BANKING IN THE UNITED STATES BEFORE 1914 1. The First and Second Banks of the United States. f 2. Bank ing from 1836 to 1863. § 3. National Banking Associations, 1863 1913. I 4. Defects of our banking organization before 1911 § 5. Lack of system. § 6. Inelasticity of credit. § 7. Periodical local con gestion of funds. § 8. Unequal territorial distribution of banking facilities. § 9. Lack of provision for foreign financial operations.
10. The "Aldrich plan." § 1. The First and Second Banks of the United States. The form of our present banking system has been affected by various economic and political events, a knowledge of which is helpful to an understanding of the present banking system in our country.
Alexander Hamilton, the great first Secretary of the Treas ury in Washington's cabinet, advocated the charter of a cen tral national bank as one portion of his larger plan of na tional financiering. His purpose was realized in the charter ing, in 1791, of the First Bank of the United States for a period of twenty years. The capital for this institultion was in small part subscribed by the government, but mostly by private capitalists. The management of the bank was left almost entirely in private hands. The central bank estab lished branches in many parts of the country, issued bank notes which circulated everywhere without depreciation, acted as the governmental depository of funds and as governmental agency in various ways. It seems to have been successful and useful as a banking institution until the expiration of its charter in 1811, but it was touched by the contemporary con troversies over state rights and was from the first opposed by 107 those who feared the growth of a strong central government. This opposition prevented the extension of its charter.
In 1816, however, after only a moderate discussion, the Second Bank of the United States was chartered for a period of twenty years. This, also, in its purely banking aspects, seems to have been distinctly successful, conducting numerous branches in various parts of the country, maintaining at all times the parity of its notes, facilitating domestic exchange throughout the country, and enjoying unquestioned credit and solvency. However, this bank became, even in a greater de gree than did the First Bank, the creature of political rival ries. In the period of rising democratic sentiment typified
and led by Andrew Jackson, the bank came to be looked upon as the embodiment, or the stronghold, of plutocratic interests. Jackson's suspicions and hostility to a central bank were magnified by the untactful conduct of the head of the bank, and Congress permitted its charter to expire by limitation in 1836, near the close of Jackson's.administra tion. In the light of history the change of policy must be pronounced unfortunate, the more so because it committed the then leading political party to opposition against a bet ter organization of banking on a national scale. The action was directly that of Jackson, but the fixing of the blame is not an entirely simple thing.
§ 2. Banking from 1836 to 1863. The federal govern ment, which up to that time had deposited its funds in the central bank and its branches, and in local state banks, es tablished the "independent treasury" in 1840. This was abolished in 1841, but reestablished in 1846, and continuously maintained until January, 1921, when the Federal Reserve Board took over all nine of the offices and sub-treasury branches. By this plan the government kept its money of all kinds in various depositories (or sub-treasuries) in charge of public officials. While from 1792 to 1836 almost con tinuously a central banking system was in operation. other banks, organized under state charters, were steadily increas ing in number. They received deposits, issued bank-notes under state laws, and cared for local commercial needs. The abolition of the central national bank in 1836 left to the various state-chartered banks for twenty-seven years all the banking functions of the country. A few of the states be came stockholders in central state banks, or even undertook to conduct a banking business, with unsatisfactory results. The banks of some states (notably those of New England and New York), conducted as private enterprises under care ful regulation and held to strict standards by public senti ment, for the most part maintained a high credit; but many banks, under lax laws and regulations, were guilty of great abuses of credit and of downright dishonest practices. The evils were more especially apparent in connection with exces sive issues of bank-notes.