The following are some interesting facts about the U.S. financial services industry from a research report published by The Financial Services Roundtable. I have included my comments for some of the events.

Year    Event

1782    Pennsylvania chartered the first bank in the U.S.

1790   The federal government refinanced all federal and state Revolutionary War debt, issuing $80

million in bonds. These bonds became the first major issues of publicly traded securities, marking

the birth of the U.S. investment markets.

1791   Secretary of the Treasury, Alexander Hamilton, established First Bank of the United States.

1792   Insurance Company of North America, first stock insurance company, established.The

Buttonwood  Agreement, pact between 24 brokers and merchants to trade securities on a

common commission basis, marked the origins of the New York Stock Exchange. Bank of

America(BAC) was first listed  stock.

1809  The first bank failure happened in Rhode Island. Bank failures continue to occur this day. To date

three banks have been shut down by the FDIC this year. These closures have become the Friday

Night Follies of this era. Bank of America (BAC) almost failed but exists in tact today as they

were  bailed out by the state.

1863   Office of the Comptroller of the Currency was established in the U.S. Treasury Department. The

agency was authorized to charter banks and issue national currency.

1875   American Express (AXP) established the first pension plan in the U.S. American Express exists

still today as a highly ranked player in the global credit card industry.

1909 St. Mary’s Cooperative, the first U.S. credit union, formed in New Hampshire. Today there are

7,535 credit unions serving 92 million customers in the country.

1913  The Federal Reserve was established to replace J.P. Morgan as lender of last resort. It is

interesting to see how one man was rich and powerful enough to bail out the whole economy in

those days. JP Morgan Chase (JPM) is one of the four US “super-banks”.

1924  First mutual funds established in Boston. As of 2010, there are a total of 7,581 funds in the U.S.

Despite the many crashes in the markets since 1924, the growth of the mutual fund industry is

simply astonishing.

1929 The stock market crashed. Nearly 10,000 U.S. banks failed across the land and millions of people

lost their savings.

1932 The Federal Home Loan Bank Act established Federal Home Loan Bank System to act as central

credit system for savings and loans institutions.

1933 The Glass-Steagall Act, separating banking and securities industries, passed by Congress. Much of

the restrictions placed by this law was repealed by President Clinton during the late 1990s.

Federal Deposit Insurance Corporation, guaranteeing accounts up to $2,500, opened. At the height

of the credit crisis, this limit was raised to $250,000.

1955 First U.S.-based international mutual fund introduced. But even today most US funds are focused

on the US markets.

1970 The U.S. government introduced mortgage-related securities to increase liquidity. National Credit

Union Administration was created to charter and supervise federal credit unions.

1972 Money market mutual funds were introduced for the first time.

1974 Automated teller machines (ATMs) were widely introduced by banks.

1975 The SEC deregulated broker commissions by eliminating fixed commissions brokers charged for

all securities transactions. As a result, the U.S. has the lowest securities transaction costs in the

developed world.

1989 The Financial Institutions Reform, Recovery and Enforcement Act was established, providing

government funds to insolvent savings and loan institutions (S&Ls) from the Resolution Trust

Corporation. Similar to the bailouts during of the credit crisis, tax payers footed the bill in the

earlier banking crisis as well.

1999 The Gramm-Leach-Bliley Financial Services Modernization Act allowed banks, insurance

companies and securities firms to affiliate and sell each other’s products.

2005 The Federal Bankruptcy Prevention and Consumer Protection Act was enacted to tighten rules

for personal bankruptcy.

2008 Failed lender Washington Mutual was taken over by JPMorgan Chase after it was shut down by

federal regulators, marking the largest failure in banking history. Confirming the failure of state

involvement in the free markets, the federal government took over Fannie Mae and Freddie Mac.

Securities giant Lehman Brothers also failed, marking the largest bankruptcy in U.S. history.To

prevent a total collapse of the financial system, the TARP was hastily established with a $700

billion rescue plan for the financial services industry.

2010 The Dodd-Frank Wall Street Reform and Consumer Protection Act, landmark regulatory

overhaul of the financial services industry, was signed into law. After years of failing to protect

consumers, the federal government finally enacted laws providing some consumer protections

related to credit cards. President Obama signed the Patient Protection and Affordable Care Act,

requiring most U.S. citizens to have health insurance thus giving a bonanza to the healthcare

industry.

Source: The Financial Services Fact Book 2011, The Financial Services Roundtable

Disclosure: No Positions

As the U.S. election campaign picks up momentum one of the favorite topics that will be discussed by politicians from both the parties will be taxes. By default Republicans favor lowering taxes while the Democrats do not. However both parties may be wrong with their beliefs.

In general, where does the U.S. stand in terms of taxes when compared to other developed countries?

Total Taxes:
Taxes paid by individuals and corporations as a percentage of GDP is one of the meaningful ways to determine whether a country’s tax rates are high or low. Based on this metric, the U.S. has the third lowest taxes among OECD countries in 2009, the latest year for which data is available. The total U.S. state, local and federal taxes in 2009 was 22.6% of GDP. Only Chile and Mexico had lower taxes at 18.2% and 17.5% respectively.

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Clearly total taxes is lower in the U.S. than most OECD countries. Lower tax collection is one reason the Federal budget is at record high levels.

Corporate Income Taxes:
The corporate tax rate in the U.S. is also too low. Based on 2009 data, the U.S. corporate taxes as a share of GDP was 1.9% with only Iceland having a lower rate among the OECD countries. Despite having the lowest corporate tax rate in the developed world, Iceland was one of the first countries to collapse during the global financial crisis. To put the current U.S. corporate tax rate in perspective, in 1965 it was at 4.0% of the GDP.

Personal Income Taxes:
Personal income taxes have also fallen in recent years. In 2000,  personal income taxes was 12.3% of the GDP. After former President George Bush cut personal income taxes primarily to benefit the “have-mores”, it plunged dramatically. In 2009 it stood at just 7.7% of the GDP.

Source: U.S. Is One of the Least Taxed Developed Countries, Citizens for Tax Justice

As U.S. tax rates are one of the lowest in the developed world, it appears that even the millionaires are feeling the guilt of paying lower taxes and would like the tax rates to be raised. From a recent Bloomberg article:

Millionaires support Warren Buffett’s view that the wealthiest should pay more in taxes, as long as it’s other rich Americans, according to a survey released today.

About 71 percent of millionaires surveyed said they agree with Buffett, chairman and chief executive officer of Omaha, Nebraska-based Berkshire Hathaway Inc. (BRK/A), that the very wealthy ought to pay more taxes and give more to charity. That included 49 percent who said that they’re “not in the same league” as Buffett and that the higher taxes shouldn’t apply to them personally, according to the survey from PNC Wealth Management, a unit of Pittsburgh-based PNC Financial Services Group Inc. (PNC).

Overall most people would agree that the current corporate and personal tax rates need not be lowered further. Instead of trying to reduce taxes, the U.S. should stimulate economic growth by using other measures. Though U.S. multinational companies are lobbying to reduce the current tax rates so that they can repatriate their cash piles held overseas, it is unlikely that they will invest and create jobs here. In fact, research shows that reducing corporate tax rates has not benefited the economy.

Related:

NY Times: Are Taxes in the U.S. High or Low?