America’s First Bank

The First Bank of the United States was a project headed by Alexander Hamilton which existed from 1791 to 1811. Its first and main branch was in Philadelphia with branches eventually opening in Boston, New York, Charleston, Baltimore, Norfolk, Savannah, New Orleans and Washington, D.C. A distant precursor to the Federal Reserve, America’s first bank was the nation’s first central bank and played an important role in shaping and supporting the nascent US economy. United in the first years after the Revolution.

Key points to remember

  • Created by Alexander Hamilton, the First Bank was a central banking system used by the government but not controlled by it.
  • First Bank operated both as a government piggy bank and as a private bank for businesses and individuals.
  • The bank was succeeded by the Second Bank of the United States from 1817 to 1836.
  • The United States did not have a centralized bank from 1836 to 1913.

Constitution of the Bank

The first bank in the United States was originally proposed by Alexander Hamilton, the first US Treasury Secretary. Hamilton modeled the bank on the Bank of England and proposed that with the First Bank of the United States, the federal government would be the major shareholder and that the federal treasury would deposit its surplus revenues there. Its original intention was for the bank to print paper money and provide a stable national currency that could supplant the continental dollar.

Hamilton’s original proposal was strongly opposed by Thomas Jefferson and his fellow anti-federalists. They feared that the First Bank of the United States was unconstitutional and favored commercial interests over the interests of the agrarian economy they wanted to foster.

Hamilton eventually won the disagreement, and the bank was established in 1791 with a 20-year charter, $10 million in capital, 20% of its shares held by the federal government, and 20% of its board members. appointed by the federal government. When the bank sold its remaining shares in its initial public offering (IPO), it was the largest in the country to date. The majority of the initial investors were foreigners, which worried several members of Congress, but foreign shareholders were barred from voting on banking matters under the original bank charter. Also under the charter, the Secretary of the Treasury was given the power to withdraw government money and freely inspect the books of the bank.

Role of the Bank

The bank served as the government’s fiscal agent but was not actually a government entity itself, as 80% of its shares and board positions were held by private investors. At the time, the bank was both the largest bank and the largest corporation of any type in the United States due to the size of its capitalization.

The bank performed many of the same functions as the Federal Reserve today. It paid government bills, collected and held tax revenues, made loans to the government, and repaid foreign creditors of the government. Unlike the Federal Reserve, First Bank of the United States also served as a commercial bank, accepting deposits and making loans to individuals and businesses.

Although First Bank did not issue paper money as was done by the United States Mint from the passing of the Coinage Act in 1792, First Bank did issue bank notes, which were used as currency. These notes were usually issued after private borrowers took out loans from the bank, but found themselves in general circulation throughout the country.

The First Bank of the United States did not directly set economic policies, but it did impact interest rates and credit availability due to its size as the nation’s largest lender.

Bank impact

After the creation of the bank’s charter in 1811, it encountered strong opposition with no real supporters since the death of Alexander Hamilton during his duel with Aaron Burr. The bank’s charter was not renewed, but after the federal government needed funding following the War of 1812, the Second Bank of the United States was chartered in 1816.

Critics believed the bank had too much control over the national economy and wanted this control decentralized from a federal bank to state banks. After his re-election, Andrew Jackson withdrew all federal funds from the bank, and its charter was not renewed in 1836.

It wasn’t until 1913, when the Federal Reserve Act was signed by President Woodrow Wilson, that a centralized banking system would return to the United States after a series of worsening financial crises that culminated in the financial panic of 1907.

The essential

The First Bank of the United States was the first centralized banking system and helped stabilize the economy during the volatile years following the Revolutionary War. He helped shape the fiscal policy that continues to this day through the Federal Reserve.

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