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The Development Of U.S. Banking

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    The banking system of the U.S. has evolved a tremendous amount since the very first central bank charted May 26th 1781 to the thousands of banks we have today that keeps the currency flowing in America. This topic peaked my interest because of how far and important the banking system was in america and still is today. These banks lead to the development of a national currency instead of crude banknotes only applicable to the assigned bank of the area. It’s an undeniable fact that these banks helped build America into what it is today and keep the citizens money safe and secure. There has been many debates regarding if banks were an overuse of congressional power and it’s interesting to see how much that’s changed compared to what we have and use today in the U.S.

    The true first central bank in the U.S. was called the Bank of North America(BNA) and was chartered May 26th 1781 and was opened to the public of Philadelphia on January 7th 1782. The Bank of North America was shrouded in debate over if it was an overuse of congressional power and that plagued many banks that came after it. The founder of the Bank of North America, Robert Morris enacted two charts at once to ease the opposing side. However in 1786 state politicians revoked one of the charter after the fall of the Confederation. Thus the Bank of North America’s national charter disappeared meaning that it could only act in its state, Philadelphia and was then soon used as a sort of tool by the government there. The Bank of North America was a sort of model that was used in the development of future banks like the First Nation Bank that was chartered in 1791.

    However in 1864 the Bank of North America was granted national status once again and then became part of the Federal Reserve System. The Federal Reserve System is basically a fallback system due to the large amount of panics that happened during this time. It was mainly used to control the money flow to avoid a financial crisis from happening. The First Bank obtained its first charter in 1791 that was supposed to last till 1811. The First Bank was supported majorly by Alexander Hamilton the Secretary of Treasury. It was very cautious at the time and mainly did small or short-term loans because of the example the Bank of North America set. Just like the Bank of North America the First Bank had criticism and was a hot topic for debate this time however the criticism was aimed towards the fact that it supposedly strained economic development.

    When the attempted renewal was rejected the bank slowly went out of business. The First Bank being modeled after the Bank of North America was profitable and had a reputation for being well maintained. There were some issues regarding it though and some were that it was not a national bank but one funded by the government making it hard to continue funding it and along with that borrow money. A while after the War of 1812 the U.S. piled up a very hefty debt and President Madison agreed to sign a bill that would enact a Second Bank in 1816 with a charter that would last 20 years. The Second Bank was enacted for the same reasons the First Bank was, the War of 1812 left a massive debt that caused inflation to grow rapidly. There was a major debate that sparked between Andrew Johnson and Nicholas Biddle, Johnson argued that these banks were a treat to the integrity of the Republic. When the charter had to be renewed to continue the bank it was rejected by President John Tyler thus leading to a violent uproar from the Whigs.

    The Second Bank failed almost like the First and North America Bank due to the controversy and debate shrouding the whole banking system as it being a new topic. The Free Banking Era began around 1837 in Michigan and the major point of this era was that it wasn’t as hard to start up a new bank. Before the Free Banking Era it was very tedious to get a bank accepted and run it but with the changes made it was made much more accessible. It was also a point where banknotes would be backed by the government in order to protect the shareholders in case of a failure or panic. By doing this the government could use the collateral and it be sold to reimburse the different shareholders and just in general it was a step up from how the first banks were established because now there was a fallback plan enacted. Many non government funded banks were formed because of this and the banking system started becoming more popular.

    The impact of these early banks were tremendous, the Bank of North America for example acted as a model for the future banks that came after, to be more precise for the First Bank. The Bank of North America also becoming a part of the Federal Reserve System was a major development because it was enacted to ease the panics. The First Bank that came after the Bank of North America proved to be profitable for the government. It also would deal in small loans to groups of people like farmers and investors. But because of the impact of the Bank of North America it was more cautious thus why it dealt in small loans etc. The Second Bank was impactful because it still was dealing with consorvercy and opinions were split. The Second Bank was also created in order to deal with the massive inflation caused by the War of 1812 it was in theory supposed to get the money recirculating at a proper rate once again. The failed second renewal of the Second Bank was also a major debating point that stirred many people up.

    Free Banking Era, it was a time when banks didn’t have to go through tedious steps in order to be recognized but also a time when banks had relatively short life spans. This lead to the formation of fallback systems, for example the New York Safety System that was made to reimburse incase of a failure this was the earliest known form of deposit insurance. It also lead to a set of problems regarding banknotes because they could be counterfeits and it would be a hassle to debunk if it was or not. Some solutions that were developed in order to improve the economy were for example some of the fallback and safety systems that were put into effect. The New York Safety System and many others were set in place to protect the money flow and banks for a total collapse that couldn’t be recovered from.

    After the Bank of North America and First Bank there was at least some general idea on what could be improved upon. That’s the whole reason these fallback systems were created, to prevent mass panics and bank failures due to their known short life span. The Second Bank was a major necessity after the War of 1812 to try and stabilize the economy due to a mass inflation because of the debts. The addition of the Free Banking Era furthered the idea of increased economy because it would then lead to the National Banking Act that formed our national currency that we use today instead of banknotes only applicable to the bank it was closest to and from. This boosted economy in many different ways, banks were a very important part of U.S. history. Overall the banking system of the U.S. has came along way from the very non accepted and or controversial topic to a widely used system that has improved the economy of the U.S. by tremendous amount.

    There are questions asked like “Is there hope?” there should be. Banks are an important part of economic and cultural development, and they should strive to be better and further themselves. It relates with the trial and error that the first few banks shared they built from one another and they were nowhere near perfect and still aren’t. The First and North America bank had a few problems that could’ve been solved relatively easy speaking, since they weren’t national but instead central the government had a hard time funding them. That piled on with the controversy that was created over them a simple solution would be to make it a national status bank so it could receive the funding necessary. The Free Banking Era spawned the National Banking Act that lead to the development of the U.S. currency that we use today. It was national instead of using banknotes only applicable to the area that bank happened to be in. It was a very considerable annoyance to merchants relying on these notes.

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