National Bank

Examples of National Bank in the following topics:

• The First National Bank

  • Against opposition, the First National Bank was established to improve the nation's credit under the newly enacted Constitution.
  • Hamilton's proposed national bank would function purely as a depository for federal funds, rather than a lending bank.
  • After reading Hamilton's defense of the National Bank Act, Washington signed the bill into law.
  • The First Bank building is now a National Historic Landmark located in Philadelphia, Pennsylvania within Independence National Historical Park.
  • Analyze the debate surrounding the charter of the First National Bank

• Hamilton's Economic Policy

  • In Hamilton's "Second Report on the Public Credit," submitted to Congress in 1790, he recommended the chartering of a national bank, modeled on the Bank of England.
  • Hamilton's proposed national bank would function purely as a depository for federal funds, rather than as a lending bank.
  • Unlike the Bank of England, the National Bank would be a business on behalf of the federal government that would serve as a depository for collected taxes, making short-term loans to the government to cover real or potential temporary income gaps and serving as a holding site for both incoming and outgoing monies.
  • There was a heated debate between Democratic-Republicans and Federalists over the constitutionality of a National Bank.
  • After reading Hamilton's defense of the National Bank Act, Washington signed the bill into law.

• The Second Bank of the United States

  • One of the policies of the American System was to create financial infrastructure in the form of a government sponsored National Bank to issue currency and encourage commerce.
  • The debt of the nation led to an increase in banknotes among private banks, and as a result, inflation increased greatly.
  • In the summer of 1818, the national bank managers realized the bank's massive overextension and instituted a policy of contraction and the calling in of loans.
  • The Whigs and anti-Jackson National Republicans hoped they would gain enough seats in Congress during the election of 1836 to override a second Jackson veto, thereby extending the Bank's charter.
  • The south facade of the building that housed the Second Bank of the United States is located at 4th and Chestnut Streets in Independence National Historical Park, Philadelphia, Pennsylvania.

• Bankers and Lawyers

  • As America's leaders sought to define the economic structure of the United States, partisan politics came heavily into play in the debate over the merits of a national bank.
  • Anti-federalists viewed the bank's tight control over the nation's currency as a monopoly, and argued that the powers and privileges possessed by the Second Bank were unconstitutional.
  • The bank refused to pay the tax, and in 1819, Daniel Webster, the bank's attorney as well as director of its Boston branch, brought the case before the Supreme Court.
  • These federalists sought internal improvements and stronger national infrastructure.
  • Jackson's war on the bank set the stage for the emergence of modern populism.

• The Bank War and Economic Boom

  • In the presidential campaign of 1832, the Bank of the United States was the issue dividing Jacksonian Democrats from National Republicans.
  • Anti-BUS Jacksonian Democrats opposed the national bank's reauthorization on the grounds that the institution conferred economic privileges on financial elites, violating republican principles of social equality.
  • With the Bank charter due to expire in 1836, the president of the Bank, Nicholas Biddle, in alliance with the National Republicans under Senators Henry Clay (KY) and Daniel Webster (MA), decided to make rechartering a referendum on the legitimacy of the institution in the general election of 1832.
  • Pro-Bank interests warned the public that Jackson would abolish the Bank altogether if granted a second term.
  • In the presidential campaign of 1832, the BUS served as the central issue in mobilizing the opposing Jacksonian Democrats and National Republicans.

• The Panic of 1819

  • The new nation had previously faced an economic depression following the War of Independence in the late 1780s and 1790s, but nothing as severe.
  • If large numbers of people, or banks that had loaned money to other banks, began to demand specie payments, the banking system would collapse, because there was no longer enough specie to support the amount of paper money the banks had put into circulation.
  • In an effort to bring stability to the nation’s banking system, Congress chartered the Second Bank of the United States (a revival of Alexander Hamilton’s national bank) in 1816.
  • Because it was the first economic depression experienced by the nation, the American public panicked as they saw the prices of agricultural products fall and businesses fail.
  • There was a wave of bankruptcies, bank failures, and bank runs; prices dropped and wide-scale urban unemployment occurred.

• Banking and Finance Reform

  • At the beginning of the Great Depression, the economy was destabilized by bank failures, brought on by bank runs.
  • Roosevelt declared a bank holiday, suspending all bank operations in order to prevent bank runs.
  • The banking holiday thus closed the nation's banks (until new legislation was passed) without prompting panic.
  • By the end of 1933, 4,004 small local banks were permanently closed and merged into larger banks.
  • As the banks reopened, billions of dollars in hoarded currency and gold flowed back into the banks within a month, thus stabilizing the banking system.

• Strengthening the Monetary System

  • That caused a very fragile international situation, in which national economies had little flexibility and governments made decisions depending on the relation between paper money and gold, despite the existing weaknesses of the post-WWI gold standard.
  • Whether a country was on or off the gold standard, the connection of the most powerful national economies and currencies (most notably, U.S., Great Britain, and France) to the gold standard had impact on all. 
  • This national bank holiday, with banks closed and Americans having no access to their deposits, gave Congress enough time to propose banking reform legislation.
  • Separation of commercial banking from investment banking.
  • Regulation of transactions between Federal Reserve member banks and their non-bank affiliates.

• Jackson's Democratic Agenda

  • The Whigs generally opposed Manifest Destiny and expansion, saying the nation should build up its cities.
  • The Jacksonians opposed government-granted monopolies to banks, especially the central bank known as the Second Bank of the United States.
  • Despite this, Jackson did not actively seek to destroy or fight the Bank, but did veto the Bank's recharter and subsequently pulled federal reserves out from the institution.
  • By contrast, the Whigs strongly supported the Bank; they were led in their efforts by Daniel Webster and Nicholas Biddle, the bank chairman.
  • Democratic cartoon from 1833 showing Jackson destroying the bank, to the approval of the Uncle Sam-like figure to the right and the annoyance of the bank's president, depicted as the Devil.

• Economic Booms and Busts

  • The suspension of the obligation to back transactions with hard currency spurred the establishment of new banks and the expansion of bank note issues .
  • In 1837, the nation once again faced a financial crisis as a result of the speculative fever of the Market Revolution, known as the Panic of 1837.
  • Run on the Seamen's Savings' Bank during the Panic of 1857
  • Bank runs, in which patrons remove all of their funds from a failing bank, were common features of early banking panics in the U.S.
  • The widespread use of bank notes contributed to the economic crises of 1819 and 1837.