The Bank of the United States was a federally chartered private bank that handled government money and issued currency from 1791 to 1836
The Bank of the United States was not a place where ordinary people kept savings accounts. It was a private corporation chartered by Congress to manage federal finances, hold government deposits, and regulate the money supply across the young nation. The bank existed in two separate incarnations: the First Bank (1791–1811) and the Second Bank (1816–1836). Both were controversial because they mixed private profit with public power in ways that made many Americans deeply uncomfortable.
The bank's core job was to collect taxes, pay government bills, and move money between states. It also issued its own banknotes—pieces of paper that people used as currency. Because the Bank of the United States was federally backed, its notes were trusted more widely than notes from smaller state banks, which sometimes failed or turned out to be worthless. This gave the bank enormous influence over how much money circulated in the economy.
Key Takeaways
- The Bank of the United States was a private corporation chartered by Congress, not a government agency, though it held federal deposits and managed government money.
- The bank issued its own currency and regulated state banks by refusing to accept their notes unless they maintained adequate reserves, which gave it power over the entire financial system.
- The First Bank lasted from 1791 to 1811 and the Second Bank from 1816 to 1836, each lasting roughly twenty years before Congress refused to renew its charter.
- President Andrew Jackson opposed the Second Bank and vetoed its recharter in 1832, calling it a monopoly that favored wealthy merchants over ordinary citizens.
- After the bank closed in 1836, the United States had no central banking system for decades, which contributed to financial instability and multiple banking crises.
Why Alexander Hamilton created the First Bank in 1791
When the United States was new, the federal government had almost no money and no way to move it reliably between states. Each state had its own banks, and their notes were worth different amounts depending on how trustworthy people thought each bank was. A merchant in New York might refuse a note from a Georgia bank because he had no way to know if it was real or if the bank would still exist next year.
Alexander Hamilton, the first Secretary of the Treasury, proposed the Bank of the United States as a solution. The bank would collect federal taxes, pay soldiers and government workers, and hold the nation's money in one place. By issuing its own notes backed by the federal government, the bank would create a more stable currency that people would accept across state lines. Hamilton also believed the bank would help the government borrow money during emergencies, like wars.
Congress chartered the First Bank in 1791 for twenty years. The federal government owned one-fifth of the bank's stock, and private investors owned the rest. This meant the bank made profits that went to its shareholders, but it also had to follow rules set by Congress and the Treasury Secretary.
How the bank regulated other banks and controlled the money supply
The Bank of the United States had a power that no other bank possessed: it could refuse to accept banknotes from state banks. When a state bank issued too many notes without having enough gold or silver to back them up, the Bank of the United States would demand payment in hard currency. If the state bank could not pay, its notes became worthless, and the bank often failed.
This power made the Bank of the United States act like a central bank, even though that was not its official title. It could tighten credit by refusing notes from reckless banks, or loosen credit by accepting notes freely when the economy needed more money. No other institution in America had this ability. State banks hated it because it limited how much money they could print and how many risky loans they could make.
Ordinary people had mixed feelings about the bank's power. Merchants and creditors liked it because it kept the money supply stable and made contracts more reliable. Farmers and debtors often resented it because tight money made loans harder to get and more expensive.
The First Bank's charter expired and Congress did not renew it
In 1811, the First Bank's twenty-year charter was set to expire. Congress voted on whether to renew it, and the vote was extremely close. The bank's opponents—mostly from agricultural states—argued that it was a monopoly that favored wealthy merchants and foreign investors (many of the bank's shareholders were British). They said the bank was unconstitutional because the Constitution did not explicitly give Congress power to charter a bank.
The renewal failed by one vote in the Senate. Without a charter, the First Bank closed. For the next five years, the United States had no central banking system. State banks printed money freely, many of them failed, and the money supply became chaotic. When the War of 1812 started, the government had trouble borrowing money and paying for the war.
Congress created the Second Bank in 1816 to fix the chaos
After the War of 1812 ended, Congress realized that having no central bank had been a disaster. The money supply was a mess, state banks were failing constantly, and the government could not manage its finances reliably. In 1816, Congress chartered the Second Bank of the United States for another twenty years, with much the same structure as the First Bank.
