The First Bank of the United States — A key part of Alexander Hamilton’s Financial Plan

Alexander Hamilton, the Secretary of the Treasury under President George Washington, was behind the plan to set up the First Bank of the United States. Hamilton wanted to create a centralized institution similar to the Bank of England, which would handle the massive Revolutionary War debt and create a standard form of currency. The federal government would own 20% of the stock and have two seats on the board of directors. The First Bank of the United States, a National Bank, was chartered for a term of 20 years, by the United States Congress on February 25, 1791. The bank was intended to stabilize the currency and national debt and to facilitate economic growth in the United States.

The First Bank of the United States was primarily owned by private investors, but the federal government owned 20% of its capital. The government had the right to inspect the books of the bank at any time, but otherwise, the bank was privately held. Foreigners were allowed to be First Bank of the United States stockholders, but they were not allowed to vote.

The purpose of the First Bank of the United States was to act as the federal government’s fiscal agent. The bank was responsible for collecting tax revenues, transferring money, ensuring the government’s funds were secure, making loans to the government, accepting deposits and making loans to private citizens, paying the bills of the government, and paying interest payments to European investors. Interest rates were capped at 6%.

Opponents of the First Bank of the United States — led by Thomas Jefferson and James Madison — argued that centralization of power, moving away from private banks, was dangerous for a sound monetary system. Opponents of the bank also believed it benefited the business interests of merchants and industrialists in the North, like John Jacob Astor, rather than the agricultural interests of the South. Opponents also argued that the bank violated the Constitution, as the creation of a Bank of the United States or a government mint were not listed among the expressed powers allowed to the federal government.

The charter for the First Bank of the United States was not renewed after 20 years due to opposition from some members of Congress who believed that the bank was too powerful, bordered on being unconstitutional, and was under foreign influence. After 20 years in existence, the charter for renewal was defeated by one vote, and the bank closed in 1811.

The first president of the First Bank of the United States was Thomas Willing, who had been president of the Bank of North America. Willing was a prominent businessman and politician from Philadelphia, who had served as a delegate to the Continental Congress and as mayor of Philadelphia. Although he voted against independence, he later provided money from his own pocket to support the war effort. Willing was appointed as president of the First Bank of the United States in 1791 and served in that role until 1807.

The opening of branches in various cities allowed the First Bank of the United States to expand its operations and better serve customers across the country. The bank opened branches in Baltimore, Boston, New York, and Charleston in 1792. The bank’s ability to make loans and receive interest payments from customers in these cities helped to stabilize the national economy and promote trade and industry. At the time, the First Bank of the United States was the only bank in the country that was allowed to have branch offices.

The need for a Second Bank of the United States arose when the War of 1812 erupted. During the war, the federal government needed to borrow large sums of money to finance the war effort, but private banks were unwilling or unable to lend money. In response, the government chartered a second national bank — the Second Bank of the United States — in 1816. The Second Bank was modeled after the First Bank and had similar functions, including collecting taxes, transferring money, and making loans to the government and private citizens. The Second Bank of the United States remained in operation until it was dissolved in 1836.