Bank of the United States

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Banking in the antebellum United States was dominated by commercial banks, which were chartered by the individual states and limited in their operations to the state in which they were established. These banks typically accepted deposits, lent primarily to merchants, traders, and agricultural producers, and issued banknotes redeemable in specie (money in coin) on demand. Most loans were short-term, providing bridge funding to businesses. For example, merchants would typically borrow funds to purchase inventory, anticipating that the sale of those goods would enable them to repay the loan; or farmers and planters would obtain funds to cover the costs of planting and cultivation, repaying with the proceeds of the harvest. Often, loans were made in the form of banknotes, although increasingly draft accounts became part of the process. The exceptions to this general characterization of the period were the First and second Banks of the United States. These were institutions chartered by Congress for the purpose of operating both as a bank for the government and simultaneously as exceptionally large commercial banks serving the public throughout the nation.

the first bank of the united states

The initial Bank of the United States was established in 1791 as a central component of Alexander Hamilton's vision for stabilizing the new nation's finances and for establishing a framework for the future development of the country's economy. The bank was given a twenty-year charter, and its structure followed the recommendations of Hamilton's Report on Banks, which in turn drew heavily from the model provided by the Bank of England. Capitalized at ten million dollars, of which 20 percent was subscribed by the federal government and a substantial portion of the remainder by foreigners, the bank provided financial services to the government, including holding tax receipts, making payments, and issuing debt. Thus the government was both an important owner of the institution as well as its most important customer.

As a federally chartered institution, the bank could extend its commercial operations across state lines, something denied to state-chartered banks. Thus branches were established throughout the nation. Its size and large holdings of state banknotes, combined with its ability to rapidly transfer state banknotes between branches and redeem them for specie when desired, enabled the bank to exert control over the entire banking system, ensuring that state banks did not overextend their note issue. The bank's ability to operate as a central bank, although used sparingly, ensured some stability to the system, but may also have served to retard the expansion of commercial banking in the first decade of the nineteenth century.

As the time for the bank's charter to lapse approached, pro- and anti-bank elements began a debate that would foretell events of the 1830s. In support of the bank, Albert Gallatin, who had been secretary of the Treasury under Jefferson, prepared a report on its operations and proposed a reorganization both to strengthen its role and to counter many of the concerns of those opposing the bank. Gallatin stressed the importance to the government of the central bank's functions, addressed the issue of foreign ownership, and proposed an expansion of the bank's capital, including encouraging states to subscribe in return for branches to be opened within their boundaries. Gallatin's report illustrates that at least some leading Jeffersonians had come to respect the wisdom of the arch-Federalist Alexander Hamilton, who had been the moving force behind the bank.

In spite of their best efforts, supporters of the bank failed to renew the charter when the vice president voted "no" to break a tie vote in the Senate. This failure had both political and economic foundations. Politically, the Jeffersonian Democrats' ideological fear of big government, of the bank's concentration of economic power, and of foreign ownership of bank stock were a powerful block to the bank. A general distrust of banks and a desire for hard currency or specie further strengthened their case against the bank. Economically, state-chartered banking interests saw much to gain by removing both a competitor and an overseer.

The void created by the disappearance of the national bank was quickly filled by state-chartered banks. The number of state banks increased from 117 in 1811 to 143 in 1812, or 22 percent in the first year after the First Bank of the United States wound up its affairs. By 1816 the number of state chartered banks grew to 232, or almost double the 1811 total.

