The Second Bank of the United States was created in 1816. In the five years since the expiration of the First Bank's charter, the federal government had struggled through the War of 1812, placing the treasury deeply into debt. In addition, the lack of a central bank to regulate state banks led to an explosion of small banks, many of which provided credit to speculators on easy terms, thus placing the national monetary system on unsteady ground. Congress finally passed a law chartering the Second Bank of the United States, which was created to help the national treasury out of its uncomfortable financial situation and to regulate the currency. Located in Philadelphia, Pennsylvania, the Second Bank started out with $35 million in capital, a fifth of which was provided by the federal government. The Bank served as a place in which the government could deposit federal funds, including tax revenues. The Bank was authorised to issue as many bank notes as the president and cashier were physically able to sign, but was required to be able to pay specie for currency on demand. In addition, the Bank was exempted from taxation by any state. In return, the Bank performed transactions for the government at no charge, and allowed the government to appoint five of its twenty-five directors. The Secretary of the Treasury had the right to remove any government deposits, after presenting the reasons for withdrawal to Congress.
For its first three years in existence, the Second Bank was poorly run. More notes were issued than could be backed by specie. Loans were made without recipients demonstrating sufficient security. Thus, rather than helping curb the excesses of speculation, the Bank supported such activity. The Bank nearly bankrupt when, in 1819, Langdon Cheves was appointed president, and the Bank was thoroughly reorganized. Cheves cleaned up the Bank s financial practices, reduced the number of notes and loans issued, and saved the Bank from collapse. Cheves reforms successfully saved the Bank, they became major contributing factors to the national financial crisis of 1819.
The economic difficulties the nation faced led some states to resort to extreme solutions. The State of Maryland attempted to tax the Second Bank of the United States, although the body was legally exempt from state taxation. This was the Second Bank s second major crisis, testing its very constitutionality. The case was tried in the US Supreme Court, in McCulloch v. Maryland (1819). The Court ruled in favor of the Bank, upholding its constitutionality.
Despite this legal victory, the Bank had many opponents. Among these were hard money supporters, including President Jackson, who wanted to get rid of artificial paper money and stick to gold and silver coins. Soft money people, such as speculators, also opposed the Bank, since they wanted to expand state and local banks authority to print money without the Bank s restraining influence. Debtors and southern farmers tended to oppose the Bank because of its constraints on loans and local availability of credit. Industrialists and creditors tended to support the Bank, however, because of the stability it helped establish in the national economy.
In the 1820's, Nicholas Biddle took over the leadership of the Bank. He reversed some of Cheves contractionary policies, which had contributed to the national financial crisis. Overall, he helped run the Bank effectively. Even though his efforts helped alleviate the painful economic circumstances brought by the Panic of 1819, many of his actions were looked upon unfavorably. The suspicion of many Americans may be attributeable to the desire for short-term gain, as well as a certain national mistrust of large organizations and power structures. Some concern may, however, be due to Biddle's undiplomatic, sometimes overbearing attitude - Biddle's nickname was Tsar Nicholas.
Jackson's war against the Second Bank of the US began in earnest with his 1832 veto. Biddle, urged by Henry Clay, brought up the issue of the recharter of the Bank four years before it was due. Clay s intention was to help his own chances in the upcoming Presidential election by pushing Jackson into alienating part of his constituency either by signing or vetoing the recharter. Unfortunately for Clay, he had underestimated Jackson s political support, and Jackson was able to veto the recharter without endangering his chances of reelection.
Jackson turned the Bank into a moral-philosophical issue, depicting it as an institution which endangered the foundations of American liberty and democracy by encouraging an inbalance of power between the rich and the poor and threatened the Union by creating artificial distinctions. This belief was very much in line with Jackson s comman man political image, and appealed to enough Americans to facilitate his reelection to the Presidency by a comfortable majority.
The Second Bank of the United States was chartered for many of the same reasons as its predecessor, the First Bank of the United States. The War of 1812 had left a formidable debt. Inflation surged ever upward due to the ever-increasing amount of notes issued by private banks. Specie was jealously hoarded. For these reasons President Madison signed a bill authorizing the 2nd Bank in 1816 with a charter lasting 20 years.
Click to learn more about this 1840 bank note, number 8894
In the late 1820s a titanic clash erupted between President Jackson and bank President Nicholas Biddle. On one side was Andrew Jackson, Old Hickory, and his supporters who claimed the Bank was a threat to the republic due to its economic power. State bankers felt the central bank's influence frustrated their ability to function. Westerners and farmers claimed the bank was a baleful tool of city folks and overseas interests. On the other side stood Nicholas Biddle, an urbane Philadelphian; before banking he started a literary magazine called the Port Folio. He traveled the world and found the splendor of Greece most compelling (hence Biddle's insistence of a Greek revival structure). Supporters of Biddle's bank outnumbered detractors: 128,117 people signed memorials to save the bank as opposed to 17,027 who signed memorials opposing the bank. Ultimately Jackson triumphed when he vetoed Congress's 1832 recharter. Jackson considered his 1832 election triumph over pro-bank candidate Henry Clay a mandate of his anti-bank policy. The bank ceased to function in 1836.
