Bank of the United States

First Bank of the United States
First Bank of the United States

Seen as an instrument of British interests, the Bank of the United States (BUS) was the most powerful single financial institution in the nation, and thus was the target of those who suspected that foreigners, especially the British, engaged in “shadow control” of the bank.

After the First BUS had its charter expire, and was subsequently replaced by the Second BUS (1816), the new bank became the object of a different conspiracy view in which the “monied interests” sought control over the “common man” through the Bank.

As part of his Report on Public Credit, Secretary of the Treasury Alexander Hamilton recommended creation of a national bank to hold the nation’s deposits, make loans to the new government of the United States, and to provide a source of stability for the nation’s money supply.


Based on the model of the Bank of North America, the Bank of the United States was chartered by Congress in January 1791 for twenty years with a capital stock of $10 million, of which $2 million was to be paid in gold. The government subscribed to one-fifth of the capital stock, and the remainder of the Bank’s ownership was in private hands.

In addition to holding government deposits, the BUS had another important advantage over all future privately owned banks, in that it was authorized to open branches in several states. Among the cities to obtain BUS branches were Norfolk, Virginia, Washington, D.C., and New Orleans. Operations at the main branch in Philadelphia commenced in 1792.

It took only a few hours on 4 July 1791, for subscribers to snatch up shares of BUS stock. One-third were members of Congress, and many more were public officials. Thomas Willing, Robert Morris’s partner, was the president.

Second Bank of the United States
Second Bank of the United States

Despite the clear and obvious representation in ownership by powerful Americans, the Bank immediately came under suspicion of being in the control of “foreign interests.” These attacks remained particularly acute until 1800, when Thomas Jefferson was elected president.

Jefferson, an opponent of the Bank, nevertheless did not ask for repeal of the Bank charter with his new Republican Congress, nor did his allies introduce such a bill. Rather, he ordered the sale of all government interest in the bank, while at the same time he cut the national debt and thus diminished the Bank’s portfolio of government securities.

For the next several years, the BUS produced respectable earnings of 8–10 percent for its stockholders, kept a large reserve, and was operated effectively, if secretly. The Treasury had the authority to require regular reports, but did not, and none were offered. This secrecy, combined with growing anti-British feelings and the corollary suspicion that British investors controlled large portions of the stock, placed the recharter of the BUS in peril in 1811.

By that time, the new president of the United States, James Madison, who was a former Federalist, found himself in conflict with many of the Republicans in Congress. Tensions with England had grown so strong that the recharter bill narrowly failed in both houses despite support from the (by then many) state-chartered banks. Soon thereafter, the United States was again at war with Great Britain.

Following the War of 1812, banknote circulation rose from $45 million to $68 million, generated by some 246 state-chartered private banks. Pressures on reserves (in which banks had to redeem their paper banknotes in gold or silver “specie”) mounted until, in August 1814, the banks had to “suspend” specie payments—that is, refuse to pay gold and silver for notes.

Secretary of the Treasury Alexander Dallas, who had supported a new national bank, used the episode to argue for chartering a Second Bank of the United States. In January 1815, before the War of 1812 ended, Congress had passed a new charter, which Madison vetoed, contending that it did not meet the government’s needs for loans.

However, Congress redrafted the bill and in April 1816 submitted a new charter, which was similar to that of the First BUS. Important differences included a larger capital stock ($35 million) and there were new locations for branches, but the operations resembled the earlier bank’s.

Like the First BUS, the headquarters was in Philadelphia, and like the previous institution, the Second BUS was 80 percent privately owned. Stephen Girard of Philadelphia subscribed to $3 million and William Jones, a Republican from Pennsylvania, was the first president.

Jones’s leadership proved less than inspiring, and after the Bank found its liquid draining away, Congress investigated the operations and accused Jones of mismanagement. After Jones resigned in 1819, South Carolinian Langdon Cheves took over and immediately began calling in loans. Although a recession set in, Cheves managed to right the Bank and to put it on a firm footing, earning a number of enemies along the way.

Critics who favored “loose money” began to attack the bank—most notably Senator Thomas Hart Benton of Missouri, who called it “the monster.” When Cheves was replaced by Philadelphian Nicholas Biddle in 1923, supporters of the Bank hoped the criticism would end.

Biddle managed the Bank well—perhaps too well, as the BUS gained influence and political power far beyond what the First BUS ever held. By 1828, when Tennessean Andrew Jackson was elected president, he had a history of antipathy toward banks.

Nevertheless, early indications were that he would not act unfavorably toward the Bank. Biddle, overestimating his own political support and underestimating Jackson’s popularity, dramatically sought to recharter the BUS in 1832, some four years before its renewal day.

He counted on the fact that Jackson would not risk the wrath of the public in an election year, but badly misjudged Jackson, who saw the Bank as his main campaign foil. Picking up the old “monster” tag, and using still other descriptions such as “the hydra,” Jackson vetoed the recharter bill and then made the veto stick. Furthermore, the public supported him.

Central to Jackson’s “war” on the BUS was his political rhetoric—whether he believed it or not remains a matter of controversy among historians—that the Bank represented the “elites” and involved undue foreign control. Jackson’s speeches touched a long-held U.S. suspicion of speculators and investors, especially if they were foreigners.

Playing to a British “conspiracy” to control U.S. financial markets, Jackson succeeded in withdrawing the deposits of the U.S. government from the BUS in 1833, depriving the Bank of one of its two primary advantages over other institutions.

When the Bank’s national charter expired, it got a charter from Pennsylvania, but with none of the power it once had. By 1840, the former Bank of the United States was out of business, and subsequent scholars have failed to identify any substantial foreign control that was exerted over its operations.