the second bank of the united states

With the outbreak of war in 1812 and the drying up of tariff revenues, the absence of a national bank forced the Treasury to rely on bond sales and the issue of Treasury notes to finance the war effort. Neither proved easy, and following the capture of Washington by the British in 1814, a general suspension of specie payment swept the country. This further devastated federal government finances, since it was forced to receive its revenues in depreciated state banknotes and Treasury notes. By the end of the war, Treasury operations were in disarray, and the nation's currency was composed largely of depreciated, noncontrovertible state banknotes. As a result of the disruptions during the war, supporters of a national bank seized the initiative. They were able, after seven tries including one veto, to overcome the objections of the hard money interests and create a federal institution capable of operating multiple branches across the nation and powerful enough to establish a uniform currency to serve the Treasury's needs and to ensure control of circulation. Congress created the second Bank of the United States in April 1816, and in early 1817 banking operations began. The second bank's charter was constructed much like that of the first bank's, including a twenty-year time limit. One important difference was its capital of thirty-five million dollars, or over half of the total legal tender in circulation, thus making it the nation's dominant financial institution.

Under the incompetent management of William Jones, the new bank quickly moved to begin operations, restore confidence in the currency, and bring order to Treasury deposits and payments. Although stock in the new bank had been fully subscribed, little of the proceeds were in the form of specie. In addition, at the Philadelphia and Baltimore branches payments for the stock were made using balances from the bank itself. Those balances, in turn, had been created on the security of the bank's stock being purchased. Such corrupt actions damaged the new bank tremendously.

The inadequacy of specie across the country became clear on 20 February 1817, the date by which Congress required that all payments to the Treasury should be made in specie, Treasury notes, notes of the Bank of the United States, or in notes of banks payable on demand in specie. State banks were reluctant to resume specie payments but were persuaded to do so by the bank, which agreed in return to expand discounts for its customers by four million dollars in New York, Philadelphia, and Baltimore, and in Virginia.

Although the resulting convertibility was neither universal nor genuine, the bank did live up to its promises to expand loans. This action, combined with growing commerce across the nation and widespread land speculation in the South and West, meant the second Bank of the United States moved its portfolio into a position that would ultimately produce a panic in financial markets. Difficulties arose because of the bank's attempt to redeem at par the notes of all its branches wherever presented, the speed and extent of the loan expansion, and the reality that much of the increase took place in the rapidly developing areas of the Old Northwest and in the cotton-producing South. As a result of the rapid extension of credit by the second bank, state banks in the developing areas felt little pressure to contract credit and retire notes. In addition, Treasury receipts from taxes on an expanding import trade and the proceeds from speculative land sales were building credits in southern and western branches of the bank. The Treasury ultimately had to transfer credits from these debtor areas in order to satisfy their creditors in the East.

The result was a massive flow of banknotes from west to east. The situation reached crisis proportions in mid-1818, when eastern branches of the Bank of the United States refused to redeem in specie any notes but their own issues, including notes of other branches of the second bank. Meanwhile, the directors of the second bank instituted a policy of reducing discounts by five million dollars at the Philadelphia, Baltimore, Richmond, and Norfolk offices. With this move, the Panic of 1819 soon followed as the public lost confidence in the banking system.

With a monetary contraction under way, the Treasury Department continuing to repay debt, and as markets for American staples collapsed, the economy slid into a depression. Under a cloud, Jones resigned and Langdon Cheves became president of the bank in March 1819. Cheves directed two actions that strengthened the bank but hurt the economic recovery. First, he acted aggressively to increase reserve holdings, particularly in 1820. To the extent these reserve holdings were excessive, they retarded the expansion of the money supply at a time when such expansion was most needed. Second, rather than redeeming the bank's notes at any branch, he implemented a policy of making payments in state bank-notes whenever possible. This protected the bank's specie holdings and did not expand its liabilities, but meant control over state banks was compromised at a time when restoring confidence in the system was critical.

nicholas biddle and the bank war

In 1823 Nicholas Biddle was named president of the bank and moved to assume the bank's responsibilities for controlling the currency and stabilizing the economy by resuming the issue of notes and presenting the notes of state banks for redemption immediately upon receipt. These actions meant that state banks could not easily over-issue notes. Given the size of the second bank and its role as the bank for the federal government, it was continually receiving the notes of state banks and presenting them for payment in specie. Further, owing to the size of the second bank and its nationwide branches, its notes soon became a national currency, providing the bank with the ability to control this important element of the currency stock. As a result, the following decade was one of stability for the banking system and for the economy as a whole.