In 1841 President John Tyler vetoed a bill re-establishing the Bank. The Whig party, which had supported the bill, reacted violently, burning Tyler in effigy and hurling stones and shooting at the White House. The reaction prompted increased security measures in the District of Columbia, but the Bank was never re-established.
Today the bank is home to the extraordinary Portrait Gallery. Inside the barrel-vaulted structure, graceful Ionic columns complement the portraits of revolutionary heroes and Federal statesman. Those painted represent a Who's Who of the 18th century. There are signers of the Declaration and Constitution in addition to military men and foreign emissaries. many of the works were painted by Charles Willson Peale, the foremost portraitist of his day. Other artists include James Sharples and Thomas Sully. Of considerable interest are the paintings of Patrick Henry, Casimir Pulaski and Robert Morris. Do not omit a tour of the gallery from your journey to Philadelphia.
- Bank modeled on the Parthenon in Greece
- 60,000 people in West Philadelphia protested President Jackson's veto of the bank's 1832 recharter.
- Washington's death mask is part of the Portrait Gallery collection.
- Nicholas Biddle entered the University of Pennsylvania at age 10.
- Location: 420 Chestnut Street (Between S. 4th and S. 5th)
- Built: 1818-1824
- Architect: William Strickland
- Style: Greek Revival
- Commissioned by: Congress
- Facilities: outdoor seating, handicapped accessible
The Second Bank of the U.S. was chartered in 1816 with the same responsibilities and powers as the First Bank. However, the Second Bank would not even enjoy the limited success of the First Bank. Although foreign ownership was not a problem (foreigners owned about 20% of the Bank's stock), the Second Bank was plagued with poor management and outright fraud (Galbraith). The Bank was supposed to maintain a "currency principle" -- to keep its specie/deposit ratio stable at about 20 percent. Instead the ratio bounced around between 12% and 65 percent. It also quickly alienated state banks by returning to the sudden banknote redemption practices of the First Bank. Various elements were so enraged with the Second Bank that there were two attempts to have it struck down as unconstitutional. In McCulloch v. Maryland (1819) the Supreme Court voted 9-0 to uphold the Second Bank as constitutional. Chief Justice Marshall wrote "After the most deliberate consideration, it is the unanimous and decided opinion of this court that the act to incorporate the Bank of the United States is a law made in pursuance of the Constitution, and is part of the supreme law of the land" (Hixson, 117). The Court reaffirmed this opinion in a 1824 case Osborn v. Bank of the United States (Ibid, 14).
Not until Nicholas Biddle became the Bank's president in 1823 did it begin to function as hoped. By the time the Bank had regained some control of the money supply and had restored some financial stability in 1828, Andrew Jackson, an anti-Bank candidate, had been elected President. Although the Second Bank was not a campaign issue (Biddle actually voted for Jackson), by 1832, four years before the Bank's charter was to expire, political divisions over the Bank had already formed (Ibid). Pro-Bank members of Congress produced a renewal bill for the Bank's charter, but Jackson vetoed it. In his veto message Jackson wrote,
A bank of the United States is in many respects convenient for the Government and for the people. Entertaining this opinion, and deeply impressed with the belief that some of the powers and privileges possessed by the existing bank are unauthorized by the Constitution, subversive of the rights of the States, and dangerous to the liberties of the people, I felt it my duty...to call to the attention of Congress to the practicability of organizing an institution combining its advantages and obviating these objections. I sincerely regret that in the act before me I can perceive none of those modifications of the bank charter which are necessary, in my opinion, to make it compatible with justice, with sound policy, or with the Constitution of our country
(Ibid, 14-15).
Jackson was not opposed to central banking, per se, but to the Second Bank in particular. No other bill to renew the Bank's charter was presented to Jackson, and so the Second Bank of the United States expired in 1836. The U.S. would be without an official central bank until 1913 when the Federal Reserve System was formed.
Jackson believed that the nation's money supply should consist only of gold or silver coin minted by the Treasury and any foreign coin the Congress chose to accept. This view was fully impractical. The gold and silver stocks of the U.S. were terribly inadequate to provide a sufficient money supply of Jackson's preference. The U.S. at that time had no substantial mines of its own and regularly had a trade deficit, so there was no dependable method to increase the money supply under what Jackson perceived to be the only Constitutional monetary system.
However, few others shared Jackson's opinions on this matter. Even the so-called "Jacksonian" Supreme Court ruled in 1837 in Briscoe v. Bank of Kentucky that state-chartered banks, state-owned banks, and the banknotes they created were fully Constitutional (Hixson, 119). Combined with the unanimous 1819 McCulloch ruling, the legal environment of the U.S. had clearly established that central banking, state banking, and paper currency issued by both entities were Constitutional. That the U.S. chose to proceed through the balance of the nineteenth century without a central bank would lead to interesting and creative measures to construct a financial system.