The Suffolk System was the first regulatory banking system arrangement of remote banks created in the United States. Starting in 1824, the Suffolk Bank of Boston, along with six other banks, created a system that required country banks to deposit reserve balances in one or more of the participating banks, which guaranteed that each country bank could redeem their banknotes in specie; the Suffolk Bank became one of the most profitable in the country and continued to operate under the Suffolk System until 1858, when rival institutions complained of dictatorial practices and national legislation banned state banknotes. The Suffolk System was the predecessor to modern banking practices and led to the creation of the Federal Reserve that still operates today. During pre-Civil War times in the United States, banks around the country issued bank notes as a form of currency; the large number of banks led to a large, number of diverse bank notes that circulated around the country. Although many banks issued only enough bank notes that could be backed up by specie, riskier banks gave into temptation and issued more than they could cover.
This practice caused many people to doubt the exact worth of certain notes and in turn have little faith in some banks. In 1819, the Suffolk Bank of Boston was founded and only five years it had developed the Suffolk System and recruited six other Boston banks to join; the system was set up to ensure. This was accomplished by forcing all of the banks within the system to hold higher reserves of specie and keep deposits in the Suffolk Bank, resulting in the first clearing house agreement for currencies in country banks. Only a year in 1825, all bank notes that passed through the Suffolk System were taken at par. In just a single year the Suffolk System had given these seven Boston banks a uniform currency; as the Suffolk Bank grew in size it became able to assert pressure on other country banks and by 1838, over 300 banks redeemed their notes through the Suffolk System. All of New England now had a uniform currency. Throughout the system's existence, The Suffolk Bank was sure to keep all of the country banks within the system honest by presenting banks with their notes and requesting specie.
The discipline enacted by the Suffolk Bank made all bank notes in New England equal to their face value, allowing them to be traded within banks. The uniform currency was the first of its kind in the United States and remained in use all the way until 1858. Economic historians still disagree on the original purpose of the Suffolk System. Although the system would lead to stronger banking practices and a uniform currency for the Northeast, not all historians believe this was the System's original intention; some believe the Suffolk Bank was not attempting to police the currency markets in Boston, but rather to monopolize the brokerage of all the paper notes of the country banks in order to decrease circulation and open the markets for themselves. Although the systems’ initial intentions are unknown, its results are evident. Throughout the existence of the Suffolk System many important banking practices were discovered and put into practice. After the system became in place, the role of counterfeiting in the New England area fell dramatically.
Before the appearance of a uniform currency, many rural banks issued their own bank notes creating a large amount of different notes. This not only caused confusion, but led many criminals to counterfeit bank notes creating an ever-present risk of accepting bank notes that may not be worth what they claimed; the presence of bank panics during the existence of the Suffolk System led to new banking practices that would continue in practice until present day. The Panic of 1837, a deflationary backlash inducing depression and unemployment, was caused by many different factors including the practices of the Second Bank of the United States and political failures. Although the country entered a recession, the activities of the Suffolk Bank led the New England area to fare much better than the rest of the country; these practices included, keeping the payment system operating. Today central banks adopt these same practices that started with the private, commercial Suffolk Bank. More banking panics happened during the reign of the Suffolk System but their practices continued to minimize the depression in New England.
The Suffolk Bank has been considered by some to be a central bank, however it is contested due to its private nature. Some economist have argued that it can not be labeled a central bank because of a lack of control of the money supply, while others claim the system had a degree of control or it would have been altogether ineffective. Although it seems The Suffolk Bank cannot be considered private, it has proven that private individuals acting outside of political control are capable of providing the same functions of a central bank at lower costs. Although the Suffolk System was a great regulator of unsound banking practices, it lacked the ability to properly administer the total volume of banknote circulation; the Suffolk System regulated how many bank notes could be issued by country banks, but it was ineffective regulating the bank note circulation of the system. It has been considered a "good regulator of a bad system". In 1858 the Suffolk System ended and was replaced by the advent of the Bank of Mutual Redemption.
The Suffolk System's many good qualities could no longer outweigh the lack of their ability to increase note circulation. Although the Suffolk System was done away with by national legislation, the system of centr
The Bank War refers to the political struggle that developed over the issue of rechartering the Second Bank of the United States during the presidency of Andrew Jackson. The affair resulted in the destruction of its replacement by various state banks. Jacksonian Democrats cited a long list of criticisms in opposing the BUS. According to them, the BUS favored speculators at the expense of farmers and artisans, it owned large amounts of land in the West, possessed enormous material resources with the ability to make or break small towns, appropriated public money for risky private investments, in general, symbolized corruption while threatening liberty. As a state-sanctioned monopoly, the BUS conferred economic privileges on a small group of stockholders and financial elites, thereby violating the principle of equal opportunity. Critics added that the creation of a public-private, incorporated bank at the federal level was not explicitly authorized in the United States Constitution, that the bank interfered in the political process through its loans and expenditures, that the institution's charter violated state sovereignty, posing an implicit threat to Southern agrarian society dependent upon slavery.