Despite its successes, the bank had many enemies. Among them was President Andrew Jackson, who upon his election in 1828 put the bank on notice that he opposed its being rechartered in 1836, the end of its initial twenty-year charter. Biddle, hoping to blunt Jackson's attack by making the bank an issue in the 1832 presidential campaign, pushed for a rechartering of the bank in the summer of 1832. Jackson responded by vetoing the recharter bill, which Congress sustained, and making opposition to the bank a focus of his reelection campaign. Vindicated by his victory, Jackson moved quickly against the bank by ordering government deposits removed and placed in selected state banks, the so-called pet banks. With its large federal deposits gone, the bank was forced to reduce its activity and contract loans. Although Biddle may have pushed the reduction further than needed in hopes of forcing a reconsideration of the charter, the impact was relatively mild because specie inflows from abroad offset much of the bank's currency contraction.

With its government business gone, the bank continued to operate as just another large commercial bank until its charter ran out, at which time it became a state bank chartered by Pennsylvania. During this time an economic boom began, driven in part by land speculation, particularly in the West. Prices skyrocketed, and in an attempt to stem the land speculation Jackson issued the Specie Circular in August 1836, requiring all purchases of public land be paid for in specie. The Panic of 1837 brought the rampant speculation to a temporary halt, although action picked up again the next year. Finally, in 1839 a financial crisis led to large-scale suspension of specie payment by banks and ushered in an almost decade-long economic downturn. The Bank of the United States of Pennsylvania was one of the many banks that failed during this period.

the impact of the bank war

The coincidence of the Bank War and subsequent destruction of the second bank, with the economic boom and following economic collapse, points to a critical role for the Biddle-Jackson battle. Yet economic analysis suggests more fundamental sources for the events of the period. During the period of the Bank War, the money supply increased dramatically as specie and capital flowed into the country from Mexico and England in response to political instability in Mexico and relatively higher U.S. interest rates. In addition, indemnity payments from France further increased the money supply. Changes in the lending behavior of state banks added little to the growth as they maintained their ratio of reserves to liabilities, while declining public confidence in banks worked to slow the growth of the money supply as the public decreased its use of banknotes.

With the economy booming and the money supply growing, the Specie Circular has often been pointed to as the cause of the Panic of 1837. Yet, analysis suggests that it was not Jackson's decision, but the action of the Bank of England to raise interest rates to cut the outflow of capital that played the critical role. A fall in the price of the nation's most important export, cotton, and the rise in interest rates combined to frighten banknote holders and lead to panic. The Bank War was not a direct cause of the panic, but it did change the public's confidence in the banking system, making it more susceptible to the shocks from abroad.

With the end of the second bank, the nation entered a period of free banking. Beginning in 1837, a number of states passed banking laws that enabled anyone meeting certain criteria to establish a bank. This free entry created the possibility of wildcat banks, fraudulent institutions established with little or no capital and designed to issue notes with no intention of redeeming them. Without the second bank to oversee the money supply, some suggest that the years prior to the Civil War were characterized by financial instability. Economic analysis indicates that, while for some periods in some states bank failures were important problems, the overall loss from bank failures was small, amounting, according to one estimate, to a transfer from note holders to wildcat bankers of less than one-hundredth of 1 percent of national income for the entire period. Offsetting these losses from free banking was an increase in competition resulting in lower cost for intermediation and an increased access to credit for many.

Although the demise of the second bank may have increased the cost of holding paper money as well as uncertainty, thereby retarding economic growth in the post-bank era, markets consisting of state and private banks and exchange brokers moved to replace many of the bank's functions. Measures such as the convergence of interregional interest rates suggest they succeeded. What markets could not ensure was an elastic currency, a money supply that could be changed with the needs of the economy. But acting as a true central bank was not something that leaders of the second bank fully understood nor had the means of accomplishing, given the bank's commercial banking business.

