Banks of the United States, First and Second

Banks of the United States, First and Second. Between 1791 and 1811 and again from 1816 to 1836, the U.S. government created and operated a national bank that by most historical assessments met the nation's financial needs effectively. But the banks' size and scope led to political controversy.

The first Bank of the United States (BUS) served the economic policies of Alexander Hamilton, the nation's first secretary of the treasury. In his “Report on a National Bank” (1790), Hamilton argued that the nation needed a federally chartered bank to establish the public credit, attract foreign investment, serve as an administrative arm of the federal treasury, and draw the support of wealthier citizens to the new government. Despite the opposition of Thomas Jefferson, President George Washington signed the bill authorizing a national bank after it passed both houses of Congress by solid majorities. The U.S. government held one‐fifth of the ten million dollars of stock offered; individuals purchased the remaining four‐fifths. The BUS served as the fiscal agent for the U.S. treasury: It held federal funds, transferred them throughout the United States, and disbursed these funds to pay interest and principal on the national debt. Its bank notes, which functioned much like today's paper currency, acted as legal tender in payment of U.S. debts. This gave the BUS unusual power, for it enjoyed access to government receipts, and it could and did establish branches throughout the country.

Although the first Bank of the United States fulfilled Hamilton's intentions, a bill to recharter the BUS was tabled in 1811 by a one‐vote margin in both houses of Congress. This reaction arose largely from the fact that the Federalist party had established the BUS and Federalists served as directors and officers of the bank and its branches. For many Jeffersonian Republicans, however, the question transcended politics; they were wary of the bank's inordinate power over state and local economic development.

The second Bank of the United States was created by Congress in 1816 on much the same terms as had governed the first, although the law authorizing its establishment raised its capitalization to $35 million and required the BUS to pay a bonus of $1.5 million to the federal government. After a rocky start, the second BUS met the needs of the government and its stockholders while promoting the nation's economic development. Nicholas Biddle (1786–1844), a Philadelphia financier who assumed the bank presidency in 1823, deserved credit for much of this success.

But again the BUS became entangled in national politics. In 1829, President Andrew Jackson declared his opposition to the BUS. Noting that it was by far the largest bank in the nation, he accused the BUS of using monopoly power and exclusive privileges to deny common citizens access to credit and economic opportunity. Angered by Jackson's veto of the bill to recharter the bank in 1832, Biddle used the bank's power to seek support in Congress and the press. Jackson retaliated by removing federal deposits from the BUS, which he had begun to call “the Monster.” With compromise no longer possible the federal charter of the BUS lapsed in 1836.
See also Banking and Finance; Federal Government, Executive Branch: Department of the Treasury; Federal Reserve System; McCulloch v. Maryland; Monetary Policy, Federal.

Bibliography

John Thom Holdsworth and and Davis R. Dewey , The First and Second Banks of the United States, 1910 (U.S. Senate, 61st Cong. 2d sess., Doc. 571).
Bray Hammond , Banks and Politics in America from the Revolution to the Civil War, 1957.

Diane Lindstrom