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Second Bank of the United States

From Alfawiki
The Second Bank of the United States
Company typePrivate with public duties
IndustryBanking, finance
Founded1816 in Philadelphia, Pennsylvania, United States
Defunct1841
Headquarters
Philadelphia
,
United States
Area served
United States
Key people
William Jones, Langdon Cheves, Nicholas Biddle, Matthew L. Bevan, Thomas Dunlap, William Drayton, James Robertson
ProductsNational banking services, loans to federal government, currency regulation
OwnerFederal government (20%), private investors (80%)

The Second Bank of the United States served as the nation's second federally sanctioned Hamiltonian national bank, operating from 1816 until 1836 with its headquarters located in Philadelphia, Pennsylvania. Officially designated as "The President, Directors, and Company, of the Bank of the United States," it distinguished itself as the only U.S. bank of its time to maintain branches across several states and extend loans to the federal government.

Functioning as a private entity entrusted with public duties, the bank handled all financial dealings for the U.S. government and was accountable to both Congress and the Treasury Department. The federal government held a 20% stake in the bank's capital, making it its largest shareholder, while roughly 4,000 private investors owned the remaining 80%, including considerable contributions from European financiers. Ownership was largely concentrated among a few hundred affluent Americans. At its height, it stood as the largest financial corporation globally.

Its primary mission involved overseeing public credit issued by private banking institutions through its fiscal responsibilities and creating a stable national currency. The regulatory authority of the bank was reinforced by federal deposits.

Inspired by Alexander Hamilton's First Bank model, it received its charter from President James Madison in 1816, despite Madison’s previous opposition to the original bank. The institution commenced operations in Philadelphia in January 1817 and expanded to 25 branches nationwide by 1832.

The attempt to renew its charter placed the bank at the center of the 1832 presidential contest, where its president Nicholas Biddle and pro-bank National Republicans led by Henry Clay confronted President Andrew Jackson’s hard-money faction in what became known as the "Bank War." After failing to obtain reauthorization, it transitioned into a private corporation in 1836 and was fully dissolved by 1841. National banks would not reappear until legislation enacted under the National Bank Act of 1863–1864.

Establishment

Support for restoring a national banking system grew during the early 1800s as the United States moved away from Jeffersonian agrarian ideals toward an economy increasingly linked with industrial growth and finance. Following the War of 1812, widespread monetary confusion and fiscal instability compelled commercial interests to seek safeguards for government bonds, fostering a coalition advocating for a national bank.

The political atmosphere of the Era of Good Feelings encouraged national initiatives such as protective tariffs, infrastructure projects, and reinstating the First Bank of the United States. Influential southern and western figures like John C. Calhoun and Henry Clay played crucial roles in securing congressional approval for the bank's charter, which President James Madison signed into law on April 10, 1816. However, Madison vetoed proposals that aimed to allocate the bank’s $1.5 million establishment bonus and dividends toward internal improvements on strict constitutional grounds.

Opposition arose from Old Republicans including John Taylor of Caroline and John Randolph of Roanoke, who regarded the bank as unconstitutional and a threat to Jeffersonian agrarian values, state autonomy, and slavery. Additionally, private banks—whether operating under state charters or independently—resisted the national bank’s regulatory influence and had previously prevented rechartering of the First Bank in 1811. These groups mounted significant resistance during President Andrew Jackson’s tenure (1829–1837).

Economic roles

Although the Second Bank operated as a national financial institution, it did not execute contemporary central bank responsibilities such as managing monetary policy, overseeing private banking institutions, safeguarding their excess reserves, or serving as a lender of last resort.

Established during a period of international market realignment following the Napoleonic Wars, its primary goal was to limit unchecked issuance of private banknotes that threatened to cause a credit bubble and financial instability. Speculative bubbles were fueled by government land sales in the Western territories, driven by European demand for farm products. At the same time, the bank encouraged credit expansion to back entrepreneurs in the East and farmers in the Western and Southern regions who required financing.

