The charter was to expire in 1811. In 1809, Sec retary Gallatin recommended a renewal of the charter with an increase in the capital of the bank. A viru lent opposition developed against the renewal. Jef ferson still insisted that Congress had no power to grant a bank charter. The country was becoming inflamed against England and it was pointed out that foreigners (mostly English) owned over seven tenths of the bank's capital stock. People said that the English had bought this stock so as to be able to throttle American credit in the event of war with England. They did not appreciate the fact that for eign stockholders had practically no voice in the man agement of the bank, or the more significant fact that to wind up the bank's affairs would necessitate the immediate exportation of over $7,000,000 in specie to these foreign shareholders. Many thought the bank was a great financial monopoly which was destroying the liberty of the American people. The state banks were especially vigorous in making this charge. The bill for renewing the charter failed to pass by a vote of sixty-five to sixty-four, and the United States en tered the War of 1812 leaning on the state banks for support.
The result was disastrous. A mushroom growth of state banks sprang up thruout the country. Specie payments were suspended in the fall of 1814 by nearly all the banks outside of New England. Bank notes fell to a discount of from ten to thirty per cent. The government defaulted on the public debt.
6. Second Bank of the United States.—Various attempts were made to establish another national bank. Finally, in 1816, the Second S Bank of the United States was chartered. In most respects the plan was similar to that of the First Bank. The capital was to be $35,000,000, and one-fifth of this was subscribed by the government as before. The government's subscription was payable either in specie or in its own bonds bearing interest at five per cent. As a matter of fact it was paid by a stock note, and the note was not fully paid until fifteen years later. The bank received an exclusive charter for twenty years. For this charter it paid the govern ment $1,500,000. It was authorized to establish branches and was forbidden to pay dividends to stock holders whose shares were not fully paid up. There were twenty-five directors, five of whom were ap pointed by the President of the United States, and' twenty elected by the stockholders who resided in the United States. Foreign stockholders could not vote either in person or by proxy. ' The bank was authorized to issue post notes not smaller than $100 and payable within sixty days. No circulating notes were to be issued in denomina tions under $5. The bank's notes were receivable for debts to the United States. For failure to pay
any obligation in specie on demand the bank was to pay a tax of 12 per cent per annum on the claim until it was paid. The requirement to pay deposits as well as notes in specie was a long step in advance. Banks, at a time when their own notes would not be accepted, were accustomed to pay depositors with notes of other banks that were maintaining specie payments. These other banks were frequently lo cated at a considerable distance. Because of the ex pense of collecting these notes they generally circu lated at a discount, driving the notes of nearby banks out of circulation. The Second Bank also acted as the fiscal agent of the government.
For the first three years the bank was in a perilous position. The charter provided that private sub scriptions to stock might be paid in three instalments within twelve months. One-fourth was payable in specie and the remainder in specie or in United States bonds. When the second instalment of $2,800,000 came due, instead of $700,000 only $324,000 was paid in specie; for the third instalment only a small amount of either specie or securities was paid. It was dis covered that many shareholders had bought the stock as a margin proposition, intending to sell on a rising market. Furthermore, the bank had discounted the notes of stockholders on the pledge of their shares to the amount of over $8,000,000. Dividends were paid on stock that was not fully paid for, in violation of the law. The president and cashier of the Baltimore branch defrauded the bank of $1,600,000.
When the bank had reached the verge of bank ruptcy, Air. Langdon Cheves of South Carolina was put in charge. He ran the bank on conservative lines and in a few years raised it to a point of great power. It established relationships with the great European banks and was of much assistance to the government. Nicholas Biddle became its president in 1823.
7. The Bank War.—Andrew Jackson came to Washington as President in 1829 at a time when the bank was at the height of popularity and strength. Early in his administration, some of his friends charged that the bank was using its influence against him politically. Jackson was already inclined to look upon any bank with suspicion and he lent a ready ear to these reports. In a message to Con gress, he wrote that much deserved criticism was being directed against the bank and stated flatly that it had failed to give the country a uniform and sound cur rency. The latter statement caused much surprise to everyone, since it was the one thing in which the bank had been conspicuously successful. Various charges were brought against the bank only to be dis proved by Biddle.