First Bank of the United States

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The First Bank of the United States ("BUS") was the nation's most important business and financial institution during its twenty-year lifetime, 1791-1811. It was a central bank that gave the nation a solid, conservative financial system. The BUS was supported by the business community, especially merchants and financiers, but opposed by the Jeffersonian Republicans. The agrarian Jeffersonians refused to renew its charter in 1811 and the bank was closed.


After a bitter fight in Congress between Treasury Secretary Alexander Hamilton and a coalition led by Thomas Jefferson the bank supporters won over President George Washington and chartered the BUS for 20 years on Feb. 25, 1791.

The BUS, headquartered in Philadelphia, was always a privately owned and operated corporation, but it worked closely with the Treasury department. Its opponents feared it would be a patronage machine and would be an engine of political corruption. The opponents generally feared cities, factories and money managers ("speculators") and instead said that true virtue could only be found among landowning "yeomen" farmers.

The BUS was modeled after the older and larger Bank of England in London. The role of the BUS was to handle routine government transactions, like tariff payments, taxes, and spending, as well as private business. There were only a dozen or so private banks in the U.S. (all in major cities) and the BUS, was the only one with branches. A major role was to be a stabilizing and regulatory influence upon the circulation of banknotes issued by private banks, which made the BUS a central bank something like the later Federal Reserve System. In addition to providing some central banking functions, the first Bank of the United States was to provide business with capital for growth and for every other type of commercial banking service.

The BUS charter provided for a privately owned, profit-making national bank capitalized at $10 million, of which the federal government subscribed $2 million. The remaining stock was sold publicly. The total indebtedness of the bank, "whether by bond, bill, note, or other contract," was limited to $10 million, the total of its capital. The operation of the bank was entrusted to a board of 25 directors elected by the stockholders. The bank's directors elected its president.


The BUS opened eight between 1792 and 1805. The size of the bank's capital, its ample gold and silver reserves, its close ties with the government, and its capable management gave it a commanding and favorable influence on the economy. The bank returned a good profit to its investors averaging 8% a year.

The very success in regulating other banks and curbing excessive expansions of banknotes and credit, made it enemies among some private bankers. As agent of the federal government in collecting taxes and tariffs on imports, the BUS took in from banknotes issued by other banks. Its policy was to promptly present them to their banks of issue for gold or silver. In practice this policy held down the volume of private bank notes.

The Jeffersonian cries of corruption hurt the BUS; some people denounced it a device that clever financiers used to take away the hard-earned money of farmers and workers. Strict constructionists of the Constitution opposed it as a dangerous and unconstitutional extension of the power of the federal government.


The bank's charter came up for renewal in 1811 when the Federalist Party was in low repute and Britain was hated and under economic attack through the Embargo of 1807 and similar laws. Everyone knew the bank controlled by Federalists and much of its stock was by 1811 held in Britain and Europe, further damaging its credibility among Jeffersonians. In January and February 1811, by close votes in Congress its charter was not renewed and the BUS was forced to wind up its business affairs.[1]

The mistake became clear as the War of 1812 began and the Treasury had to finance an expensive war t without the help the BUS had always provided. The number of new private banks increased from 88 in 1811 to 246 in 1816, and the number of banknotes in circulation during these same years soared from $28 million to $68 million. With no central bank to regulate the volume of banknotes, prices soared. Many new banks had too little specie (gold and silver) reserves to support their level of business. Rumors of trouble frightened holders of banknotes into simultaneous demands for specie—that is, a run on the bank. All banks, with the exception of those in New England, ceased to pay out specie during the panicky month of August 1814, when the British raided and burned Washington and threatened to do the same to Baltimore and perhaps other cities.[2] Lack of confidence in banknotes caused people to accept them at a 5%, 10% or higher discount. That is, people treated a $10 bank note as worth only $8 in gold. After years of financial disorganization and monetary chaos, President James Madison reversed course and Congress approved in April 1816, a Second Bank of the United States, with a charter of 20 years. It had an even stormier history.


  • Cowen, David Jack. The Origins and Economic Impact of the First Bank of the United States, 1791- 1797 (2000) 323pp
  • Cowen, David. "First Bank of the United States" (2008) EH.Net Encyclopedia, edited by Robert Whaples. online
  • Dewey, Davis Rich. Financial History of the United States (1922), standard textbook by a conservative scholar free online edition
  • Hammond, Bray. Banks and Politics in America: From the Revolution to the Civil War. (1957) famous Pulitzer prize history by conservative scholar.
  • Myers, Margaret G. A Financial History of the United States, (1970) online edition
  • Nettels, Curtis. The Emergence of a National Economy, 1775-1815 (1962)
  • Perkins, Edwin. American Public Finance and Financial Services 1700-1815 (1994).
  • Walters, Raymond. Albert Gallatin: Jeffersonian Financier and Diplomat, (1957) online edition
  • Wright, Robert. The Wealth of Nations Rediscovered: Integration and Expansion of the U.S. Financial Sector, 1780-1850. (2002)


  1. Its records were destroyed by fire at the Treasury department in 1833 and little has been written on the First BUS.
  2. The British were repulsed at Baltimore, then turned their attention to New Orleans.