Third Bank of the United States
The Second Bank of the United States had acted as regulator of the circulation of state banks by refusing the notes of doubtful concerns and requiring the redemption of others. Once its federal charter had expired and it was operating under a charter from the state of Pennsylvania, it necessarily ceased to perform that function and was merely a very largely capitalized state institution.
This check upon the state bank issues having been removed and the enticing prospect of obtaining public deposits being held out by the Jackson administration resulted, as it did in 1811-1817, in a large increase in the number of state banks and an inordinate inflation of both notes and discounts. Many banks were conducting business without a dollar of actual capital paid in, and a majority were subject to no legal restriction.
Congress received at this time, and ignored, a petition from the Board of Trade in New York, which, foreseeing trouble, asked for a reestablishment of a national bank for the regulation of the disordered currency and exchanges.
Van Buren, who became President in March, 1837, continued Woodbury as Secretary of the Treasury and adhered to Jackson's policy. By April 1837, the serious nature of the financial and commercial situation became very apparent. In May specie payments were suspended and the people were compelled to take irredeemable bank-notes, as well as "shin-plasters " of all sorts, in order to carry on the necessary transactions of each day.
The Whigs, under the lead of Clay and Webster, insisted that a national bank was the only adequate remedy for the existing evils. The chief need was a uniform currency system with a proper regulation of the issues of the local banks, which only a central bank could enforce. Van Buren's supporters declared (in the face of the facts) that the Bank of the United States had been unable to prevent over-issues, that it was no part of the government's duty to regulate exchange, that the people wanted a separate establishment, that the public money would be more secure in subtreasuries than in banks, that by this system the use of specie would be encouraged and the depreciated bank-notes rejected, thus leading to a uniform currency.
The Treasury funds ran very low in May, 1838, due Government to the fact that Congress had not provided for the reissue of the Treasury notes that were received for taxes. The balance was down to $216,000 at one time, and Van Buren sent a special message to Congress in May asking for relief. Accordingly Congress at once passed an act permitting the reissue of the $10,000,000 authorized in 1837. In July it passed an act amending the provision of the law of 1836, which prohibited the receipt of notes of banks issuing denominations under $5.
All interests suffered greatly from the unsettled policy of the government. The continuing controversy between the supporters of a United States bank as against utilizing the state banks, and the controversy between the advocates of an independent treasury and those who insisted that banks in some form must be used in order to keep current funds in current use, rendered the policy of the government dependent upon whichever interest happened to be in power.
Biddle became involved in a gigantic cotton speculation (that staple having become the principal export commodity), which resulted in heavy losses: his personal prestige suffered greatly from continued and virulent political attacks, and altogether his position was rendered untenable. He resigned from the bank in 1839, leaving it, as he claimed, prosperous; but after three assignments and two attempts at resumption, all in 1841, the institution succumbed, due no doubt to its having undertaken too great a load under the unfavorable business conditions. Its notes and deposits were paid in full, but the stockholders lost all, and Biddle was impoverished by the catastrophe. On February 4, 1841 the Second Bank of the United States shut down for the final time, five years after losing its charter.
By 1840 the sub-treasury had thirty-six branches, and was well managed and successful. But Van Buren's victory in establishing the subtreasury system was short-lived. In the presidential contest of 1840, the subtreasury question being at issue, the Whigs elected Harrison and a congress (both houses) by large majorities. Van Buren, in his last message (December, 1840), insisted that the subtreasury system was working satisfactorily; nevertheless, its abolition had apparently been decreed by the popular vote. Harrison called Congress to meet in extra session on May 31, but he died in April.
The Whig leaders who had nominated and elected Tyler as Vice-President because of his views against the subtreasury act, found, when he succeeded to the presidency, that he did not agree with Clay, the actual leader of the party. The act repealing the subtreasury law passed by a vote of 29 to 18 in the Senate and 134 to 87 in the House, and became a law August 9.
On August 16, 1841 President Tyler vetoed the creation of the Third Bank of the United States. The objection of Tyler (a Virginian and strict constructionist) was chiefly that it was unconstitutional to authorize branches in the states without their consent, but he also objected to giving the bank the discounting privilege.
Ths veto led to rioting outside the White House by fellow Whig party members. The riot led to the formation of the District of Columbia police force. On September 11, 1841 most of President Tyler s cabinet resigned in protest of his veto of the creation of the Third Bank of the United States in a move designed by Henry Clay, who hoped to force Tyler to resign. Only Secretary of State Daniel Webster stayed in his position.
With both the subtreasury act and the deposit law of 1836 repealed the Treasury fell back upon the system in use prior to the establishment of the first Bank of the United States, a sort of half independent treasury, half bank-deposit system. The Treasury was at this time still borrowing money.
The U.S. would be without an official central bank until 1913 when the Federal Reserve System was formed.
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