The American Bank and its Establishment

Not to be confused with Bank of America, the modern corporation, The First Bank of the United States was the first central back to be created in America, and its building is now a national historic landmark located in Philadelphia, Pennsylvania - which served as the national capital, from 1790 to 1800 - within Independence National Historical Park.

Established in February 1791, as part of a three-part expansion of federal fiscal and monetary power, The First Bank of the United States was campaigned by Alexander Hamilton, first Secretary of the Treasury, who believed a national bank was necessary to stabilise and improve the nation’s credit, and to improve handling of the financial business of the United States government under the newly enacted Constitution.

Officially proposed to the first session of the First Congress in 1790, Hamilton’s aim was to establish and maintain financial stability, and establish credit in the US and overseas. He planned to establish the initial funding for the Bank of the United States through the sale of $10 million in stock of which the United States government would purchase the first $2 million in shares. Hamilton, foreseeing the objection that this could not be done since the U.S. government did not have $2 million, proposed that the government make the stock purchase using money lent to it by the Bank; the loan to be paid back in ten equal annual instalments. The remaining $8 million of stock would be available to the public, both in the United States and overseas.

Hamilton’s Bank faced widespread resistance from opponents of increased federal power, who claimed that the bank was unconstitutional, and that it benefited merchants and investors at the expense of the majority of the population. Unlike the Bank of England, the primary function of this Bank would be credit issued to government and private interests, for internal improvements and other economic development, per Hamilton’s system of Public Credit.

There were other, non-negotiable conditions for the establishment of the Bank of the United States. Among these were that the Bank was to be a private company, and that it would have a twenty-year charter running from 1791 to 1811, after which time it would be up to the Congress to approve or deny renewal of the bank and its charter (however, during that time no other federal bank would be authorised). The Bank (to avoid any appearance of impropriety) would also be forbidden to buy government bonds, and would neither issue notes nor incur debts beyond its actual capitalisation. It would also have a mandatory rotation of directors, and foreigners - whether overseas or residing in the United States - would be allowed to be stockholders, but not allowed to vote. Finally, the rule was that the Secretary of the Treasury would be free to remove government deposits, inspect the books, and require statements regarding the bank’s condition as frequently as once a week.

The bank’s charter expired in 1811 and was succeeded by the Second Bank of the United States in 1816 which also had a 20 year charter. Finally, the third central banking system, the Federal Reserve was created in 1913 and is in existence still today.