See alsoBanking System; Hamilton, Alexander; Hamilton's Economic Plan; Federalism; Federalists; Jackson, Andrew; Jefferson, Thomas; Taxation, Public Finance, and Public Debt .


Bodenhorn, Howard. A History of Banking in Antebellum America: Financial Markets and Economic Development in an Era of Nation-Building. Cambridge, U.K., and New York: Cambridge University Press, 2000.

Green, Edward J. "Economic Perspective on the Political History of the Second Bank of the United States." Federal Reserve Bank of Chicago Economic Perspectives 27, no. 1 (1st quarter 2003): 59–67.

Hammond, Bray. Banks and Politics in America from the Revolution to the Civil War. Princeton, N.J.: Princeton University Press, 1957.

Kaplan, Edward S. The Bank of the United States and the American Economy. Westport, Conn.: Greenwood Press, 1999.

Nelson, John R., Jr. Liberty and Property: Political Economy and Policymaking in the New Nation, 1789–1812. Baltimore: Johns Hopkins University Press, 1987.

Perkins, Edwin J. "Langdon Cheves and the Panic of 1819: A Reassessment." Journal of Economic History 44 (1984): 455–461.

Remini, Robert V. Andrew Jackson and the Bank War: A Study in the Growth of Presidential Power. New York: Norton, 1967.

Rolnick, Arthur J., and Warren E. Weber. "New Evidence on the Free Banking Era." American Economic Review 73 (1983): 1080–1091.

Sushka, Marie. "The Antebellum Money Market and the Economic Impact of the Bank War." Journal of Economic History 36 (1976): 809–835.

Temin, Peter. The Jacksonian Economy. New York: Norton, 1969.

Clyde Haulman

Bank of the United States (1791)

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Bank of the United States (1791)

Yonatan Eyal

Excerpt from the Acts to Charter the Bank of the United States

The establishment of a Bank for the United States ... will be very conducive to the successful conducting of the national finances; will tend to give facility to the obtaining of loans, for the use of the Government, in sudden emergencies; and will be productive of considerable advantage to trade and industry in general....

Alexander Hamilton, secretary of the treasury during the 1790s, had observed the instability of his fledgling republic during the 1780s, when it still operated under the Articles of Confederation. The new nation's finances and politics then seemed in disarray. Shortly after the government established by the U.S. Constitution began working in 1789, Hamilton devised an economic plan intended to bring stability and prosperity to America's finances.

The Bank of the United States became a central feature of Hamilton's scheme. He expected that a national financial institution such as the Bank would centralize and manage the nation's currency and credit. The Bank would hold government monies and issue notes that could be used to pay debts to the state. It would also extend loans to stimulate manufacturing and economic growth. Additionally, Hamilton hoped that government could forge an alliance with the country's wealthy elite, and indeed the Bank's early subscribers were virtually all speculators and businessmen. The Bank played a vital role in the flourishing, commercialized society that Hamilton and the Federalist Party envisioned, and in 1791 Congress officially chartered it for a period of twenty years (1 Stat. 191).


Members of the opposition Republican Party, led by Thomas Jefferson and James Madison, disagreed with Hamilton's philosophy. They thought that chartering a Bank exceeded Congress's constitutional authority and would lead to the unhealthy dominance of a wealthy upper classexactly what Hamilton desired. The national Bank, they feared, would create a privileged group of nonproducers, people who got rich by handling paper money rather than through hard work. It might encourage corruption, as businessmen cultivated unsavory partnerships with the government. Finally, the Bank flew in the face of the founding republican ideology of the American Revolution, which led Jeffersonians to suspect powerful conspiracies against their liberties.