On the other hand, pro-BUS National Republicans regarded the bank as a stabilizing force in the economy due to its unique ability to smooth out variations in prices and trade, extend credit where it was needed, supply the nation with a sound and uniform currency, provide helpful fiscal services for the treasury department, facilitate long-distance trade, prevent inflation by regulating the lending practices of state banks. In early 1832, the president of the Bank of the United States, Nicholas Biddle, in alliance with the National Republicans under Senators Henry Clay and Daniel Webster, submitted an early application for a renewal of the Bank's twenty-year charter; this application was four years before the current charter would expire and it made the elections of 1832 a referendum on the Bank's existence. When Congress voted to reauthorize the Bank, Jackson vetoed the bill, his veto message was a polemical declaration of the social philosophy of the Jacksonian movement that pitted "the planters, the farmers, the mechanic and the laborer" against the "monied interest."
The BUS became the central issue that divided the Jacksonians from the National Republicans in the presidential election of 1832. Although the Bank provided significant financial assistance to Clay and pro-BUS newspaper editors, Jackson secured an overwhelming election victory. Fearing economic reprisals from Biddle, Jackson moved swiftly to remove the Bank's federal deposits. In 1833, he succeeded in distributing these funds to several dozen state banks throughout the country; the new Whig Party emerged in opposition to his perceived abuse of executive power censuring Jackson in the Senate. In an effort to promote sympathy for the institution’s survival, Biddle retaliated by contracting Bank credit, inducing a mild financial downturn. A reaction set in throughout America’s financial and business centers against Biddle’s maneuvers, compelling the Bank to reverse its tight money policies. By the close of 1834, the prospects of a new Bank charter had dimmed considerably. Rather than permitting the Bank to go out of existence, Biddle arranged its conversion to a state chartered corporation in Pennsylvania just weeks before its federal charter expired in March 1836.
In 1841, during a global depression, the BUS declared bankruptcy. Jackson’s campaign against the Bank had triumphed. President James Madison and Treasury Secretary Albert Gallatin both supported recharter of the First Bank of the United States in 1811, they cited "expediency" and "necessity" as opposed to principle. Opponents of the First Bank of the United States defeated recharter by a single vote in both the House and Senate in 1811. Opposition came from several fronts, including states’ rights advocates opposed to the doctrine of implied powers, private banking interests who objected to the regulatory effects of the B. U. S. State banks, big mercantilists, including John Jacob Astor, who had disputes with the Bank’s directors; the practical arguments in favor of reviving a national system of finance, as well as internal improvements and protective tariffs, were prompted by national security concerns during the War of 1812 and its aftermath. The chaos of the war had, according to some, "demonstrated the absolute necessity of a national banking system."The roots for the resurrection of the Bank of the United States lay fundamentally in the transformation of America from a simple agrarian economy to one, becoming interdependent with finance and industry.
Vast western lands were opening for white settlement, accompanied by rapid development, enhanced by steam power and financial credit. Economic planning at the federal level was deemed necessary by Republican nationalists to promote expansion and encourage private enterprise. At the same time, they tried to "republicanize" Bank policy. Calhoun boasted that the nationalists had the support of the yeomanry, who would now "share in the capital of the Bank."In 1815, Secretary of State James Monroe informed President James Madison that a national bank "would attach the commercial part of the community in a much greater degree to the Government interest them in its operations…This is the great desideratum of our system." Support for this "national system of money and finance" grew with the post-war economy and land boom, uniting the interests of eastern financiers with southern and western Republican nationalists who sought to "Republicanize Hamiltonian bank policy" and "employ Hamiltonian means to Jeffersonian ends."
Despite opposition from Old Republicans led
The Bland–Allison Act referred to as the Grand Bland Plan of 1878, was an act of United States Congress requiring the U. S. Treasury to put it into circulation as silver dollars. Though the bill was vetoed by President Rutherford B. Hayes, the Congress overrode Hayes's veto on February 1878 to enact the law; the five-year depression following the Panic of 1873 caused cheap-money advocates, to join with silver-producing interests in urging a return to bimetallism, the use of both silver and gold as a standard. Coupled with Senator William B. Allison of Iowa, they agreed to a proposal that allowed silver to be purchased at market rates, metals to be minted into silver dollars, required the US Treasury to purchase between $2 million to $4 million silver each month from western mines. President Rutherford B. Hayes, who held interests in industrials and banking, vetoed the measure, overturned by Congress; as a result, the Hayes administration purchased the limited amount of silver each month. This act helped restore bimetallism with silver both supporting the currency.
