The Federal Reserve System is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of financial panics led to the desire for central control of the monetary system in order to alleviate financial crises. Over the years, events such as the Great Depression in the 1930s and the Great Recession during the 2000s have led to the expansion of the roles and responsibilities of the Federal Reserve System; the U. S. Congress established three key objectives for monetary policy in the Federal Reserve Act: maximizing employment, stabilizing prices, moderating long-term interest rates; the first two objectives are sometimes referred to as the Federal Reserve's dual mandate. Its duties have expanded over the years, also include supervising and regulating banks, maintaining the stability of the financial system, providing financial services to depository institutions, the U. S. government, foreign official institutions.
The Fed conducts research into the economy and provides numerous publications, such as the Beige Book and the FRED database. The Federal Reserve System is composed of several layers, it is governed by the presidentially appointed board of Federal Reserve Board. Twelve regional Federal Reserve Banks, located in cities throughout the nation and oversee owned commercial banks. Nationally chartered commercial banks are required to hold stock in, can elect some of the board members of, the Federal Reserve Bank of their region; the Federal Open Market Committee sets monetary policy. It consists of all seven members of the board of governors and the twelve regional Federal Reserve Bank presidents, though only five bank presidents vote at a time. There are various advisory councils. Thus, the Federal Reserve System has both private components, it has a structure unique among central banks, is unusual in that the United States Department of the Treasury, an entity outside of the central bank, prints the currency used.
The federal government sets the salaries of the board's seven governors. The federal government receives all the system's annual profits, after a statutory dividend of 6% on member banks' capital investment is paid, an account surplus is maintained. In 2015, the Federal Reserve earned net income of $100.2 billion and transferred $97.7 billion to the U. S. Treasury. Although an instrument of the US Government, the Federal Reserve System considers itself "an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding appropriated by the Congress, the terms of the members of the board of governors span multiple presidential and congressional terms." The primary motivation for creating the Federal Reserve System was to address banking panics. Other purposes are stated in the Federal Reserve Act, such as "to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, for other purposes".
Before the founding of the Federal Reserve System, the United States underwent several financial crises. A severe crisis in 1907 led Congress to enact the Federal Reserve Act in 1913. Today the Federal Reserve System has responsibilities in addition to ensuring the stability of the financial system. Current functions of the Federal Reserve System include: To address the problem of banking panics To serve as the central bank for the United States To strike a balance between private interests of banks and the centralized responsibility of government To supervise and regulate banking institutions To protect the credit rights of consumers To manage the nation's money supply through monetary policy to achieve the sometimes-conflicting goals of maximum employment stable prices, including prevention of either inflation or deflation moderate long-term interest rates To maintain the stability of the financial system and contain systemic risk in financial markets To provide financial services to depository institutions, the U.
S. government, foreign official institutions, including playing a major role in operating the nation's payments system To facilitate the exchange of payments among regions To respond to local liquidity needs To strengthen U. S. standing in the world economy Banking institutions in the United States are required to hold reserves—amounts of currency and deposits in other banks—equal to only a fraction of the amount of the bank's deposit liabilities owed to customers. This practice is called fractional-reserve banking; as a result, banks invest the majority of the funds received from depositors. On rare occasions, too many of the bank's customers will withdraw their savings and the bank will need help from another institution to continue operating. Bank runs can lead to a multitude of economic problems; the Federal Reserve System was designed as an attempt to prevent or minimize the occurrence of bank runs, act as a lender of last resort when a bank run does occur. Many economists, following Nobel laureate Milton Friedman, believe that the Federal Reserve inappropriately refused to lend money to small banks during the bank runs of 1929.
Because some banks refused to clear checks from certain other banks during times of economic uncertainty, a check-clearing system was created in the Federal Reserve System. It is described in
Wall Street Crash of 1929
The Wall Street Crash of 1929 known as the Stock Market Crash of 1929 or the Great Crash, is a major stock market crash that occurred in late October 1929. It started on October 24 and continued until October 29, 1929, when share prices on the New York Stock Exchange collapsed, it was the most devastating stock market crash in the history of the United States, when taking into consideration the full extent and duration of its after effects. The crash, which followed the London Stock Exchange's crash of September, signaled the beginning of the 12-year Great Depression that affected all Western industrialized countries; the Roaring Twenties, the decade that followed World War I that led to the crash, was a time of wealth and excess. Building on post-war optimism, rural Americans migrated to the cities in vast numbers throughout the decade with the hopes of finding a more prosperous life in the ever-growing expansion of America's industrial sector. While American cities prospered, the overproduction of agricultural produce created widespread financial despair among American farmers throughout the decade.
