Second Bank of the United States

The Second Bank of the United States was the second federally authorized Hamiltonian national bank in the United States. Located in Philadelphia, Pennsylvania, the bank was chartered from February 1816 to January 1836. The bank's formal name, according to section 9 of its charter as passed by Congress, was "The President, Directors, and Company, of the Bank of the United States". While other banks in the US were chartered by and only allowed to have branches in a single state, it was authorized to have branches in multiple states and lend money to the US government.

A private corporation with public duties, the bank handled all fiscal transactions for the U.S. government, and was accountable to Congress and the U.S. Treasury. Twenty percent of its capital was owned by the federal government, the bank's single largest stockholder. Four thousand private investors held 80 percent of the bank's capital, including three thousand Europeans. The bulk of the stocks were held by a few hundred wealthy Americans. In its time, the institution was the largest monied corporation in the world.

The essential function of the bank was to regulate the public credit issued by private banking institutions through the fiscal duties it performed for the U.S. Treasury, and to establish a sound and stable national currency. The federal deposits endowed the bank with its regulatory capacity.

Modeled on Alexander Hamilton's First Bank of the United States, the Second Bank was chartered by President James Madison, who in 1791 had attacked the First Bank as unconstitutional, in 1816 and began operations at its main branch in Philadelphia on January 7, 1817, managing 25 branch offices nationwide by 1832.

The efforts to renew the bank's charter put the institution at the center of the general election of 1832, in which the bank's president Nicholas Biddle and pro-bank National Republicans led by Henry Clay clashed with the "hard-money" Andrew Jackson administration and eastern banking interests in the Bank War. Failing to secure recharter, the Second Bank became a private corporation in 1836, and underwent liquidation in 1841. There would not be national banks again until the passage of the National Bank Act.

History

Establishment

The political support for the revival of a national banking system was rooted in the early 19th century transformation of the country from simple Jeffersonian agrarianism towards one interdependent with industrialization and finance. In the aftermath of the War of 1812, the federal government suffered from the disarray of an unregulated currency and a lack of fiscal order; business interests sought security for their government bonds. A national alliance arose to legislate a national bank to address these needs.

The political climate—dubbed the Era of Good Feelings—favored the development of national programs and institutions, including a protective tariff, internal improvements and the revival of a Bank of the United States. Southern and western support for a bank, led by Republican nationalists John C. Calhoun of South Carolina and Henry Clay of Kentucky, was decisive in the successful chartering effort. The charter was signed into law by James Madison on April 10, 1816. Subsequent efforts by Calhoun and Clay to earmark the bank's $1.5 million establishment "bonus", and annual dividends estimated at $650,000, as a fund for internal improvements, were vetoed by President Madison, on strict constructionist grounds.

Opposition to a new bank emanated from two interests. Old Republicans, represented by John Taylor of Caroline and John Randolph of Roanoke, characterized the Second Bank as both constitutionally illegitimate and a direct threat to Jeffersonian agrarianism, state sovereignty and the institution of slavery, expressed by Taylor's statement that "...if Congress could incorporate a bank, it might emancipate a slave." Hostile to the regulatory effects of the national bank, private banks—proliferating with or without state charters—had scuttled rechartering of the First Bank in 1811. These interests played significant roles in undermining the institution during the administration of U.S. President Andrew Jackson (1829–1837).

Economic functions

The Second Bank was a national bank. However, it did not serve the functions of a modern central bank: It did not set monetary policy, regulate private banks, hold their excess reserves, or act as a lender of last resort.