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

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

3. 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)
Bank notes used for state & federal taxes.
1783 – converted to state bank (Penn.)
Robert Morris, founder of the Bank of North America.
Only bank with federal charter.
Mercantilist movement behind banks.
Fed owns 20%, deposits funds here.
BUS buys government debt; issues notes.
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.

4. The 2nd Bank of the United States
War of 1812.
BUS will hold state bank notes.
2nd BUS inflates, then deflates in 1819.
Once again, specie suspension and bank panics.
“The bank was saved, but the people ruined.”
Jackson kills the 2nd BUS in 1832.
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.

5. 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
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.

6. 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.

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

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