This would be blamed as one of the key factors that led to the 1929 stock market crash. Despite the dangers of speculation, it was believed that the stock market would continue to rise forever. On March 25, 1929, after the Federal Reserve warned of excessive speculation, a small crash occurred as investors started to sell stocks at a rapid pace, exposing the market's shaky foundation. Two days banker Charles E. Mitchell announced that his company, the National City Bank, would provide $25 million in credit to stop the market's slide. Mitchell's move brought a temporary halt to the financial crisis, call money declined from 20 to 8 percent. However, the American economy showed ominous signs of trouble: steel production declined, construction was sluggish, automobile sales went down, consumers were building up high debts because of easy credit. Despite all the economic trouble signs and the market breaks in March and May 1929, stocks resumed their advance in June and the gains continued unabated until early September 1929.
The market had been on a nine-year run that saw the Dow Jones Industrial Average increase in value tenfold, peaking at 381.17 on September 3, 1929. Shortly before the crash, economist Irving Fisher famously proclaimed, "Stock prices have reached what looks like a permanently high plateau." The optimism and the financial gains of the great bull market were shaken after a well-publicized early September prediction from financial expert Roger Babson that "a crash was coming". The initial September decline was thus called the "Babson Break" in the press; that was the start of the Great Crash, but until the severe phase of the crash in October, many investors regarded the September "Babson Break" as a "healthy correction" and buying opportunity. On September 20, the London Stock Exchange crashed when top British investor Clarence Hatry and many of his associates were jailed for fraud and forgery; the London crash weakened the optimism of American investment in markets overseas. In the days leading up to the crash, the market was unstable.
Periods of selling and high volumes were interspersed with brief periods of rising prices and recovery. Selling intensified in mid-October. On October 24, the market lost 11 percent of its value at the opening bell on heavy trading; the huge volume meant that the report of prices on the ticker tape in brokerage offices around the nation was hours late and so investors had no idea what most stocks were trading for at the moment, increasing panic. Several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor; the meeting included acting head of Morgan Bank. They chose vice president of the Exchange, to act on their behalf. With the bankers' financial resources behind him, Whitney placed a bid to purchase a large block of shares in U. S. Steel at a price well above the current market; as traders watched, Whitney placed similar bids on other "blue chip" stocks. The tactic was similar to one that had ended the Panic of 1907, it succeeded in halting the slide. The Dow Jones Industrial Average recovered.
The rally continued on Friday, October 25, the half-day session on Saturday, October 26, but unlike 1907, the respite was only temporary. Over the weekend, the events were covered by the newspapers across the United States. On October 28, "Black Monday", more investors facing margin calls decided to get out of the market, the slide continued with a record loss in the Dow for the day of 38.33 points, or 13%. The next day, "Black Tuesday", October 29, 1929, about 16 million shares traded as the panic selling reached its peak; some stocks had no buyers at any price that day. The Dow lost 12 percent; the volume of stocks traded. On October 29, William C. Durant joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks to demonstrate to the public their confidence in the market, but their efforts failed to stop the large decline in prices; the massive volume of stocks traded that day made the ticker continue to run until about 7:45 p.m. The market had lost over $30 billion in the space of two days, including $14 billion on October 29 alone.