However, gold remained favored over silver, paving way for the gold standard. The free-silver movement of the late 19th century advocated the unlimited coinage of silver, which would have resulted in inflationary monetary policy. In 1873, Congress had removed the usage of silver dollar from the list of authorized coins under the Coinage Act of 1873. Although the Bland–Allison Act of 1878 directed the Treasury to purchase silver from the "best-western" miners, President Grover Cleveland repealed the act in 1893. Advocates of free silver included owners of silver mines in the West, farmers who believed an inclusion of silver would increase crop prices, debtors who believed would alleviate their debts. Although the free silver movement ended, the debate of inflation and monetary policy continues to this day; the Fourth Coinage Act acknowledged the gold standard over silver. Those who advocated for silver labeled this act as the Crime of'73; as a result of demonetized silver, gold became the only metallic standard in the United States and became the default standard.
The price of gold was more stable than that of silver due to silver discoveries in Nevada and other places in the West, the price of silver to gold declined from 16-to-1 in 1873 to nearly 30-to-1 by 1893. The term limping bimetallism describes this problem; the U. S. government ceded to pressure from the western mining states and the Bland–Allison Act went into effect in 1878, replaced by the Sherman Silver Purchase Act of 1890. The law was replaced in 1890 by the similar Sherman Silver Purchase Act, which in turn was repealed by Congress in 1893; these were two instances where the United States attempted to establish bimetallic standards in the long run. Western miners and debtors regarded the Bland–Allison Act as an insufficient measure to enforce unlimited coinage of silver, but opponents repealed the act and advocated for the gold standard; the effect of the Bland–Allison act was blunted by the minimal purchase of silver required by the Hayes administration. Although the act was a near turning point for bimetallism, gold continued to be favored over the bimetallism standard.
Throughout 1860 to 1871, several attempts were made by the Treasury to establish the bimetallic standard by having gold and silver franc. However, the discovery of silver led to an influx of supply; the eventual removal of the bimetallic standard, including the Bland–Allison Act and the acceptance of the gold standard formed the monetary stability in the late 19th century. The limitation placed on the supply of new notes and the Treasury control over the issue of new notes allowed for economic stability. Prior to the acceptance, the devaluation of silver forced local governments into a financial turmoil. In addition, there was a need for money supply to increase as the credit system expanded and large banks established themselves across states. Specie Payment Resumption Act Cynthia Northrup, ed; the American economy: a historical encyclopedia p. 28
Federal Reserve Bank Note
Federal Reserve Bank Notes are banknotes that are legal in the United States issued between 1915 and 1934, together with United States Notes, silver certificates, Gold Certificates, National Bank Notes and Federal Reserve Notes. They had the same value as other kinds of notes of similar value. Federal Reserve Bank Notes are different from Federal Reserve Notes in that they are backed by one of the twelve Federal Reserve Banks, rather than by all collectively, they were backed in a similar way to National Bank Notes, using U. S. bonds, but issued by Federal Reserve banks instead of by chartered National banks. Federal Reserve Bank Notes are no longer issued. S. banknotes still in production since 1971 are the Federal Reserve Notes. Large size Federal Reserve Bank Notes were first issued in 1915 in denominations of $5, $10, $20, using a design that shared elements with both the National Bank Notes and the Federal Reserve Notes of the time. Additional denominations of $1, $2, $50 were issued in 1918.
Small size Federal Reserve Bank Notes were printed as an emergency issue in 1933 using the same paper stock as National Bank Notes. They were printed in denominations of $5 through $100. A National Bank Note has a line for the signature of the president of the national bank; the small size Federal Reserve Bank Note printed a bar over the label for this line, since Federal Reserve Banks had governors, not presidents. The wording was changed to add, "Or by like deposit of other securities" after the phrase, "Secured by United States bonds deposited with the Treasurer of the United States of America"; the twelve Federal Reserve Districts appear on the bills as black alphabetically sequenced letters, from "A" to "L", a system followed today on the $1 and $2 bills. This emergency issue of notes was prompted by the public hoarding of cash due to many bank failures happening at the time; this limited the ability of the National Banks to issue notes of their own. Small size Federal Reserve Bank Notes were discontinued in 1934 and have been no longer available from banks since 1945.
