First Bank of the United States

The First Bank of the United States helped stabilize the finances of, pay the debts of, and establish international credit for the fledgling nation’s federal government. The debate over its existence shaped the course of constitutional law and led to the founding of the United States’ first two political parties.

Independence from Great Britain brought the United States and its constituent states considerable debt. The amount of state and national debt increased under the Articles of Confederation. The lack of a stable national currency further undermined the new nation’s international credibility. After the adoption of the Constitution, Congress in October, 1789, asked Secretary of the Treasury Alexander Hamilton, AlexanderHamilton to study the problem and create a report on the nation’s credit. Hamilton’s Report on the Public Credit, January, 1790 advocated establishing the credit of the United States by assuming responsibility for the debts of the Articles of Confederation government, the debts incurred during the Revolutionary War, the foreign debt principally owed to France, and the debts of the states. The report recommended chartering a national bank that would be responsible for issuing a national currency and levying protective tariffs to raise revenue.Bank of the United States, First

Sectional and Political Controversy

James Madison, JamesMadison was opposed to Hamilton’s plan because a large portion of the war debt was held by speculators in New York, Pennsylvania, and Maryland who stood to gain from the plan. Madison was opposed to wealth obtained by speculation but not to wealth acquired from slave labor. Hamilton reminded Madison that he had supported the April 26, 1783, resolution of the Continental Congress pledging not to discriminate against those who obtained the government debt.

The southern slave-owning states of Maryland and Virginia had paid their war debts and were against helping South Carolina and the northern states that had not. The largest share of the state debt was owed by the northern states. Hamilton persuaded the southern states to accept the payment of state debts in exchange for the construction of the national capital along the Potomac River. Pennsylvania approved Hamilton’s plan when it was offered the chance to house the temporary national capital in Philadelphia for a ten-year period.

The First Bank of the United States was chartered as a private institution in 1791, with a capital stock of $10 million. Some 20 percent of the stock was owned by the federal government, with the remainder sold to private citizens. The charter, modeled on that of the Bank of England, authorized the bank to serve as a source of deposit, to act as the fiscal agent of the government, to loan money to the government, and to establish a credible national currency. Before signing the Bank Act, President George Washington requested that both Hamilton and Secretary of State Thomas Jefferson, ThomasJefferson submit opinions about the bank.

Jefferson wrote On the Constitutionality of the Bank, February 5, 1791, in which he argued that the bank was unconstitutional under the Tenth Amendment, because creating a national bank was not an enumerated power or a granted power of Congress. Jefferson became the national advocate of strict construction of the Constitution. Hamilton’s response in On the Constitutionality of the Bank, February 23, 1791 centered on the critical and urgent financial needs of the new nation. He argued that the government must have the power to undertake its duties. Using the doctrine of implied powers, Hamilton stated that powers not explicitly denied to the government under the Constitution permitted the bank’s creation, establishing the broad constructionist position toward the Constitution. Hamilton’s argument eventually persuaded President Washington to sign the bill that had passed in the Senate on January 20, 1791 and–with more heated debate–in the House of Representatives on February 8, 1791. The bill passed in the House by a vote of 39 to 20. In the House, there was only one northern vote against the bank’s creation, while there were only three southern votes in favor.

Political Parties Emerge

The difference of opinion between Hamilton and Jefferson on the bank led to the creation of the United States’ first political parties. Hamilton’s FederalismFederalist Party advocated acceptance of the First Bank of the United States along with a broad, less literal, interpretation of the Constitution. The Federalists supported the right of the national government to expand its authority, even at the expense of the states. Secretary Hamilton’s position was further argued before Congress in his December, 1791, Report on Manufactures, which blamed the dire financial situation on the nation’s dependence on agriculture. Hamilton urged the United States to expand its manufacturing and commerce sectors to generate revenue from national tariffs, subsidies, bounties, and premiums. Jefferson countered with the creation of the Democratic-Republican Party, supporting State’s rights[States rights]state’s rights and a strict interpretation of the Constitution. Under this view, any power not specifically enumerated in the Constitution belonged to the states alone, and the federal government could not exercise it.

The first board of the First Bank of the United States had twenty-five members. Three were U.S. senators, four were members of the House of Representatives, one was a doctor, and the rest were lawyers, merchants, and brokers. The Federalist Party held the majority of seats, with 80 percent of the board’s members hailing from the cities of New York, Boston, and Philadelphia. Thomas Willing, a Philadelphia merchant, was elected as the bank’s first president on October 25, 1791. Branches were opened in Boston, New York City, Baltimore, and Charleston, South Carolina.

During Washington’s second administration, the government sold its stock in the bank to pay debts without raising taxes. Later, President Jefferson was forced to modify his views about the Constitution and the bank. Jefferson’s purchase of Louisiana would have been complicated without the existence of the First Bank of the United States to finance it. The bank stabilized the nation’s credit at home and abroad, established the U.S. dollar as a convertible currency in specie, and led to the creation of the United States Mint. The First Bank of the United States’ twenty-year charter expired in 1811. It was not renewed, because the Democratic-Republican majority in Congress remained opposed to it.

The First Bank of the United States was housed in Carpenter’s Hall, Philadelphia, from 1791 to 1795. From 1795 until 1811, it occupied a classical revival-style structure at 120 Third Street, designed by architects Samuel Blodgett and James Windrim. The new building’s architectural plan was inspired by Greek designs and was meant to connect the U.S. government with the democracy of ancient Greece. Atop the portico was an eagle, the first symbol of the United States. The cost of the building’s construction was $110,168.

Further Reading

  • Chernow, Ron. Alexander Hamilton. New York: Penguin Press, 2004. Thorough and meticulously documented biography of the first major figure in American financial history. Offers new information about Hamilton’s ancestry, his personality, and his relationships with other Founders.
  • Cowen, David Jack. The Origins and Economic Impact of the First Bank of the United States, 1791-1797. New York: Garland, 2000. Drawing on previously untapped evidence, this close study of the First Bank of the United States explores the bank’s origins, its shifting policies, and its strong impact on the nascent national economy.
  • Ferguson, E. James. The Power of the Purse: A History of American Public Finance, 1776-1790. Durham: University of North Carolina Press, 1961. Study of American financial history that reveals how important Hamilton’s measures were in saving the country from “currency finance” and creating an environment favoring economic growth and stability.
  • Gordon, John Steele. Hamilton’s Blessing: The Extraordinary Life and Times of Our National Debt. New York: Walker, 1997. Study revealing the long history of American national debt and showing how it originated with Hamilton’s ideas that a national debt could create a vital economy.
  • Moulton, R. K., comp. Legislative and Documentary History of the Banks of the United States from the Time of Establishing the Bank of North America, 1781, to October, 1834. 1834. Reprint. Clark, N.J.: Lawbook Exchange, 2008. Reprint of a valuable early nineteenth century collection of contemporary documents on the creation and operation of the two early national banks. Especially useful for its documentation of contemporary opinions about the banks.
  • Wright, Robert E., and David J. Cowen. Financial Founding Fathers: The Men Who Made America Rich. Chicago: University of Chicago Press, 2006. Illuminating study of the contributions to American financial history made by Hamilton and his successors, including Albert Gallatin, Stephen Girard, and Nicholas Biddle. A valuable study of early banking institutions that is suitable for both beginning and advanced students.

Articles of Confederation

Second Bank of the United States


U.S. Constitution


Federal Reserve

Federal monetary policy

Supreme Court and banking law