US History: Bank of the United States

The Bank of the United States

• Established by the Supreme Court case of McCulloch v. Maryland, but came under scrutiny during Andrew Jackson's first administration
• Led by Nicholas Biddle, serving as a rudimentary central bank, regulating credit availability and controlling lending policies of state and small banks
• Issued paper notes, which could be exchanged for hard currency (gold or silver), and had to maintain enough reserves to meet customer demands
• Effective in reigning in excessive borrowing and lending policies during the economic boom of Jacksonian America

Opposition to the Bank

• Opposition from those who distrusted paper currency, preferring hard currency
• Local bankers felt restricted by Biddle's oversight, hurting their business
• New York bankers resented the Philadelphia-based bank and wanted a central bank in their own city
• Concerns about the bank's monopoly and excessive power

The Election of 1832 and the Bank's Re-Charter

• Henry Clay and Biddle allied to defeat Jackson, realizing they needed each other to win
• Congress passed the re-charter bill in July 1832, but Jackson vetoed it, citing the bank's private monopoly and potential to enrich a few at the expense of the many
• The veto was a popular move, contributing to Jackson's re-election

The Demise of the Bank

• Jackson ordered the withdrawal of US deposits from the bank, leading to its eventual liquidation by 1841
• Biddle's attempts to fight back by restricting lending and pressuring Jackson failed

The Panic of 1837

• Caused by the void left by the Bank of the United States, leading to a surge in state banks and private banks offering money to finance American expansion
• Speculation and inflation led to a financial crisis, with banks calling in loans, many unable to pay, and property foreclosing
• The government's requirement for gold or silver to purchase government lands further exacerbated the crisis, leading to widespread financial ruin and panic