As small size notes, they have serial numbers, as do National Bank Notes of the era. But while they look similar, both have the words, "National Currency" across the top of the obverse, they had different issuers and are considered to be distinctly different types of bills
Second Bank of the United States
The Second Bank of the United States, located in Philadelphia, was the second federally authorized Hamiltonian national bank in the United States during its 20-year charter from February 1816 to January 1836. The bank's formal name, according to section 9 of its charter as passed by Congress, was "The President and Company, of the Bank of the United States."A private corporation with public duties, the bank handled all fiscal transactions for the U. S. Government, was accountable to Congress and the U. S. Treasury. Twenty percent of its capital was owned by the federal government, the bank's single largest stockholder. Four thousand private investors held 80% of the bank's capital, including one thousand Europeans; the bulk of the stocks were held by a few hundred wealthy Americans. In its time, the institution was the largest monied corporation in the world; the essential function of the bank was to regulate the public credit issued by private banking institutions through the fiscal duties it performed for the U.
S. Treasury, to establish a sound and stable national currency; the federal deposits endowed the BUS with its regulatory capacity. Modeled on Alexander Hamilton's First Bank of the United States, the Second Bank was chartered by President James Madison in 1816 and began operations at its main branch in Philadelphia on January 7, 1817, managing twenty-five branch offices nationwide by 1832; the efforts to renew the bank's charter put the institution at the center of the general election of 1832, in which the bank's president Nicholas Biddle and pro-bank National Republicans led by Henry Clay clashed with the "hard-money" Andrew Jackson administration and eastern banking interests in the Bank War. Failing to secure recharter, the Second Bank of the United States became a private corporation in 1836, underwent liquidation in 1841; the political support for the revival of a national banking system was rooted in the early 19th century transformation of the country from simple Jeffersonian agrarianism towards one interdependent with industrialization and finance.
In the aftermath of the War of 1812 the federal government suffered from the disarray of an unregulated currency and a lack of fiscal order. A national alliance arose to legislate a central bank to address these needs; the political climate—dubbed the Era of Good Feelings—favored the development of national programs and institutions, including a protective tariff, internal improvements and the revival of a Bank of the United States Southern and western support for the bank, led by Republican nationalists John C. Calhoun of South Carolina and Henry Clay of Kentucky was decisive in the successful chartering effort; the charter was signed into law by James Madison on April 10, 1816. Subsequent efforts by Calhoun and Clay to earmark the bank's $1.5 million establishment "bonus", annual dividends estimated at $650,000, as a fund for internal improvements, was vetoed by President Madison, on strict constructionist grounds. Opposition to the bank's revival emanated from two interests. Old Republicans, represented by John Taylor of Caroline and John Randolph of Roanoke characterized the Second Bank of the United States as both constitutionally illegitimate and a direct threat to Jeffersonian agrarianism, state sovereignty and the institution of slavery, expressed by Taylor's statement that "...if Congress could incorporate a bank, it might emancipate a slave".
Hostile to the regulatory effects of the central bank, private banks—proliferating with or without state charters—had scuttled rechartering of the first BUS in 1811. These interests played significant roles in undermining the institution during the administration of U. S. President Andrew Jackson; the BUS was launched in the midst of a major global market readjustment as Europe recovered from the Napoleonic Wars The central bank was charged with restraining uninhibited private bank note issue—already in progress—that threatened to create a credit bubble and the risks of a financial collapse. Government land sales in the West, fueled by European demand for agricultural products, ensured that a speculative bubble would form; the national bank was engaged in promoting a democratized expansion of credit to accommodate laissez-faire impulses among eastern business entrepreneurs and credit hungry western and southern farmers. Under the management of the first BUS president William Jones, the bank failed to control paper money issued from its branch banks in the West and South, contributing to the post-war speculative land boom.
When the U. S. markets collapsed in the Panic of 1819—a result of global economic adjustments—the central bank came under withering criticism for its belated tight money policies—policies that exacerbated mass unemployment and plunging property values. Further, it transpired that branch directors for the Baltimore office had engaged in fraud and larceny. Resigning in January 1819, Jones was replaced by Langdon Cheves who continued the contraction in credit in an effort to stop inflation and stabilize the bank as the economy began to correct; the central bank's reaction to the crisis—a clumsy expansion a sharp contraction of credit—indicated its weakness, not its strength. The effects were catastrophic, resulting in a protracted recession with mass unemployment and a sharp drop in property values that persisted until 1822; the financial crisis raised doubts among the American public as to the efficacy of paper money, in whose interests a national system of finance operated. Upon this widespread disaffection the anti-bank Jacksonian Democrats would mobilize opposition to the BUS in the 1830s.
The national bank was in general disrepute among most Americans when Nicholas Biddle, the third and last president of the bank, was app