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Second Bank of the United States

 


The Second Bank of the United States was created in 1816. In the five years since the expiration of the First Bank's charter, the federal government had struggled through the War of 1812, placing the treasury deeply into debt. In addition, the lack of a central bank to regulate state banks led to an explosion of small banks, many of which provided credit to speculators on easy terms, thus placing the national monetary system on unsteady ground. Congress finally passed a law chartering the Second Bank of the United States, which was created to help the national treasury out of its uncomfortable financial situation and to regulate the currency. Located in Philadelphia, Pennsylvania, the Second Bank started out with $35 million in capital, a fifth of which was provided by the federal government. The Bank served as a place in which the government could deposit federal funds, including tax revenues. The Bank was authorised to issue as many bank notes as the president and cashier were physically able to sign, but was required to be able to pay specie for currency on demand. In addition, the Bank was exempted from taxation by any state. In return, the Bank performed transactions for the government at no charge, and allowed the government to appoint five of its twenty-five directors. The Secretary of the Treasury had the right to remove any government deposits, after presenting the reasons for withdrawal to Congress.

For its first three years in existence, the Second Bank was poorly run. More notes were issued than could be backed by specie. Loans were made without recipients demonstrating sufficient security. Thus, rather than helping curb the excesses of speculation, the Bank supported such activity. The Bank nearly bankrupt when, in 1819, Langdon Cheves was appointed president, and the Bank was thoroughly reorganized. Cheves cleaned up the Bank s financial practices, reduced the number of notes and loans issued, and saved the Bank from collapse. Cheves reforms successfully saved the Bank, they became major contributing factors to the national financial crisis of 1819.

The economic difficulties the nation faced led some states to resort to extreme solutions. The State of Maryland attempted to tax the Second Bank of the United States, although the body was legally exempt from state taxation. This was the Second Bank s second major crisis, testing its very constitutionality. The case was tried in the US Supreme Court, in McCulloch v. Maryland (1819). The Court ruled in favor of the Bank, upholding its constitutionality.
Despite this legal victory, the Bank had many opponents. Among these were hard money supporters, including President Jackson, who wanted to get rid of artificial paper money and stick to gold and silver coins. Soft money people, such as speculators, also opposed the Bank, since they wanted to expand state and local banks authority to print money without the Bank s restraining influence. Debtors and southern farmers tended to oppose the Bank because of its constraints on loans and local availability of credit. Industrialists and creditors tended to support the Bank, however, because of the stability it helped establish in the national economy.

In the 1820's, Nicholas Biddle took over the leadership of the Bank. He reversed some of Cheves contractionary policies, which had contributed to the national financial crisis. Overall, he helped run the Bank effectively. Even though his efforts helped alleviate the painful economic circumstances brought by the Panic of 1819, many of his actions were looked upon unfavorably. The suspicion of many Americans may be attributeable to the desire for short-term gain, as well as a certain national mistrust of large organizations and power structures. Some concern may, however, be due to Biddle s undiplomatic, sometimes overbearing attitude - Biddle's nickname was Tsar Nicholas.

Jackson's war against the Second Bank of the US began in earnest with his 1832 veto. Biddle, urged by Henry Clay, brought up the issue of the recharter of the Bank four years before it was due. Clay s intention was to help his own chances in the upcoming Presidential election by pushing Jackson into alienating part of his constituency either by signing or vetoing the recharter. Unfortunately for Clay, he had underestimated Jackson s political support, and Jackson was able to veto the recharter without endangering his chances of reelection.

Jackson turned the Bank into a moral-philosophical issue, depicting it as an institution which endangered the foundations of American liberty and democracy by encouraging an inbalance of power between the rich and the poor and threatened the Union by creating artificial distinctions. This belief was very much in line with Jackson s comman man political image, and appealed to enough Americans to facilitate his reelection to the Presidency by a comfortable majority.