The Rise and Fall of the "Second" Bank of the United States
United States
As a fiscal agent of the United States Government, and with a capital of $ 35 million, the "Second" Bank of the United States was immensely powerful. In the course of business, the bank acquired a stream of state bank notes that it could redeem in money at issuing banks. Thus, as creditor of state banks, the bank could, at its discretion, reduce the amount of currency (notes and money) in circulation by increasing the redemption of state bank notes.
The bank facilitated repayment of the public debt and the regional transfer of Government deposits. Treasury receipts were heaviest in New York because customs receipts were by far the most important source of Treasury income. The bank, with branches in all principal cities, was in an excellent position to transfer portions of these funds to other parts of the country.
Notes of the bank provided a uniform currency throughout the country. Its loans were important for agriculture and commerce on the developing frontiers. And the large volume of acceptances issued by the bank spurred both national and international trade. The bank also participated in foreign exchange markets to alleviate temporary shortages and keep flows of money as small and as gradual as possible.
There were many advantages to this "second" Bank of the United States for the United States Government. However, state representatives and even some Congressmen felt it had too much control over the nation's flows of trade, both domestic and foreign. To them, this "second" bank would become an all too-powerful force in the economic affairs of every American. In their eyes, this would effectively have created a fourth branch of government (the others being the Executive, Legislative, and Judicial) for which the states and Congress had no control.
Although its charter did not expire until 1836, the bank's future was doomed in 1828 with the election of Andrew Jackson--a hard-money agrarian. He looked at banks as the cause of inflated currency, speculative booms, and disastrous depressions. Ironically, some supporters of the Jackson party opposed the bank for exactly the opposite reason. They believed that the bank kept money and credit in short supply and imposed a check on economic expansion.
Before the bank's charter ran out, a number of financial measures that were instituted virtually assured a financial crisis and led to the worst depression the country had experienced. Most of these measures were related to the reduction of the bank's credit and the subsequent unavailability of loans for merchants and commercial activities. However, while unpleasant in the short term, these measures set the stage for one of the most expansive periods in United States history.
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