As president, Jefferson nevertheless allowed the Bank to run its course until Hamilton's charter expired in 1811. Following the War of 1812, a new generation of Jeffersonian Republicans, led by Congressman Henry Clay, rechartered the Bank for another twenty years. As was true in 1791, the Second Bank's charter of 1816 (3 Stat. 266) became part of a grand design for economic growth, now called the "American System." Clay's proposal, like Hamilton's, supplemented the Bank with protective tariffs that raised prices on imported goods in order to benefit native manufacturers. And it authorized federal funding for internal improvement projects such as canals and turnpikes.

In this postwar period the Bank fed an investment boom funded by paper currency, only to see it collapse abruptly in 1819. During that year the Bank called in its loans and contracted the currency, leading to widespread economic depression, joblessness, and bankruptcy. Many victims of these tough economic timesamong them future President Andrew Jacksonblamed the Bank for their misfortunes. The resentments nursed by this "Panic of 1819" had much to do with the anti-Bank fervor of succeeding years.


Another challenge to the Second Bank came legally, when the U.S. Supreme Court considered the constitutionality of its existence. Chief Justice John Marshall, in the case of McCulloch v. Maryland (1819), argued that Congress acted legitimately when creating the Bank. He emphasized the "necessary and proper," or elastic, clause of the Constitution, which said that Congress could do whatever it thought essential to fulfill its obligations. In the realm of inter-state commerce, over which Congress exercised control, this included the authority to create a national bank. Marshall's ruling allowed the Bank to continue to function. But the most serious test of its survival came from Andrew Jackson and his new Democratic Party.

Under its director, Nicholas Biddle, the Bank applied for Congressional re-charter in 1832, four years before its current charter was due to expire. President Jackson, already wary of the concentration of power represented by the Bank, revitalized old Jeffersonian arguments against its continuation. The "Monster Bank," as he called it, gave too much influence to a select group of wealthy financiers. Lost in the path of its destruction lay the downtrodden farmers and planters whom the Bank victimized by calling in loans and foreclosing on property. Jackson regarded himself as the spokesman for America's virtuous independent farmers, threatened by an impersonal institution with undue control over their daily lives.

Jackson vetoed the Bank's re-charter in 1832, and then won a decisive presidential victory over Henry Clay in a campaign largely focused on the Bank. But Jackson thought his veto insufficient, so in mid-1833 he began withdrawing government deposits from the Bank and placing them in various state banks loyal to the Democratic Party. Biddle, in response, called in loans and tightened the currency as a way of demonstrating his power and putting pressure on the chief executive. Despite Biddle's best efforts, the Second Bank went out of existence as its charter expired in 1836.

Anti-Bank Democrats, now led by President Martin Van Buren, did propose an alternative to the "Monster" they killed. Named the "Independent Treasury," or "Sub-Treasury," Van Buren's idea was to create a government depository forbidden from issuing notes and loans and thus lacking the regulatory mechanisms of the First and Second Banks. The Independent Treasury formed part of Van Buren's response to the devastating industrial depression afflicting the nation from 1837 to 1843. During the early 1840s members of the Whig Party in Congress dismantled it, although Democrats under President James K. Polk reinstated it in 1846. Two Whig attempts to revive a national bank failed in the early 1840s, when their renegade president John Tyler vetoed the proposed charters. However, a national monetary system came into existence yet again with the onset of the Civil War. Congress, now under Republican control, established a network of national banks that could issue bonds and thus perform the same managerial functions as the First and Second Banks.

During the first century of the American republic, the Bank of the United States remained the primary means by which statesmen who embraced Hamilton's views (that is, Federalists, National Republicans, Whigs, and then Republicans) sought to administer the nation's economic life. The federal reserve system instituted in 1913 replaced the Bank and its functions and created the modern economic regulatory structure we know today.

See also: Bland-Allison Act; Coinage Act of 1792; Federal Reserve Act.


Hammond, Bray. Banks and Politics in America, From the Revolution to the Civil War. Princeton, NJ: Princeton University Press, 1957.

McFaul, John M. The Politics of Jacksonian Finance. Ithaca, NY: Cornell University Press, 1972.