After a one-day recovery on October 30, when the Dow regained an additional 28.40 points, or 12 percent, to close at 2
Second Continental Congress
The Second Continental Congress was a convention of delegates from the Thirteen Colonies that started meeting in the spring of 1775 in Philadelphia, Pennsylvania. It succeeded the First Continental Congress, which met in Philadelphia between September 5, 1774, October 26, 1774; the Second Congress moved incrementally towards independence. It adopted the Lee Resolution which established the new country on July 2, 1776, it agreed to the United States Declaration of Independence on July 4, 1776; the Congress acted as the de facto national government of the United States by raising armies, directing strategy, appointing diplomats, making formal treaties such as the Olive Branch Petition. The Second Continental Congress came together on May 11, 1775 reconvening the First Continental Congress. Many of the 56 delegates who attended the first meeting were in attendance at the second, the delegates appointed the same president and secretary. Notable new arrivals included John Hancock of Massachusetts.
Within two weeks, Randolph was summoned back to Virginia to preside over the House of Burgesses. Henry Middleton was elected as president to replace Randolph. Hancock was elected president on May 24. Delegates from twelve of the Thirteen Colonies were present when the Second Continental Congress convened. Georgia had not participated in the First Continental Congress and did not send delegates to the Second. On May 13, 1775, Lyman Hall was admitted as a delegate from the Parish of St. John's in the Colony of Georgia, not as a delegate from the colony itself. On July 4, 1775, revolutionary Georgians held a Provincial Congress to decide how to respond to the American Revolution, that congress decided on July 8 to send delegates to the Continental Congress, they arrived on September 13. The First Continental Congress had sent entreaties to King George III to stop the Coercive Acts; the Second Continental Congress met on May 10, 1775 to plan further responses if the British government had not repealed or modified the acts.
For the first few months of the war, the Patriots carried on their struggle in an ad-hoc and uncoordinated manner. They had seized arsenals, driven out royal officials, besieged the British army in the city of Boston. On June 14, 1775, the Congress voted to create the Continental Army out of the militia units around Boston and appointed George Washington of Virginia as commanding general. On July 6, 1775, Congress approved a Declaration of Causes outlining the rationale and necessity for taking up arms in the Thirteen Colonies. On July 8, they extended the Olive Branch Petition to the British Crown as a final attempt at reconciliation. Silas Deane was sent to France as a minister of the Congress, American ports were reopened in defiance of the British Navigation Acts; the Continental Congress had no explicit legal authority to govern, but it assumed all the functions of a national government, such as appointing ambassadors, signing treaties, raising armies, appointing generals, obtaining loans from Europe, issuing paper money, disbursing funds.
The Congress had no authority to levy taxes and was required to request money and troops from the states to support the war effort. Individual states ignored these requests. Congress was moving towards declaring independence from the British Empire in 1776, but many delegates lacked the authority from their home governments to take such a drastic action. Advocates of independence moved to have reluctant colonial governments revise instructions to their delegations, or replace those governments which would not authorize independence. On May 10, 1776, Congress passed a resolution recommending that any colony with a government, not inclined toward independence should form one that was. On May 15, they adopted a more radical preamble to this resolution, drafted by John Adams, which advised throwing off oaths of allegiance and suppressing the authority of the Crown in any colonial government that still derived its authority from the Crown; that same day, the Virginia Convention instructed its delegation in Philadelphia to propose a resolution that called for a declaration of independence, the formation of foreign alliances, a confederation of the states.
The resolution of independence was delayed for several weeks, as advocates of independence consolidated support in their home governments. On June 7, 1776, Richard Henry Lee offered a resolution before the Congress declaring the colonies independent, he urged Congress to resolve "to take the most effectual measures for forming foreign Alliances" and to prepare a plan of confederation for the newly independent states. Lee argued that independence was the only way to ensure a foreign alliance, since no European monarchs would deal with America if they remained Britain's colonies. American leaders had rejected the divine right of kings in the New World, but recognized the necessity of proving their credibility in the Old World. Congress formally adopted the resolution of independence, but only after creating three overlapping committees to draft the Declaration, a Model Treaty, the Articles of Confederation; the Declaration announced the states' entry into the international
Executive Order 6102
Executive Order 6102 is a United States presidential executive order signed on April 5, 1933, by President Franklin D. Roosevelt "forbidding the Hoarding of gold coin, gold bullion, gold certificates within the continental United States"; the order was made under the authority of the Trading with the Enemy Act of 1917, as amended by the Emergency Banking Act the previous month. The limitation on gold ownership in the U. S. was repealed after President Gerald Ford signed a bill legalizing private ownership of gold coins and certificates by an act of Congress codified in Pub. L. 93–373 which went into effect December 31, 1974. The stated reason for the order was that hard times had caused "hoarding" of gold, stalling economic growth and making the depression worse; the New York Times, on April 6, 1933, p. 16, wrote under the headline "Hoarding of Gold", "The Executive Order issued by the President yesterday amplifies and particularizes his earlier warnings against hoarding. On March 6, taking advantage of a wartime statute that had not been repealed, he issued Presidential Proclamation 2039 that forbade the hoarding'of gold or silver coin or bullion or currency', under penalty of $10,000 and/or up to five to ten years imprisonment."The main rationale behind the order was to remove the constraint on the Federal Reserve which prevented it from increasing the money supply during the depression.