During the tenure of its inaugural president, William Jones, the institution struggled to regulate paper money issued by its Western and Southern branches, contributing to a speculative land boom after the war. The resulting Panic of 1819, influenced by shifts in global economic conditions, led to criticism over the bank’s delayed implementation of tight monetary policies, which exacerbated unemployment and declining property values. Fraudulent activities were also discovered among directors at the Baltimore branch.

Jones stepped down in January 1819 and was replaced by Langdon Cheves, who pursued continued credit contraction aimed at curbing inflation and stabilizing the bank amid economic adjustment. This inconsistent approach to credit revealed organizational vulnerabilities that prolonged a recession characterized by high joblessness and falling real estate prices until 1822. The crisis eroded public confidence in paper currency and the national financial framework, intensifying opposition from anti-bank Jacksonian Democrats during the 1830s. By that time, the institution had lost much credibility when President James Monroe appointed Nicholas Biddle as its third president in 1823.

Under Biddle’s guidance, the bank transformed into a formidable entity that established a reliable system for national credit and currency. Between 1823 and 1833, he carefully expanded credit to support America’s economic growth. In 1831, former Treasury Secretary Albert Gallatin confirmed that the bank was fulfilling its charter obligations.

Jackson's Bank War

By the time of Jackson’s inauguration in 1829, the bank was financially sound, its constitutionality upheld by the Supreme Court in McCulloch v. Maryland, and it provided a stable currency. Public opinion was largely favorable. Nonetheless, in December 1829, Jackson’s administration launched an attack on the bank, accusing it of failing to maintain currency stability and challenging its constitutional validity. Congress responded with reports endorsing the bank’s constitutional role and significance in preserving a uniform currency, but Jackson dismissed these conclusions, condemning the bank as corrupt and a danger to American freedoms.

Biddle attempted to negotiate a recharter (scheduled for 1836) but was unsuccessful. Opposition from Jackson and anti-bank advocates persisted, prompting pro-bank National Republicans led by Henry Clay to initiate an early recharter effort. Clay’s political challenge to Jackson—supported financially and politically by Biddle—ignited the Bank War and made the issue central to the 1832 presidential election.

Jackson rallied his supporters by vetoing the recharter legislation; after sustaining this veto, he secured reelection campaigning against the bank. Subsequently, he weakened the institution’s power by withdrawing federal deposits and reallocating government revenues into selected private banks through executive order in 1833, effectively terminating the Second Bank’s regulatory authority.

In response, Biddle attempted to provoke a financial crisis to force intervention, initially blamed on Jackson’s policies. However, by 1834 public opposition to Biddle’s strategy quelled the panic, leading to abandonment of all attempts to renew the bank’s charter.

State bank

In February 1836, the institution transitioned into a private corporation under Pennsylvania legislation. The scarcity of specie contributed to the Panic of 1837, which persisted for approximately seven years. The bank halted payments between October 1839 and January 1841, ultimately ceasing operations permanently in February 1841. Subsequently, it underwent an intricate liquidation process marked by legal disputes, concluding in 1852 when remaining assets were transferred to trustees and its state charter was relinquished.

Branches

The bank maintained branches across major American cities to broaden its commercial influence:



Presidents

Terms of charter

The Second Bank served as the United States’ national bank with a distinctive framework: the federal government held a one-fifth share—20%—of its $35 million capital stock. Unlike purely private national banks of that period, it operated with characteristics akin to a government institution.

For utilizing public funds interest-free in private banking activities, the bank paid a $1.5 million "bonus" to the government in three separate installments. It remained accountable to both the U.S. Treasury and Congress and was subject to periodic Treasury audits.

As the sole fiscal agent for the federal government,[1][2] it managed all government deposits and financial transactions while processing tax collections—acting simultaneously as principal shareholder and client.

Its governance structure consisted of a board with twenty-five directors; five of these were appointed by the President and confirmed by the Senate. These federally designated directors were prohibited from holding roles in other banking institutions. Significantly, two presidents—William Jones and Nicholas Biddle—were chosen from among these government-appointed directors.

