Proposed by Alexander Hamilton, the Bank of the United States was established in 1791 to serve as a repository for federal funds and as the government’s fiscal agent. Although it was well managed and profitable, critics charged that the First Bank’s fiscal caution was constraining economic development, and its charter was not renewed in 1811. The Second Bank was formed five years later, bringing renewed controversy despite the U.S. Supreme Court’s support of its power. President Andrew Jackson removed all federal funds from the bank after his reelection in 1832, and it ceased operations as a national institution after its charter expired in 1836.
The Bank of the United States was established in 1791 to serve as a repository for federal funds and as the government’s fiscal agent. Initially proposed by Alexander Hamilton, the First Bank was granted a twenty-year charter by Congress in spite of the opposition of the Jeffersonians to whom it represented the dominance of mercantile over agrarian interests and an unconstitutional use of federal power.
The Bank, based in Philadelphia with branches in eight cities, conducted general commercial business as well as acting for the government. It was both well managed and profitable, but it won the enmity of entrepreneurs and state banks, who argued that its fiscal caution was constraining economic development. Others were troubled by the fact that two-thirds of the bank stock was held by British interests. These critics, working with agrarian opponents of the bank, succeeded in preventing renewal of the charter in 1811, and the First Bank went out of operation.
Soon, however, problems associated with the financing of the War of 1812 led to a revival of interest in a central bank, and in 1816, the Second Bank of the United States was established, with functions very much like the first. The Second Bank’s initial years were difficult, and many felt that its mismanagement helped bring on the panic of 1819.