Remini, Robert. Andrew Jackson and the Bank War. New York: Norton, 1967.

The Origins of U.S. Political Parties

The first two political parties in the United States were the Federalists and the Democrats. "Federalist" originally described supporters of the Constitution (though the Democrats supported the Constitution as well). The Federalist party emerged during the 1790s as a proponent of close relations with Britain and a strong national government. The Federalists were elitists, and the party's leaders were not in favor of universal suffrage. In 1796 the Federalist John Adams was elected president, but the party was unable to organize effectively after the turn of the century, and during the 1820s the Federalists dissolved.

The Democratic party, originally known as the Democratic-Republican party, also had its roots in the 1790s, when a group of Thomas Jefferson's supporters called themselves "Democratic Republicans" or "Jeffersonian Republicans" to highlight their opposition to monarchy and belief in populist government. The party built its early identity around a popular challenge to ruling elites. It took its present name during the 1830s, when it held prominence under President Andrew Jackson. During the 1860s, the party's Southern Democrats refused to renounce slavery, so antislavery Democrats broke off to form the new Republican party, which dominated U.S. politics for the next seventy years. The Democrats returned to power during the Great Depression in the 1930s, under the presidency of Franklin Delano Roosevelt, who championed the working class. During the twentieth century the Democrats promoted liberal values and the interests of working people. The party was known as a coalition of laborers, farmers, immigrants, urban liberals, and minorities.

The Whig party was named after a British political group that opposed the monarchy. It was formed in 1834 primarily to oppose the policies of President Jackson (who the Whigs referred to as "King Andrew"), and its members were an eclectic group with diverse principles. The Whigs elected two presidents, William H. Harrison in 1840 and Zachary Taylor in 1848. Thereafter the party began to fracture along pro- and anti-slavery lines, and in 1854 the Whig party dissolved when most Northern Whigs joined the new Republican party.

The Republican party was formed during the 1850s to oppose slavery. It soon became the dominant party in the North, and Abraham Lincoln was elected president on the Republican ticket in 1860. After the Civil War the Republican's strongest constituent groups were business interests and farmers in the North and Midwest, creating a lasting divide between the party's "Wall Street" and "Main Street" factions. From 1860 to 1932 the Republicans dominated American politics, winning fourteen out of eighteen presidential elections until the Democrats' support for the working class brought Roosevelt into office during the Great Depression. In the twentieth century the Republicans promoted conservative values and a favorable business climate. Their key issues included opposition to Communism, lower taxes, less government regulation, and a conservative social agenda.

Bank of the United States

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BANK OF THE UNITED STATES. Secretary of the Treasury Alexander Hamilton's concept of a central bank grew out of his belief that the government needed a repository for federal funds and an entity to act as its fiscal agent. In 1791, President George Washington signed into law an act creating the Bank of the United States over the objections of Secretary of State Thomas Jefferson. Jefferson and his backers believed this to be an unconstitutional use of federal power and felt it favored commercial and industrial ventures over agrarian interests. They also feared it would promote paper currency over the use of specie, gold and silver coin. However, debt from the Revolutionary War and the differing currencies utilized by each state caused Congress to grant the bank a twenty-year charter.

The bank, based in Philadelphia with branches in eight cities, was empowered to carry on a commercial banking business. It was authorized to issue circulating notes up to $10 million, the amount of its capital. The bank was not permitted to deal in commodities or real estate. It was essentially a private, for-profit institution competing with state banks for deposits and loan customers. At the same time, the Bank of the United States was the Treasury fund depository. Thus, state banks joined the opposition, arguing that the Bank of the United States set the rules and then competed in the marketplace.

During its first eight years of operation, the bank operated conservatively and made few loans. This fiscal conservancy caused state banks and entrepreneurs to complain that economic development was being hampered. By 1811, 70 percent of the bank's stock was held by foreign interests, which would have sent millions in specie overseas had the charter been renewed. That fact, plus opposition from the state banks and agrarians as well as the question of the bank's constitutionality, prevented the charter from being renewed, and the bank ceased operations in 1811.