Headquartered in Philadelphia with authorized branches throughout the nation, these offices were shielded from state taxation pursuant to McCulloch v. Maryland.[3]

Regulatory mechanisms

Established in 1816, the Second Bank primarily aimed to control the rampant issuance of paper currency (bank notes) by state and private banks, a lucrative activity for these entities. It managed credit growth by enabling extensive lending to farmers, small-scale manufacturers, and business owners, thereby fostering swift economic expansion. According to historian Bray Hammond, the bank played a crucial role in preventing inflation by requiring local banks to redeem government revenue deposits—comprising checks and notes—in specie (gold and silver). This obligation restricted local banks’ ability to extend credit excessively. While this system helped prevent speculative bubbles and financial instability, it encountered resistance from local banks reluctant to be bound by national fiscal policies and maintain specie reserves. The number of private banks increased dramatically from 31 in 1801 to 788 by 1837, heightening opposition during President Jackson’s tenure.

Architecture

The architect behind the Second Bank was William Strickland (1788–1854), a student of Benjamin Latrobe and an advocate of Greek Revival architecture. Strickland was responsible for designing several prominent public structures, including Philadelphia’s Mechanics National Bank and various U.S. Mint facilities.

Strickland’s design for the Second Bank is heavily influenced by the Parthenon in Athens, representing an early and notable example of Greek Revival architecture. Both the north and south façades display a raised stylobate supporting eight Doric columns crowned by an entablature with a triglyph frieze and a triangular pediment, evoking the appearance of an ancient Greek temple. Inside, a central entrance hall is flanked by adjacent rooms, with large arched fan windows illuminating the east and west sides of the main chamber. Constructed from Pennsylvania blue marble, the structure has suffered some weather-related wear over time. The building’s construction took place between 1819 and 1824.

This Greek Revival aesthetic sharply contrasts with the nearby First Bank of the United States, which exhibits Federal style characterized by Roman-inspired Corinthian columns, pilasters, balanced sash windows, a balustraded roofline, and decorative modillions—giving it more of a Roman villa ambiance than a Greek temple look.

Current building use

Following its closure in 1841, the building has fulfilled multiple roles. It currently belongs to Independence National Historical Park in Philadelphia and is accessible to visitors at no cost. The site functions as an art gallery housing an important collection of portraits depicting early American personalities by artists such as Charles Willson Peale. The gallery also features the distinguished wooden statue of George Washington sculpted by William Rush.

In recognition of its architectural significance and historical value, the building was declared a National Historic Landmark in 1987.

The former Wall Street branch of the bank in New York City was converted into the United States Assay Office before being demolished in 1915. Its federal-style façade was salvaged and relocated to the American Wing of the Metropolitan Museum of Art in 1924.

In popular culture

In his 1842 travelogue American Notes for General Circulation, Charles Dickens offered a striking depiction of the Second Bank building, emphasizing its eerie emptiness following its shutdown:

Arriving late in the city that night, I glanced out from my chamber window before retiring and noticed across the street a stately white marble structure, which bore a ghostly and somber appearance, bleak to behold... Its door remained firmly closed... It was the vault of countless fortunes; the vast catacomb of capital; the renowned United States Bank.

The bank’s closure, along with its devastating aftermath, had cast a shadow over Philadelphia from which it was still recovering. The city indeed seemed somewhat dull and lacking vitality.[4]

See also

Bibliography

  • online review
  • Feller, Daniel. "The Bank War", in Julian E. Zelizer, ed. The American Congress (2004), pp 93–111.
  • Kahan, Paul. The Bank War: Andrew Jackson, Nicholas Biddle, and the Fight for American Finance (Yardley: Westholme, 2016. xii, 187 pp.)
  • {{cite book  ... [remaining entries unchanged] }}


External links

  1. ↑ Wellman 1966, p. 92.
  2. ↑ Cite error: Invalid <ref> tag; no text was provided for refs named Hammond, 1947, p. 149
  3. ↑ Cite error: Invalid <ref> tag; no text was provided for refs named Dangerfield, 1966, p. 12
  4. ↑ Dickens 1913, p. 81.
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