By the late 1920s, the Federal Reserve had hit the limit of allowable credit that could be backed by the gold in its possession. Executive Order 6102 required all persons to deliver on or before May 1, 1933, all but a small amount of gold coin, gold bullion, gold certificates owned by them to the Federal Reserve, in exchange for $20.67 per troy ounce. Under the Trading with the Enemy Act of 1917, as amended by the passed Emergency Banking Act of March 9, 1933, violation of the order was punishable by fine up to $10,000 or up to ten years in prison, or both. Order 6102 exempted "customary use in industry, profession or art", a provision that covered artists, jewelers and sign makers among others; the order further permitted any person to own up to $100 in gold coins. The same paragraph exempted "gold coins having recognized special value to collectors of rare and unusual coins"; that protected recognized gold coin collections from legal seizure and melting. The price of gold from the Treasury for international transactions was raised by the Gold Reserve Act to $35 an ounce.
The resulting profit that the government realized funded the Exchange Stabilization Fund established by the Gold Reserve Act in 1934. The regulations prescribed within Executive Order 6102 were modified by Executive Order 6111 of April 20, 1933, both of which were revoked and superseded by Executive Orders 6260 and 6261 of August 28 and 29, 1933, respectively. Executive Order 6102 led to the extreme rarity of the 1933 Double Eagle gold coin; the order caused all gold coin production to cease and all 1933 minted coins to be destroyed. About 20 illegal coins were stolen, leading to a standing United States Secret Service warrant for arrest and confiscation of the coin. A legalized surviving coin sold for over $7.5 million in 2002, making it one of the most valuable coins in the world. Numerous individuals and companies were prosecuted related to President Roosevelt's Executive Order 6102; the prosecutions took place under subsequent Executive Orders 6111, 6260, 6261 and the Gold Reserve Act of 1934.
There was a need to strengthen Executive Order 6102, as the one prosecution under the order was ruled invalid by federal judge John M. Woolsey, on the grounds that the order was signed by the President, not the Secretary of the Treasury as required; the circumstances of the case were that a New York attorney named Frederick Barber Campbell had one deposit at Chase National Bank of over 5,000 troy ounces of gold. When Campbell attempted to withdraw the gold, Chase refused, Campbell sued Chase. A federal prosecutor indicted Campbell on the following day for failing to surrender his gold; the prosecution of Campbell failed, but the authority of the federal government to seize gold was upheld, Campbell's gold was confiscated. The case was cause for the Roosevelt administration to issue a new order under the signature of the Secretary of the Treasury, Henry Morgenthau, Jr. Executive Orders 6260, 6261, related to the seizure of gold and the prosecution of gold hoarders. A few months Congress passed the Gold Reserve Act of 1934 which ratified President Roosevelt's orders.
A new set of Treasury regulations was issued providing civil penalties of confiscation of all gold and imposition of fines equal to double the value of the gold seized. Prosecutions of U. S. citizens and non-citizens followed the new orders, with a few notable cases: Gus Farber, a diamond and jewelry merchant from San Francisco, was prosecuted for the sale of thirteen $20 gold coins without a license. Secret Service agents discovered the sale with the help of the buyer. Farber, his father, 12 others were arrested in four American cities after a sting operation conducted by the United States Secret Service; the arrests took place in New York and three California cities, San Francisco, San Jose, Oakland. Morris Anolik was arrested in New York with $5,000 in U. S. and foreign gold coins.
