The Second Bank of the U.S. was chartered in 1816 with thesame responsibilities and powers as the First Bank. However, theSecond Bank would not even enjoy the limited success of the FirstBank. Although foreign ownership was not a problem (foreignersowned about 20% of the Bank's stock), the Second Bank was plaguedwith poor management and outright fraud (Galbraith). The Bank wassupposed to maintain a "currency principle" -- to keep itsspecie/deposit ratio stable at about 20 percent. Instead theratio bounced around between 12% and 65 percent. It also quicklyalienated state banks by returning to the sudden banknoteredemption practices of the First Bank. Various elements were soenraged with the Second Bank that there were two attempts to haveit struck down as unconstitutional. In McCulloch v. Maryland(1819) the Supreme Court voted 9-0 to uphold the Second Bank asconstitutional. Chief Justice Marshall wrote "After the mostdeliberate consideration, it is the unanimous and decided opinionof this court that the act to incorporate the Bank of the UnitedStates is a law made in pursuance of the Constitution, and ispart of the supreme law of the land" (Hixson, 117). The Courtreaffirmed this opinion in a 1824 case Osborn v. Bank of theUnited States (Ibid, 14).
Not until Nicholas Biddle became the Bank's president in1823 did it begin to function as hoped. By the time the Bank hadregained some control of the money supply and had restored somefinancial stability in 1828, Andrew Jackson, an anti-Bankcandidate, had been elected President. Although the Second Bankwas not a campaign issue (Biddle actually voted for Jackson), by1832, 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 theBank's charter, but Jackson vetoed it. In his veto messageJackson 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 theSecond Bank in particular. No other bill to renew the Bank'scharter was presented to Jackson, and so the Second Bank of theUnited States expired in 1836. The U.S. would be without anofficial central bank until 1913 when the Federal Reserve Systemwas formed.
Jackson believed that the nation's money supply shouldconsist only of gold or silver coin minted by the Treasury andany foreign coin the Congress chose to accept. This view wasfully impractical. The gold and silver stocks of the U.S. wereterribly inadequate to provide a sufficient money supply ofJackson's preference. The U.S. at that time had no substantialmines of its own and regularly had a trade deficit, so there wasno dependable method to increase the money supply under whatJackson perceived to be the only Constitutional monetary system.
However, few others shared Jackson's opinions on thismatter. Even the so-called "Jacksonian" Supreme Court ruled in1837 in Briscoe v. Bank of Kentucky that state-chartered banks,state-owned banks, and the banknotes they created were fullyConstitutional (Hixson, 119). Combined with the unanimous 1819McCulloch ruling, the legal environment of the U.S. had clearlyestablished that central banking, state banking, and papercurrency issued by both entities were Constitutional. That theU.S. chose to proceed through the balance of the nineteenthcentury without a central bank would lead to interesting andcreative measures to construct a financial system.
FAQs
The Second Bank of the United States: 1816-1836
What was the Second Bank of the United States in 1816? ›
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.
What was the purpose of the Second Bank of the United States between 1816 and 1836? ›
It would act as fiscal agent for the federal government — holding its deposits, making its payments, and helping it issue debt to the public — and it would issue and redeem banknotes and keep state banks' issuance of notes in check.
What happened to the Second Bank of the United States created in 1816? ›
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.
What is the Second Bank of the United States known for? ›
The Second Bank of the United States, or the Second B.U.S., was a private financial institution that operated from 1816 until 1836. The Second B.U.S. served as the country's central bank. Its primary purpose was to stabilize the country's economy, which at the time of its creation suffered from war debt.
What happened during the Second Bank of the United States? ›
Chartered by Congress in 1816, the Second Bank played a pivotal role in the "bank wars," which pitted President Andrew Jackson against powerful bank president Nicholas Biddle. President Jackson contended that the Second Bank was unconstitutional and dangerous to republican ideals.
What was the purpose of the Second Bank of the United States 1816 quizlet? ›
In 1816, the second Bank of the United States was established in order to bring stability to the national economy, serve as the depository for national funds, and provide the government with the means of floating loans and transferring money across the country.
Why was it necessary to create a second Bank of the U.S. in 1816? ›
Foreign credit was in poor standing, there was no uniform national currency and bank notes could not be exchanged for gold. As a result of this situation, many Americans who had opposed the First Bank of the United States changed their minds and supported establishment of the Second Bank of the United States in 1816.
Why was the second bank of the United States called the monster? ›
The Bank, said Jackson, was an "undemocratic, hydra monster" that was out of control. As the people's president, Jackson believed he had the responsibility to destroy it. After Congress passed a bill re-chartering the Bank, Jackson exercised his power as president and vetoed it.
In what way was the Second Bank of the U.S. different than the first bank? ›
The Second Bank was similar in structure to the First Bank, but bigger; it had capital of $35 million, with the government again holding one-fifth of the shares. Like the First Bank, it was headquartered in Philadelphia; over the time it operated, it had offices in 29 major cities around the country.
In 1832 Jackson used his presidential veto to thwart the Banks supporters attempt to use Congress to enact a new charter for the Bank. Jackson then used his second presidential election victory later that year as a mandate to order the withdrawal of all federal funds from the bank in 1833.
What caused the Second Bank of the United States to close? ›
Jackson, the epitome of the frontiersman, resented the bank's lack of funding for expansion into the unsettled Western territories. Jackson also objected to the bank's unusual political and economic power and to the lack of congressional oversight over its business dealings.
Which two were most opposed to the Second Bank of the United States? ›
Nicholas Biddle, the third and last president of the Second Bank of the United States, became President Andrew Jackson's nemesis during the “Bank War.” During the election campaign of 1832, Jackson's opponents organized a new political party, the National Republicans, under Henry Clay.
What was the most important role of the Second Bank of the United States quizlet? ›
What was the most important role of the Second Bank of the United States? To stabilize the nation's money supply. (The bank's most important role was to stabilize the nation's money supply, which consisted primarily of notes issued by state-chartered banks.
Why was the Second Bank of the United States created quizlet? ›
Why was the 2nd Bank of the United States created? After the War of 1812, our government recognized that it was necessary to have central location of public funds. Nicholas Biddle, Henry Clay, Fuels the economy, regulates state banks, store surplus tax money, standardize currency, provides loans.
What was the Second Bank to fail in the US? ›
While the latter two were small regional banks, First Republic Bank was another major bank based in California's Bay Area, and its failure overtook SVB's to become the second-largest bank failure in U.S. history.
What was the Bank of the United States in 1816? ›
The Second Bank of the United States was chartered by Congress in 1816 to perform essentially the same duties as the First Bank: to stabilize and unify the country's economy. In its first eight years it was plagued by mismanagement, instability, and fraud.
What was the Second Bank war? ›
The Bank War was a political struggle that developed over the issue of rechartering the Second Bank of the United States (B.U.S.) during the presidency of Andrew Jackson (1829–1837). The affair resulted in the shutdown of the Bank and its replacement by state banks.
What is the second oldest bank? ›
Berenberg bank is the second oldest in the world after Banca Monte Dei Paschi di Siena, and it's also the world's oldest merchant bank.
Why was the Second Bank of the United States called the monster? ›
The Bank, said Jackson, was an "undemocratic, hydra monster" that was out of control. As the people's president, Jackson believed he had the responsibility to destroy it. After Congress passed a bill re-chartering the Bank, Jackson exercised his power as president and vetoed it.