Debt from the War of 1812 brought about renewed interest in a central bank, particularly as inflation surged from the increasing number of notes issued by private banks, now unrestricted by a federal bank. A twenty-year charter established the Second Bank of the United States in 1816. Congress expected the bank to restore currency soundness through deposits of mass quantities of bank notes by the government. As a large creditor of state banks, the Bank of the United States demanded specie payments for those notes, forcing the state banks to limit the amount of notes and loans they issued. This restriction of credit, which occurred while the population and economy were expanding, led to the same complaints that had plagued the first Bank of the United States.

In 1833, President Andrew Jackson, who had been battling the bank's existence since 1829, removed all federal funds from the bank, placing them in "pet banks." Due to the actions of President Jackson, as well as continuing opposition from state banks and agrarians, the charter was not renewed in 1836. The Second Bank of the United States ceased existing as a national institution.


Hammond, Bray. Banks and Politics in America from the Revolution to the Civil War. Princeton, N.J.: Princeton University Press, 1957.

Knox, John Jay. A History of Banking in the United States. New York: Bradford, Rhodes, 1900.

Remini, Robert V. Andrew Jackson. New York: Twayne, 1966.

T. L.Livermore


See alsoBanking: Overview ; Hamilton's Economic Policies ; Pet Banks ; Removal of Deposits .

Bank of the United States (Second National Bank)

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After the First National Bank ceased to exist in 1811 U.S. currency and state bank notes became unstable. They could not be converted to gold or silver coins. Bank notes had become a common means of payment by that time. Inflation increased when the holders of these notes could not exchange them at face value. The economic situation was worsened by the War of 1812 (181214), which the United States fought against Britain because of its interference in U.S. shipping. In 1816 the federal government created the Second Bank of the United States, which had an initial capitalization of 35 million. Since the U.S. government owned 20 percent of the institution (just as it did with the First Bank), it deposited $7 million in start-up capital. With branches across the country the bank's powers were similar to those of the First Bank: it could issue notes, hold deposits, make loans, pay the salaries of public officials, and monitor the states' issuance of bank notes (to ensure they could be converted to coin). U.S. banker Langdon Cheves (17761857) became president of the Second Bank of the United States in 1819. He rescued it from the brink of disaster by building up its resources, reorganizing it, and reducing the number of speculative loans it made. Cheves was followed as the bank's president in 1823 by U.S. financier Nicholas Biddle (17861844). Under Biddle the bank further restricted credit, sold branch drafts enabling business people to send money from state to state, managed foreign payments, and prevented state banks from issuing notes they could not pay. Biddle's advocates in Congress moved for renewal of the bank's charter in 1832. Since President Andrew Jackson (17671845) viewed the bank with suspicion, he vetoed the bill. The U.S. government removed its deposits from the bank and its federal charter was allowed to expire in 1836. The state of Pennsylvania granted the institution a charter that year, but the bank failed in 1841.

See also: Bank of the United States (First National Bank), Bank War, Nicholas Biddle, Andrew Jackson

Bank of the United States (First National Bank)

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The nation's founding fathers differed on whether a national bank should be created when they drafted the U.S. Constitution (1788) and established the federal government. This split led to the formation of the two major political parties. The first Secretary of the Treasury Alexander Hamilton (17551804) led the Federalist Party. The Federalists believed that the government could use all powers except those expressly denied by the Constitution. Hamilton promoted the establishment of a national bank, arguing it would strengthen the government and promote economic growth. Secretary of State Thomas Jefferson (17431826) headed the Democratic-Republicans. They argued that powers not specifically mentioned in the Constitution could not be exercised. Jefferson regarded the national bank as a potential monopoly that could infringe upon civil liberties in the United States.

