Second Bank of the United States
History
The Second Bank of the United States was chartered in 1816, five years after the expiration of the First Bank of the United States. The establishment of the Second Bank was a response to the financial turmoil that followed the War of 1812, which had exposed the weaknesses of the American financial system. The bank was intended to stabilize the economy, provide a uniform currency, and act as the federal government's fiscal agent.
The bank was headquartered in Philadelphia, Pennsylvania, and had branches throughout the country. Its charter was set to last for 20 years, expiring in 1836. The bank was capitalized at $35 million, making it one of the largest financial institutions in the world at the time. The federal government owned 20% of the bank's stock, and the remaining shares were sold to private investors.
Structure and Operations
The Second Bank of the United States was structured similarly to its predecessor. It was a private corporation with public duties, and its operations were overseen by a board of directors. The board consisted of 25 members, five of whom were appointed by the President of the United States with the advice and consent of the Senate. The remaining directors were elected by the bank's shareholders.
The bank's primary functions included issuing banknotes, providing loans to the federal government, and regulating the supply of money in the economy. It also served as a depository for federal funds and facilitated the collection of taxes and other revenues. The bank's ability to issue banknotes was particularly important, as it helped to create a more uniform and stable currency.
Economic Impact
The Second Bank of the United States played a crucial role in the American economy during its 20-year existence. It helped to stabilize the currency, reduce inflation, and provide a reliable source of credit for businesses and individuals. The bank also played a key role in managing the nation's money supply and regulating the activities of state-chartered banks.
One of the bank's most significant contributions was its role in the Panic of 1819, the first major financial crisis in the United States. The bank's contractionary monetary policies, which included reducing the amount of credit available and calling in loans, helped to curb inflation and stabilize the economy. However, these policies also contributed to a severe economic downturn, leading to widespread bankruptcies and unemployment.
Political Controversy
The Second Bank of the United States was a source of significant political controversy throughout its existence. The bank's opponents, including President Andrew Jackson, viewed it as an unconstitutional and undemocratic institution that concentrated too much power in the hands of a few wealthy individuals. Jackson's opposition to the bank culminated in the Bank War, a bitter political struggle that ultimately led to the bank's demise.
In 1832, Jackson vetoed a bill to recharter the bank, arguing that it was a monopoly that favored the wealthy at the expense of the common people. His veto message emphasized the principles of democracy and economic equality, and it resonated with many Americans who were distrustful of centralized financial power. Jackson's re-election in 1832 was seen as a mandate to dismantle the bank, and he subsequently ordered the removal of federal deposits from the bank, effectively crippling its operations.
Legacy
The Second Bank of the United States ceased operations in 1836, following the expiration of its charter. Its demise had significant and long-lasting effects on the American financial system. The absence of a central bank led to a period of financial instability known as the Free Banking Era, characterized by the proliferation of state-chartered banks and a lack of uniform currency.
Despite its controversial history, the Second Bank of the United States left a lasting legacy. It demonstrated the potential benefits of a central banking system, including the ability to stabilize the currency and regulate the money supply. The lessons learned from the bank's successes and failures influenced the creation of the Federal Reserve System in 1913, which remains the central bank of the United States today.