Why did the Second Bank of the United States fail?
The first president of the Bank was William Jones, a political appointee and a former secretary of the Navy who had gone bankrupt. Under Jones's leadership, the Bank first extended too much credit and then reversed that trend too quickly. The result was a financial panic that drove the economy into a steep recession.
For just over one month, Silicon Valley Bank was the second-largest bank failure in US history. That was until First Republic Bank, a California lender that catered to wealthy clients, knocked it off that spot.
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.
This institution was chartered in 1816 under President Madison and became a depository for federal funds and a creditor for (loaning money to) state banks. It became unpopular after being blamed for the panic of 1819, and suspicion of corruption and mismanagement haunted it until its charter expired in 1836.
However, the arguments against the Bank were too strong. Foreign ownership, constitutional questions (the Supreme Court had yet to address the issue), and a general suspicion of banking led the failure of the Bank's charter to be renewed by Congress. The Bank, along with its charter, died in 1811.
The first president of the Bank was William Jones, a political appointee and a former secretary of the Navy who had gone bankrupt. Under Jones's leadership, the Bank first extended too much credit and then reversed that trend too quickly. The result was a financial panic that drove the economy into a steep recession.
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.
Jackson proceeded to destroy the bank as a financial and political force by removing its federal deposits, and in 1833, federal revenue was diverted into selected private banks by executive order, ending the regulatory role of the Second Bank.
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.
In 1832, Jackson's political opponents decided to make the Bank an election issue by forcing an early renewal of the Bank's 20 year charter, but the plan backfired when President Jackson vetoed the bill. By 1836, all of the Second Bank's funds had been transferred to state banks.
What two banks failed in the US?
The collapses of Silicon Valley Bank and Signature Bank in March 2023—then the second- and third-largest bank failures in U.S. history—took consumers by surprise.
The Panic of 1819 was the first major economic depression in US history. This included lax loan policies from the Second Bank of the United States (BUS) in which no one could pay (leading to the collapse of many banks).
However, the war had hurt the economy and in April 10, 1816 (14 Stats. 266) Madison signed the act establishing the second Bank of the United States with a 20 year charter. In January 1817 the Bank opened for business opened in Philadelphia with William Jones as its first president though he resigned that same year.
The most common cause of bank failure is when the value of the bank's assets falls below the market value of the bank's liabilities, which are the bank's obligations to creditors and depositors. This might happen because the bank loses too much on its investments.
San Francisco-based First Republic Bank goes down as the second-largest failure in U.S. history. Santa Clara, California-based Silicon Valley Bank follows at number three on the all-time list and New York City-based Signature Bank is the fourth-largest bank to fail.
| Bank | City | Assets at time of failure |
|---|---|---|
| Inflation-adjusted (2022) | ||
| First Republic Bank Corporation | Dallas | $80 billion |
| American Savings and Loan | Stockton | $75 billion |
| Bank of New England | Boston | $47 billion |
The Second Bank and the "Bank War"
rebounded from its missteps and contributed much good to the United States under the leadership of Nicholas Biddle. Biddle took charge of the Second B.U.S. in 1823, and under his leadership, the bank aided the country's expansion into the west.
There were 566 bank failures from 2001 through 2024. See Summary by Year below.
Some, especially in the trans-Appalachian West, were suspicious of banks because they distrusted the paper money issued by them and because banks controlled credit and loans. To them, the Bank of the United States was the worst of them all: a greedy monopoly dominated by the rich American and foreign interests.
The stage was set for a showdown between Jackson and Second National Bank president Nicholas Biddle. Jackson had to weigh whether to kill the national bank because of his constitutional opposition to it and his fear that the bank was an engine of aristocracy.
Why was the Second Bank of the United States called the monster?
Many people saw the Second Bank of the United States, the “monster bank,” as a tool for the privileged few, not for the public good. To Jackson, who saw himself as a spokesman for the common people against a powerful minority elite, it represented the elites' self-serving policies.
The largest bank failure ever occurred when Washington Mutual Bank went under in 2008. At the time, it had about $307 billion in assets. During the uncertainty of the banking crisis, however, Washington Mutual experienced a bank run where customers withdrew almost $17 billion in assets in less than 10 days.
By 1833 there were 23 "pet banks" or state banks with US Treasury funds. The institution of these pet banks led to a huge increase in land speculation, mainly due to the managers' inability to effectively handle and control the nation's money.
In the end, Jackson won with 54 percent of the popular vote compared to Clay's 38 percent, a victory which at last doomed the Bank. Jackson had taken the risk of making the Bank issue a litmus test in the Democratic Party, forcing voters to choose between him or the Bank, and he had clearly won.
Although the bill to re-charter the Bank passed in Congress, it did not have enough support to overcome the veto. Jackson's veto was the first step in a several year process to “kill” the Bank. In response, Biddle severely restricted loans to raise the public's anger.
