Bank of the United States was the name of two national banks established by the U.S. government. The first was chartered in 1791 and the second in 1816.
When the new U.S. government was set up in 1789, many of its leaders wanted a national bank. Alexander Hamilton, secretary of the treasury, thought such a bank would strengthen the government politically and promote the nation’s economic growth. The few state-incorporated banks that existed then had small resources and were too isolated to handle the government’s financial operations. Merchants and traders also needed additional banking facilities. Secretary of State Thomas Jefferson saw a national bank as a powerful financial monopoly, dangerous to American freedoms. Some members of Congress doubted the constitutionality of such a bank. But the bank’s charter was granted in 1791, and it opened in Philadelphia later that year.
The First Bank of the United States
(1791-1811) had a capital of $10 million. The U.S. government supplied $2 million of this capital. The bank was authorized to issue notes, make loans, and hold deposits. It had eight branches in important commercial cities.
The bank issued notes that were accepted in all payments to the United States, and the public regarded them as good as gold. The bank handled payments of the public debt for the Treasury, received subscriptions for new issues of government securities, and paid the salaries of public officials. It kept state-incorporated banks from issuing excessive amounts of notes that they might not be able to convert into coin. The government sold its stock in the bank in 1802 at a good profit. But many people still opposed the bank. Its charter was not renewed, and the bank ceased to exist in 1811.
The Second Bank of the United States
(1816-1836). At the end of the War of 1812, the United States had a gravely disordered currency. Except in New England, bank notes were used as a common means of payment, but these notes could not be converted into gold or silver. Commodity prices and real-estate values became inflated. The Treasury tried to collect revenues from import duties and from the sale of public lands. But much of this revenue was in state bank notes not worth their face value in gold and silver. Many people hoped a Second Bank of the United States would fix this problem.
The second bank began in 1816 with a capital of $35 million. The government again owned one-fifth of the capital, $7 million. The bank established branches throughout the country, and its powers were in general like those of the First Bank of the United States. Early in its career, the bank made some unwise loans to speculators. Even so, it proved useful to the Treasury, and it aided state banks in redeeming their notes in coin.
A new president of the bank, Langdon Cheves, rescued it from near financial disaster in 1819. Cheves stopped loans to speculators and improved the bank’s organization. In 1823, Nicholas Biddle became president. Under his management, the bank prevented the fluctuations in receipts and payments by the United States from seriously disturbing the money markets of the country. By the sale of branch drafts (notes), business people could send money inexpensively from one part of the country to another. The bank efficiently handled foreign payments that arose from increasing American trade in the international market. For many years, the bank prevented state banks from issuing too many notes.
In 1832, Biddle’s supporters in Congress introduced a bill to recharter the bank even though the existing charter would not expire for four years. President Andrew Jackson, who was suspicious of banks, regarded the bill as part of a plan to block his reelection. He vetoed the bill and later removed government deposits from the bank. The charter expired in 1836, and the bank ceased to exist as a federally incorporated institution.
The bank continued to operate for about five years under a charter granted by the state of Pennsylvania. It failed in 1841, largely because it attempted to carry on an international investment banking business. Many private and state banks sprang up, and the bank notes they issued could not always be redeemed. The national bank acts passed by Congress in 1863 and 1864 authorized creation of privately owned banks with charters from the federal government. The comptroller of the currency supervised these banks. They issued currency secured by government bonds.