Nevada is a state in the Western United States. It is bordered by Oregon to the northwest, Idaho to the northeast, California to the west, Arizona to the southeast and Utah to the east. Nevada is the 7th most extensive, the 32nd most populous, but the 9th least densely populated of the U. S. states. Nearly three-quarters of Nevada's people live in Clark County, which contains the Las Vegas–Paradise metropolitan area where three of the state's four largest incorporated cities are located. Nevada's capital, however, is Carson City. Nevada is known as the "Silver State" because of the importance of silver to its history and economy, it is known as the "Battle Born State", because it achieved statehood during the Civil War. Nevada is desert and semi-arid, much of it within the Great Basin. Areas south of the Great Basin are within the Mojave Desert, while Lake Tahoe and the Sierra Nevada lie on the western edge. About 86% of the state's land is managed by various jurisdictions of the U. S. federal government, both civilian and military.
Before European contact, Native Americans of the Paiute and Washoe tribes inhabited the land, now Nevada. The first Europeans to explore the region were Spanish, they called the region Nevada because of the snow. The area formed part of the Viceroyalty of New Spain, became part of Mexico when it gained independence in 1821; the United States annexed the area in 1848 after its victory in the Mexican–American War, it was incorporated as part of Utah Territory in 1850. The discovery of silver at the Comstock Lode in 1859 led to a population boom that became an impetus to the creation of Nevada Territory out of western Utah Territory in 1861. Nevada became the 36th state on October 31, 1864, as the second of two states added to the Union during the Civil War. Nevada has a reputation for its libertarian laws. In 1940, with a population of just over 110,000 people, Nevada was by far the least-populated state, with less than half the population of the next least-populated state. However, legalized gambling and lenient marriage and divorce laws transformed Nevada into a major tourist destination in the 20th century.
Nevada is the only U. S. state where prostitution is legal, though it is illegal in Clark County, Washoe County and Carson City. The tourism industry remains Nevada's largest employer, with mining continuing as a substantial sector of the economy: Nevada is the fourth-largest producer of gold in the world; the name "Nevada" comes from meaning "snow-covered", after the Sierra Nevada. Most Nevadans pronounce the second syllable of their state name using the TRAP vowel. Many from outside the Western United States pronounce it with the PALM vowel. Although the latter pronunciation is closer to the Spanish pronunciation, it is not the pronunciation preferred by most Nevadans. State Assemblyman Harry Mortenson proposed a bill to recognize the alternate pronunciation of Nevada, though the bill was not supported by most legislators and never received a vote; the Nevadan pronunciation is the de facto official one, since it is the one used by the state legislature. At one time, the state's official tourism organization, TravelNevada, stylized the name of the state as "Nevăda", with a breve mark over the a indicating the locally preferred pronunciation, available as a license plate design.
Nevada is entirely within the Basin and Range Province, is broken up by many north-south mountain ranges. Most of these ranges have endorheic valleys between them, which belies the image portrayed by the term Great Basin. Much of the northern part of the state is within the Great Basin, a mild desert that experiences hot temperatures in the summer and cold temperatures in the winter. Moisture from the Arizona Monsoon will cause summer thunderstorms; the state's highest recorded temperature was 125 °F in Laughlin on June 29, 1994. The coldest recorded temperature was −52 °F set in San Jacinto in 1972, in the northeastern portion of the state; the Humboldt River crosses the state from east to west across the northern part of the state, draining into the Humboldt Sink near Lovelock. Several rivers drain from the Sierra Nevada eastward, including the Walker and Carson rivers. All of these rivers are endorheic basins, ending in Walker Lake, Pyramid Lake, the Carson Sink, respectively. However, not all of Nevada is within the Great Basin.
