US National Banks 1781-1836 & 1863-1913

1. May 1781 Bank of North America, based in Philadelphia PA, chartered by Congress (of the Confederation) as a de facto central bank. Received large loans of gold, silver coin, and bills of exchange from France and Netherlands. Accordingly, issued its own banknotes.
   However the Pennsylvania government objected to its privileges, and in 1786 reincorporated it as a private concern under state law. With several restrictions, it was unsuitable as a national bank.
2. Feb 1791 Agreeing to redeem $240 million "Continental" notes (at 100:1) via new war bonds, providing its capital Washington was built in the south, Congress chartered the Bank of the United States, today known as the First Bank of US. Its term was twenty years with twenty percent of its capital owned by the federal government (via a loan from the bank). In 1811, its assets were liquidated, to become the Girard Bank.
3. Feb 1816 Congress chartered a second Bank of the United States, again with a twenty years charter and with twenty percent of its capital owned by the federal government. Not having the restrictions of state incorporated banks, it had opened 25 branch offices nationwide by 1832.

But inflation due to conveyancing was widespread. Banks acting as escrow agents, arranged contracts with buyers then issued private bank notes to the federal government in exchange for deeds of title (ownership). In one article, lands that sold for $4,800,000 in 1834, sold for $14,700,000 in 1835, then for $24,800,000 in 1836. Cotton prices rose from 11 cents a pound to 16 cents a pound in 1835, though it dropped in 1836. Not only was the United States out of debt, but largely through the public domain was piling up a surplus in her treasury. Land speculators organized a "bank", got it appointed a deposit bank if they could, issued notes, borrowed them and bought land. The notes were deposited, they borrowed them again, and so on … and so on.

The Crash
In September 1833 President Jackson had removed all federal deposits from the Bank of the US. In February 1836 it became a private corporation again under Pennsylvania law. That July President Jackson ordered the Secretary of the Treasury to issue the "Specie Circular"--under federal law the government refused to take anything but gold and silver specie for sales of public lands of over 320 acres after August 15, while legitimate settlers (non-speculators, those purchasing plots of 320 acres or less) were allowed to use paper until December 15.

No national bank to regulate fiscal matters and shortage of hard currency saw the Panic of 1837, when nearly half the banks in the USA failed. Businesses closed, prices declined, and there was mass unemployment. The suggestion in 1837 to open independent Federal sub-treasuries selling interest-bearing Treasury Notes, introduced the catch-phrase — the "divorce of bank and state", foreshadowing the Federal Reserve. It was passed again in 1840, but had limited impact. The Bank of the US, which had suspended payment on its paper in 1839, made the suspension permanent in 1841, until it had liquidated all its assets in 1852.

From 1837 to 1844 deflation in wages and prices was widespread. Major recovery only really arrived in 1848 with the discovery of gold in California, followed by "National" banks re-emerging 1863-1913. In 1913 the Federal Reserve Act divided the USA into twelve federal districts, creating the Federal Reserve bank, plus the Bureau of Internal Revenue (the IRS) for income tax collection.