In 1791 the Federalists won the argument and the First Bank of the United States was established. Eighty percent of its stock was privately held. The other 20 percent was owned by the U.S. government. Its capital was $10 million (two million dollars of which was supplied by the U.S. government). The bank had eight branches in U.S. cities. The bank could issue notes, hold deposits, and make loans. It also paid the salaries of public officials and monitored the states' issuance of bank notes (promissory notes issued by a bank which had to be paidconverted to coinby the bank on demand of the holder). The government's involvement in the bank was short-lived: In 1802 it sold its interest to private investors at a profit. When the charter for the bank came up for renewal it was allowed to expire and the bank ceased to exist in 1811.

See also: Bank of the United States (Second National Bank), Thomas Jefferson

Bank of the United States

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The American Revolutionary War resulted in the emergence of a new country faced with the task of establishing a fundamental basis for government embodying the principles of freedom for which the colonists had fought. The need for a sound financial system was most urgent, and this was remedied by the creation of the First Bank of the United States in 1791.

alexander hamilton, first U.S. secretary of the treasury, devised the original plan for the bank. It was argued that the Constitution did not empower Congress to institute such a bank, and that the bank was partial to commercial interests as opposed to those of farmers. Congress, nonetheless, endorsed the passage of the bank's charter.

The bank, located in Philadelphia, began with assets of $10 million, one-fifth of this money furnished by the federal government, the remainder provided by outside investors. Its affairs were administered by twenty-five directors. The bank's powers were limited to commercial enterprises, and loans were processed at six percent interest. The first bank performed well, but renewal of its charter in 1811 was thwarted by the argument against its constitutionality and by the opposition of agricultural workers. The First Bank of the United States closed for business in 1811 with a profit.

The need for a second national bank became apparent in 1816, after the war of 1812 catapulted the country into a financial crisis. However, the constitutionality of such a bank was still in dispute. In mcculloch v. maryland, the Supreme Court, in an opinion by Chief Justice john marshall, held that Congress possessed the authority to create a national bank and that the states lacked the power to tax it (17 U.S. [4 Wheat.] 316, 4 L. Ed. 579 [1819]).

The new bank began on a grander scale, with capital amounting to $35 million. For the first three years it tottered on the verge of disaster under the mismanagement of its chief administrator, William Jones. When Jones left the bank in 1819, Langdon Cheeves assumed his duties, and the bank became sound. By the time Nicholas Biddle became president in 1823, the bank was functioning efficiently, and it remained a reliable system of finance for the next ten years.

In 1832, Biddle requested renewal of the charter, which was due to expire in 1836. The bank again met opposition by those who believed it had become too powerful. President andrew jackson led the opposition, and the controversy became an issue in his presidential election campaign in 1832 against henry clay. Clay, an advocate of the bank, had encouraged Biddle to apply for the charter renewal earlier than necessary.

The reelection of Andrew Jackson sounded the death knell for the Second Bank of the United States. He rejected the renewal of the charter and in 1833 deposited federal monies into selected state banks, termed "pet banks." The loss of federal funds greatly crippled the effectiveness of the bank, and it closed in 1836, the year its charter expired.

further readings

Brown, Marion A. 1998. The Second Bank of the United States and Ohio, 1803–1860: A Collision of Interests. Lewiston, N.Y.: Edwin Mellen.

Cowen, David Jack. 2000. The Origins and Economic Impact of the First Bank of the United States, 1791-1797. New York: Garland.


Banks and Banking.

Bank of the United States

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Bank of the United States Two US national banks. The first was established in 1791 and aimed to provide the USA with a solid economic basis. Although it was soundly operated, autonomous state banking interests defeated its rechartering in 1811. Following the War of 1812, a second national bank was chartered by Congress in 1816. There was much opposition to its power to establish local branches that could compete with state-chartered banks, and many in western states believed the bank favoured eastern business interests. President Andrew Jackson supported the bank's opponents, and vetoed its rechartering. The bank became obsolete in 1836. It was not until the creation of the Federal Reserve System (1913) that the USA achieved a central banking system.