Tributaries of the Snake River drain the far north, while the Colorado River, which forms much of the boundary with Arizona, drains much of southern Nevada. The mountain ranges, some of which have peaks above 13,000 feet, harbor lush forests high above desert plains, creating sky islands for endemic species; the valleys are no lower in elevation than 3,000 feet, while some in central Nevada are above 6,000 feet. The southern third of the state, where the Las Vegas area is situated, is within the Mojave Desert; the area is closer to the Arizona Monsoon in the summer. The terrain is lower below 4,000 feet, creating conditions for hot summer days and cool to chilly winter nights. Nevada and California have by far the longest diagonal line as a state boundary at just over 400 miles; this line begins in Lake Tahoe nearly
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
History of central banking in the United States
This history of central banking in the United States encompasses various bank regulations, from early "wildcat" practices through the present Federal Reserve System. Some Founding Fathers were opposed to the formation of a central banking system. Others were in favor of a central bank. Robert Morris, as Superintendent of Finance, helped to open the Bank of North America in 1782, has been accordingly called by Thomas Goddard "the father of the system of credit and paper circulation in the United States." As ratification in early 1781 of the Articles of Confederation had extended to Congress the sovereign power to generate bills of credit, it passed that year an ordinance to incorporate a subscribed national bank following in the footsteps of the Bank of England. However, it was thwarted in fulfilling its intended role as a nationwide central bank due to objections of "alarming foreign influence and fictitious credit", favoritism to foreigners and unfair policies against less corrupt state banks issuing their own notes, such that Pennsylvania's legislature repealed its charter to operate within the Commonwealth in 1785.
In 1791, former Morris aide and chief advocate for Northern mercantile interests, Alexander Hamilton, the Secretary of the Treasury, accepted a compromise with the Southern lawmakers to ensure the continuation of Morris's Bank project. As a result, the First Bank of the United States was chartered by Congress within the year and signed by George Washington soon after; the First Bank of the United States was modeled after the Bank of England and differed in many ways from today's central banks. For example, it was owned by foreigners, who shared in its profits, it was not responsible for the country's supply of bank notes. It was responsible for only 20% of the currency supply. Several founding fathers bitterly opposed the Bank. Thomas Jefferson saw it as an engine for speculation, financial manipulation, corruption. In 1811 its twenty-year charter was not renewed by Congress. Absent the federally chartered bank, the next several years witnessed a proliferation of federally issued Treasury Notes to create credit as the government struggled to finance the War of 1812.
After five years, the federal government chartered its successor, the Second Bank of the United States. James Madison signed the charter with the intention of stopping runaway inflation that had plagued the country during the five-year interim, it was a copy of the First Bank, with branches across the country. Andrew Jackson, who became president in 1828, denounced the bank as an engine of corruption, his destruction of the bank was a major political issue in the 1830s and shaped the Second Party System, as Democrats in the states opposed banks and Whigs supported them. He refused to renew its charter. Jackson attempted to counteract this by executive order requiring all Federal land payments to be made in gold or silver; this produced the Panic of 1837. In this period, only state-chartered banks existed, they could issue bank notes against specie and the states regulated their own reserve requirements, interest rates for loans and deposits, the necessary capital ratio etc. These banks had existed in parallel with the Banks of the United States.
The Michigan Act allowed the automatic chartering of banks that would fulfill its requirements without special consent of the state legislature. This legislation made creating unstable banks easier by lowering state supervision in states that adopted it; the real value of a bank bill was lower than its face value, the issuing bank's financial strength determined the size of the discount. By 1797 there were 24 chartered banks in the U. S.. During the free banking era, the banks were short-lived compared to today's commercial banks, with an average lifespan of five years. About half of the banks failed, about a third of which went out of business because they could not redeem their notes. During the free banking era, some local banks took over the functions of a central bank. In New York, the New York Safety Fund provided deposit insurance for member banks. In Boston, the Suffolk Bank guaranteed that bank notes would trade at near par value, acted as a private bank note clearinghouse; the National Banking Act of 1863, besides providing loans in the Civil War effort of the Union, included provisions: To create a system of national banks.
They were to have higher standards concerning reserves and business practices than state banks. Recent research indicates; the office of Comptroller of the Currency was created to supervise these banks. To create a uniform national currency. To achieve this, all national banks were required to accept each other's currencies at par value; this eliminated the risk of loss in case of bank default. The notes were printed by the Comptroller of the Currency to ensure uniform quality and prevent counterfeiting. To finance the war, national banks were required to secure their notes by holding Treasury securities, enlarging the