The federal government’s wish to restore the monetary system to the gold standard led to the second attempt to created a national bank, but the bank was ultimately the victim of political opposition.
In April, 1816, President James Madison signed a bill authorizing the establishment of the Second Bank of the United States. In January, 1817, the bank commenced operations in Philadelphia in the same building that had housed the First Bank of the United States. The First Bank had been chartered in 1791 as part of the comprehensive financial program of Treasury Secretary Alexander Hamilton.
In 1812, the United States entered the War of 1812
After the war ended in December, 1814, a movement to form a new Bank of the United States gained momentum. As in 1790, the federal government was burdened with a large public debt, much of it selling below face value. It was believed that if the securities could be used to pay for the stock of a new bank, their market value would rise. Furthermore, Treasury officials needed competent help in managing their funds, after having had bad experiences with state bank depositories. One of the government’s most important motivations was to restore monetary order to the United States and halt the inflation process. Many businessmen, such as Stephen Girard
The new bank charter passed Congress in April of 1816. It specified the structure and operations of the bank but did not identify any public purpose that the bank was to serve. The Second Bank of the United States resembled its predecessor in many respects, although its capitalization, at thirty-five million dollars, was larger. As before, the government took one-fifth of the stock. A new feature was that one-fifth of the directors were appointed by the government. The bank provided a depository for federal funds in every state where a branch opened.
Between 1817 and 1828, twenty-eight branches were established in the major commercial cities of the nation. It was through these branches that the Second Bank was enabled to exercise control over the rapidly increasing number of state banks. The bank transferred federal funds from place to place and paid public creditors without charge to the government. The bank was authorized to issue notes that were receivable at par in all payments to the government. It was also authorized to lend money and to buy and sell bills of exchange. It became the manager of the U.S. Treasury’s bank account and handled transactions involving issue, redemption, and interest payments on government securities.
The new bank was expected to lead the nation’s banks back to specie redemption, aided by the Webster Resolution of 1816, which forbade the Treasury to accept notes of non-specie-paying banks. The banks nominally resumed specie payments in February, 1817, but their specie reserves were very small relative to their liabilities. The Second Bank tried to make their position easier by expanding its own credit rapidly. However, the bank was badly managed under its first president, William Jones
In 1818, the United States experienced a large international outflow of gold. The government called on banks to redeem notes and deposits in specie. As their reserves declined, they were obliged to reduce loans, and the resulting contraction of credit led to severe deflation and economic depression. The Second Bank reduced its loans from forty-three million dollars in early 1818 to thirty-one million dollars in September, 1819, during which time its note circulation fell from ten million to four million dollars. Under fire for internal mismanagement and for the country’s deflationary distress, Jones
The Second Bank’s role in the Panic of 1819
In 1823, Nicholas Biddle
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Bodenhorn, Howard. A History of Banking in Antebellum America: Financial Markets and Economic Development in an Era of Nation-Building. New York: Cambridge University Press, 2000. Examination of American banking policies in the years leading up to the Civil War, with attention to the Bank of the United States. -
Brown, Marion A. The Second Bank of the United States and Ohio, 1803-1860: A Collision of Interests. Lewiston, N.Y.: Edwin Mellen Press, 1998. Study of the conflicts between the Second Bank of the United States and the state of Ohio. -
Govan, Thomas P. Nicholas Biddle: Nationalist and Public Banker, 1786-1844. Chicago: University of Chicago Press, 1959. This highly readable biography gives ample background on the evolution of the Second Bank and its political adventures. -
Hammond, Bray. Banks and Politics in America. Princeton, N.J.: Princeton University Press, 1957. This breezy, entertaining book blends political and economic analysis. Criticizes the Jacksonian point of view. -
Kaplan, Edward S. The Bank of the United States and the American Economy. Westport, Conn.: Greenwood Press, 1999. Broad, economic study of the role of the Bank of the United States in American economic history. -
Redlich, Fritz. The Molding of American Banking: Men and Ideas. 1951. Reprint. New York: Johnson Reprint, 1968. Emphasizes the role of businessmen in the initial chartering of the Second Bank, and assesses Biddle’s innovations in both commercial and central banking. -
Smith, Walter B. Economic Aspects of the Second Bank of the United States. Cambridge, Mass.: Harvard University Press, 1953. Presents considerable statistical data and objective analysis of the Second Bank’s operations. -
Timberlake, Richard H. Monetary Policy in the United States: An Intellectual and Institutional History. Chicago: University of Chicago Press, 1993. Chapter 3 depicts the Second Bank as a rather primitive central bank, constrained by its commitment to the gold standard.
McCulloch v. Maryland
Jackson Vetoes Rechartering of the Bank of the United States
Panic of 1837 Begins
Establishment of Independent U.S. Treasury
Congress Passes the National Bank Acts
“In God We Trust” Appears on U.S. Coins
John Jacob Astor; Nicholas Biddle; Andrew Jackson.