of financial services posed a host of questions for regulators, and, after much discussion, the Depository Institutions Deregulation and Monetary Control Act was passed in 1980. The object was to change some of the rulesmany of them obsoleteunder which U.S. financial institutions had operated for nearly half a century. The principal objectives were to improve monetary control and equalize more nearly its cost among depository institutions; to remove impediments to competition for funds by depository institutions, while allowing the small saver a market rate of return; and to expand the availability of financial services to the public and reduce competitive inequalities among financial institutions offering them. The major changes were: (1) Uniform Federal Reserve requirements were phased in on transaction accounts (demand deposits, NOW accounts, telephone transfers, automatic transfers, and share drafts) at all depository institutionscommercial banks (whether Federal Reserve members or not), savings and loan associations, mutual savings banks, and credit unions. (2) The Federal Reserve Board was authorized to collect all data necessary for the monitoring and control of money and credit aggregates. (3) Access to the discount window at Federal Reserve banks was widened to include any depository institution issuing transaction accounts or nonpersonal time deposits. (4) The Federal Reserve was to price its services, to which all depository institutions would now have access. (5) Regulation Q, which had long set interest-rate ceilings on deposits, was to be phased out over a six-year period. (6) An attempt was made to grasp the nettle of the state usury laws. (7) NOW accounts were authorized on a nationwide basis and could be offered by all depository institutions. Other services were extended. (8) The permissible activities of thrift institutions were broadened considerably. (9) Deposit insurance at commercial banks, savings banks, savings and loan associations, and credit unions was raised from $40,000 to $100,000. (10) The truth in lending disclosure and financial regulations were simplified to make it easier for creditors to comply.