Introduction to Finance

First Bank of the United States 
Alexander Hamilton was the fi rst secretary of 
the Treasury of the United States. For several years he had harbored the idea of a federally 
chartered bank that would adequately support the rapidly growing economy and would give 
fi nancial assistance to the government during its crises. His recommendations were submitted 
to the House of Representatives of the United States in 1790, and in 1791 a 20-year charter 
was issued to the First Bank of the United States. This bank served the nation eff ectively by 
issuing notes, transferring funds from region to region, and curbing the excessive note issues 
of state banks by presenting such notes periodically to the issuing banks for redemption. 
However, strong opposition existed to the renewal of its charter, and it ceased operations in 
1811. The antagonism of state banking interests was an important cause of the demise of the 
First Bank.
Following the expiration of the charter of the First Bank, the number of state banks 
increased rapidly, as did the volume of their note issues. Abuses of banking privileges were 
extensive. The capital of many banks was largely fi ctitious, and a fl ood of irredeemable notes 
was issued to the public.
Second Bank of the United States 
The Second Bank of the United States was 
chartered primarily to restore order to the chaotic banking situation that had developed after 
the First Bank of the United States ceased operations in 1811. Like the First Bank, it received 
a 20-year federal charter. The Second Bank began operations in 1816 and ably served indi-
viduals, businesses, and the government. It accepted deposits, made loans, and issued notes. 
Furthermore, it restrained the note-issuing practices of state banks by periodically presenting 
their notes for redemption. The Second Bank also served as the fi scal agent for the govern-
ment. It received all deposits of government funds and reported regularly on all government 
receipts and expenditures.
In 1833, President Andrew Jackson and many of his associates began such a vigorous 
campaign against the Second Bank that it became apparent its charter would not be renewed 
when it expired in 1836. Jackson claimed that the bank was being run to benefi t private 
interests and was operated in such a way as to weaken government policies. Like the First 
Bank, it became a victim of political pressure. Not until 1863 was another bank in the United 
States to receive a federal charter.

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