The Second Bank was larger and more powerful than the First. It had more branches spread across the country, which made it easier for the government to move money between states and for merchants to exchange notes. The bank's president, Nicholas Biddle, ran it aggressively, tightening credit when he thought the economy was overheating and loosening it when he thought credit was too tight.
Biddle's aggressive management made the bank powerful but also made it enemies. Farmers, debtors, and small merchants complained that the bank was squeezing them. State banks resented its power to control their operations. And many politicians believed the bank was too powerful for a private corporation to hold.
Andrew Jackson opposed the bank and vetoed its recharter in 1832
By the 1820s, opposition to the Bank of the United States was growing. President Andrew Jackson, elected in 1828, was deeply skeptical of the bank. He believed it was a monopoly that served wealthy merchants and foreign investors at the expense of ordinary Americans. He also believed it was unconstitutional, even though the Supreme Court had ruled otherwise.
In 1832, Congress voted to recharter the Second Bank four years early. Jackson vetoed the bill. In his veto message, he argued that the bank was a tool of the rich and that ordinary citizens should not have to support it. He said: "It is to be regretted that the rich and powerful too often bend the acts of government to their selfish purposes." Jackson's veto was popular with farmers and working people, and he won reelection easily that year.
Without a new charter, the Second Bank's authority to operate as a federal institution ended in 1836. Jackson also ordered the federal government to move its deposits out of the bank and into state banks, which weakened it further. The bank continued to operate as a private Pennsylvania bank for a few more years, but it never recovered its power.
The United States had no central bank for decades after 1836
After the Second Bank closed, the United States went without a central banking system until 1913, when Congress created the Federal Reserve. For nearly eighty years, the country relied entirely on state banks and private finance. This period saw multiple banking crises and panics, including severe ones in 1837, 1857, 1873, and 1893. Without a central bank to stabilize the money supply or lend to banks in trouble, financial crises could spiral out of control.
The lack of a central bank also made it harder for the federal government to borrow money during emergencies. During the Civil War, the government had to create its own paper money (called "greenbacks") because no bank could lend it enough. This experience convinced many people that the country needed a central banking system again.
The Federal Reserve, created in 1913, took over the role that the Bank of the United States had played: managing federal finances, regulating other banks, and controlling the money supply. Unlike the Bank of the United States, the Federal Reserve was a government agency, not a private corporation, which addressed the main complaint that had killed the earlier bank.
Frequently Asked Questions
Could regular people have bank accounts at the Bank of the United States?
No. The Bank of the United States was a bank for the government and for large merchants and businesses. Ordinary people kept their money in state banks or did not use banks at all. The Bank of the United States did not take deposits from the public.
Was the Bank of the United States the same as the Federal Reserve?
No, but they had similar jobs. Both managed government money and tried to regulate the money supply. The main difference is that the Bank of the United States was a private corporation that made profits for shareholders, while the Federal Reserve is a government agency. The Federal Reserve also has much more power and operates nationwide in ways the Bank of the United States never did.
Why did people think the bank was unconstitutional?
The Constitution does not explicitly say Congress can charter a bank. Opponents argued that Congress could only do things the Constitution specifically allowed. Supporters countered that Congress had the power to do whatever was necessary to carry out its duties, including managing federal money. The Supreme Court sided with supporters in 1819, but the political opposition continued anyway.
Did the bank's notes still have value after it closed?
Yes, but it depended on when the bank closed. Notes from the First Bank remained valuable because they were backed by the bank's assets. Notes from the Second Bank became less valuable as the bank weakened in the 1830s, and some people lost money when they could not exchange them for gold or silver.
How much money did the Bank of the United States hold?
The amount varied over time and is difficult to state in modern terms. At its peak, the Second Bank held roughly one-third of all bank deposits in the United States, which made it by far the largest financial institution in the country. This concentration of power was one reason Jackson and others wanted to shut it down.