Services of Second Bank to Commerce The second Bank of the United States operated in domestic exchange, the sale of drafts to the public constituting no small part of its business. The public and the Treasury argued that the bank ought to sell these drafts at par; but the bank charged vary ing rates of exchange, averaging per cent. These varying rates gave rise to the complaint that the bank showed favoritism and that it charged excessive and usurious rates. After 182o, how ever, the bank bought bills heavily and increasingly, and this helped to facilitate commerce and to equalize exchange. In this business it competed with the state banks. The exchange opera tions gave the bank a considerable control over the local currency by purchasing, or refusing to purchase, bills from the different areas.
During the first few years of the second bank's existence its services to commerce were restricted through the tying up of an undue proportion of its capital in stock notes received for sub scriptions. With the change of management, however, its service improved and commercial loans of short-term usance were readily granted, mostly on pledge of personalty. Not only by aiding commerce in this and other ways, but also by its influence upon the state institutions, the bank proved its value to the commun ity as a national institution.
Causes of Dissolution of Second Bank The opposition which brought the bank to an untimely end was largely inspired by political intrigue and by selfish jealousy on the part of the state banks. The charges of Jackson and other critics were that some of its officers who were incompetent were retained in office by political influence, that it tried to influence political elections and state legislation, and that some of the branches were established for political effect. It was further alleged that the bank was monopolistic and undemocratic in character and therefore dangerous to our institutions. On other grounds it was argued that the bank was unconstitutional. Some of its banking operations were held to be objectionable and violations of its charter, such, for instance, as the use of branch drafts, the practice of usury in exchange dealings, the sale of coin, trading in public securities, speculation in real estate, and the like. The aggressive and peculiar character of the Democratic President, with his large political following from the West and South, really explains why the inconsequential charges brought against so serviceable and successful an institution led to its dissolution.
State Banks Before the Civil War Banking in the United States really dates from 1781, when Robert Morris, Superintendent of Finance of the Revolution, founded the Bank of North America at Philadelphia to promote the financing of Washington's army. The institution was char
tered by the Continental Congress and was organized as a means of creating credits based upon the small amount of specie that existed and of making advances to the government. It was a complete success as a war measure and had a benign com mercial influence as well. In 1782 it was chartered as a state bank in Pennsylvania, and under this charter, renewed from time to time, it enjoyed a very successful career until 1864, when it became a national bank, and is still a leading bank of Philadelphia.
In 1784 Massachusetts chartered the Bank of Massachusetts, and in New York, under Itamilton's influence, the Bank of New York was founded and put into operation but the state refused to grant it a charter until 1791. The tendency in both these states, as time passed, was to lay heavier restrictions upon their banks. The restrictions included the imposition of personal liability upon directors for any violation of the law that debts should not exceed some specified multiple of the paid-in capital, the limitation of notes to large denominations, the prohibition of dealing in merchandise or stocks, and the requirement of reports of condition.
By the year 1800 the number of state banks had increased to 28, and by 1811, to 88. This rapid increase, though it indicated the need of credit institutions, was also a leading cause of the opposition to the rechartering of the first Bank of the United States. In the period from 1812 to 1816 the Treasury of the United States employed the state banks as depositories of the public funds. The poor conduct of the national finances, particu larly the failure to levy taxes, the heavy issue of Treasury circu lating notes, and the drain of specie abroad precipitated suspen sion of specie payments by all state banks, except those in New England, and tied up the government deposits.
The failure to recharter the first Bank of the United States left the field free to the state banks, which increased from 88 in 1811 to 246 in 1816, and expanded their bank note issues to $ioo,000,000. These banks were organized on very defective credit principles, the loans being based heavily upon lands and government securities. The export of specie due to the adverse balance of trade made the situation still worse. The Treasury operations were thrown into confusion by the disordered currency. At this juncture, in the year 1816, the demand for a second Bank of the United States became strong enough to force Congress to grant a charter.