U S Central Bank History ECO 473 Money

U. S. Central Bank History ECO 473 – Money & Banking – Dr. D. Foster

The Origins of U. S. Central Banking 1791– 1836 v The Bank of North America (1781). v The First Bank of the United States (1791). v The Second Bank of the United States (1816). 1837– 1913 v The “free-banking” era. v The Civil War & greenbacks – a fiat money. v The National Banking system.

The Bank of North America • Robert Morris; war profits; 1781 charter; 1782 start • Chartered by the Continental Congress • Thomas Willing as president • Sole printer of paper currency (replaced continentals) Robert Morris, founder of the Bank of North America. • Bank notes used for state & federal taxes. • 1783 – converted to state bank (Penn. ) • Only bank with federal charter. • Mercantilist movement behind banks. • Fed owns 20%, deposits funds here. • BUS buys government debt; issues notes. • 1791 -1796 wholesale prices up 72%. • 1811 – renewal fails in Congress. Thomas Willing, first President of the Bank of North America; later President of the First BUS.

The 2 nd Bank of the United States • War of 1812. • BUS will hold state bank notes. • 2 nd BUS inflates, then deflates in 1819. • Once again, specie suspension and bank panics. • “The bank was saved, but the people ruined. ” Both the constitutionality and the expediency of the law creating this bank are well questioned by a large portion of our fellow citizens, and it must be admitted by all that it has failed in the great end of establishing a uniform and sound currency. • Jackson kills the 2 nd BUS in 1832.

The “Free Banking” Era: 1836 -1863 • Van Buren sets up Independent Treasury System – Came and went and lasted only until Civil War. – Federal government held only specie, not paper. • Decentralized banking 1836 -1862 – Still heavily regulated. – State banks required to hold state gov’t. debt to back their note/dd issue. – Notes accepted for taxes. – Restricted branching making redemption harder. • Private note clearing – Suffolk System – Held specie reserve of members. – Different bank notes accepted. – Insulated banks from panics.

The National Banking System • The National Banking Act of 1863 – Created nationally-chartered banks. – Created a national currency. – Taxed non-national bank notes. – Bought gov’t debt & issued notes. – The rise & fall of Jay Cooke. – State banks still benefit by holding reserves in national notes. – Didn’t stop periodic panics.

Evolution to Central Banking: 1865– 1912 v The National Banking Act (1863) v The Gold Standard (1875). v Brief foray into bi-metalism. v Panics of 1873, 1893 and 1907 v Federal Reserve Act of 1913

U. S. Central Bank History ECO 473 – Money & Banking – Dr. D. Foster