National Bank Act - Wikipedia National Bank Act From Wikipedia, the free encyclopedia Jump to navigation Jump to search Primary federal legislation authorizing the creation of national banks in the US The First National Bank in Philadelphia The National Banking Acts of 1863 and 1864 were two United States federal banking acts that established a system of national banks, and created the United States National Banking System. They encouraged development of a national currency backed by bank holdings of U.S. Treasury securities and established the Office of the Comptroller of the Currency as part of the United States Department of the Treasury and a system of nationally chartered banks. The Act shaped today's national banking system and its support of a uniform U.S. banking policy. Contents 1 Background 2 National Bank Acts 2.1 National Bank Act of 1863 2.2 National Bank Act of 1864 2.3 National Bank Acts of 1865 and 1866 3 Resurgence of state banks 4 Legacy 5 See also 6 Notes 7 Further reading 8 External links Background[edit] At the end of the Second Bank of the United States in 1836, the control of banking regimes devolved mostly to the states. Different states adopted policies including a total ban on banking (as in Wisconsin), a single state-chartered bank (as in Indiana and Illinois), limited chartering of banks (as in Ohio), and free entry (as in New York).[1] While the relative success of New York's "free banking" laws led a number of states to also adopt a free-entry banking regime, the system remained poorly integrated across state lines. Though all banknotes were uniformly denominated in dollars, notes would often circulate at a steep discount in states beyond their issue. In the end, there were well-publicized frauds arising in states like Michigan, which had adopted free entry regimes but did not require redeemability of bank issues for specie. The perception of dangerous "wildcat banking”, along with the poor integration of the U.S. banking system, led to increasing public support for a uniform national banking regime. The United States Government, on the other hand, still had limited taxation capabilities, and so had an interest in the seigniorage potential of a national bank. In 1846, the Polk Administration created a United States Treasury system that moved public funds from private banks to Treasury branches in order to fund the Mexican–American War. However, without a national currency, the revenue generated this way was limited. This became more urgent during the Civil War, when Congress and Lincoln were struggling to finance the war efforts.[2] Without a national mechanism for issuing currency, the Lincoln could not exploit the powers and loopholes that, for example, Britain could with its central bank, in order to finance the high expenses involved. Previously, the damage that would be done to state banks by national competition was sufficient to prevent significant national bank chartering. But using the war crisis, Lincoln was able to expand this effort. A "greenback" note issued during the Civil War One of the first attempts to issue a national currency came in the early days of the Civil War when Congress approved the Legal Tender Act of 1862, allowing the issue of $150 million in national notes known as greenbacks and mandating that paper money be issued and accepted in lieu of gold and silver coins. The bills were backed only by the national government's promise to redeem them and their value was dependent on public confidence in the government as well as the ability of the government to give out specie in exchange for the bills in the future. Many thought this promise backing the bills was about as good as the green ink printed on one side, hence the name "greenbacks."[3] The Second Legal Tender Act,[4] enacted July 11, 1862, a Joint Resolution of Congress,[5] and the Third Legal Tender Act,[6] enacted March 3, 1863, expanded the limit to $450 million. The largest amount of greenbacks outstanding at any one time was calculated as $447,300,203.10.[7] The National Bank Act (ch. 58, 12 Stat. 665; February 25, 1863), originally known as the National Currency Act, was passed in the Senate by a 23–21 vote, and was supplemented a year later by the National Banking Act of 1864. The goals of these acts was to create a single national currency, a nationalized bank chartering system, and to raise money for the Union war effort. The Act established national banks that could issue notes which were backed by the United States Treasury and printed by the government itself. The quantity of notes that a bank was allowed to issue was proportional to the bank's level of capital deposited with the Comptroller of the Currency at the Treasury. To further control the currency, the Act taxed notes issued by state and local banks, essentially pushing non-federally issued paper out of circulation.[8] Since the establishment of the Republic, state governments had held authority to regulate banks. Before the act, state legislatures typically issued bank charters on a case-by-case basis, taking into consideration whether the area needed a new bank, and if the applicant was of good moral standing. As this system could be subject to corruption, states began passing "free banking" laws in 1837, which meant that any applicant who filled out the correct paperwork and deposited an in-kind payment to the state would be granted a charter. By the 1860s, over half of states had such a law on the books. However, the National Banking Act of 1864 (ch. 106, 13 Stat. 99; June 3, 1864) brought a close to the issue by establishing federally-issued bank charters, which took banking out of the hands of state governments.[3][8] The first bank to receive a national charter was the First National Bank of Philadelphia, Pennsylvania (Charter #1).[9] The first new national bank to open was The First National Bank of Davenport, Iowa (Charter #15).[citation needed] Additionally, the new Act converted more than 1,500 state banks to national banks.[citation needed] National Bank Acts[edit] $1000 National Bank Note National Bank Act of 1863[edit] The National Bank Act of 1863 was passed on February 25th, 1863, and was the first attempt to establish a federal banking system after the failures of the First and Second Banks of the United States, and served as the predecessor to the Federal Reserve Act of 1913.[10][11] The act allowed the creation of national banks, set out a plan for establishing a national currency backed by government securities held by other banks, and gave the federal government the ability to sell war bonds and securities (in order to help the war effort). National banks were chartered by the federal government, and were subject to stricter regulation; they had higher capital requirements and were not allowed to loan more than 10% of their holdings. A high tax on state banks was levied to discourage competition, and by 1865 most state banks had either received national charters or collapsed. [10] National Bank Act of 1864[edit] The 1864 act, based on a New York State law, brought the federal government into active supervision of commercial banks. It established the Office of the Comptroller of the Currency with the responsibility of chartering, examining and supervising all national banks. National Bank Acts of 1865 and 1866[edit] Further acts passed in 1865 and 1866 imposed a tax to speed the adoption of the system. All banks (national or otherwise) had to pay a 10% tax on payments that they made in currency notes other than national bank notes. The tax rate was intentionally set so high as to effectively prohibit further circulation of state bank and private notes. By this time the conversion from state banks to national banks was well underway. The constitutionality of the tax came before the Supreme Court in Veazie Bank v. Fenno, a case by a state-chartered Maine bank and the collector of internal revenue. The Court ruled 7–2 in favor of the government. State banks declined until the 1870s, when the growing popularity of checks and the declining profitability of national bank currency issues caused a resurgence. Resurgence of state banks[edit] The granting of charters led to the creation of many national banks and a national banking system which grew at a fast pace. The number of national banks rose from 66 immediately after the Act to 7,473 in 1913.[citation needed] Initially, this rise in national banking came at the expense of state banking—the number of state banks dwindled from 1,466 in 1863 to 247 in 1868.[citation needed] Though state banks were no longer allowed to issue notes, local bankers took advantage of less strict capital requirements ($10,000 for state banks vs. $50,000–200,000 for national banks) and opened new branches en masse. These new state banks then served as competition for national banks, growing to 15,526 in number by 1913.[citation needed] The years leading up to the passing of the 10% tax on banknotes consisted of events surrounding the National Banking Act of 1864. During this time period, Hugh McCulloch was determined to "fight against the national banking legislation, which he rightly perceived as a threat to state-chartered banking. Although he tried to block the system's creation, he [McCulloch] was not determined to be its champion."[citation needed] Part of his plans to revamp this portion of the banking system included hiring a new staff, being hands-on with several aspects such as "personally evaluating applications for bank charters and consoled prospective bankers", and "assisting in the design of the new national bank notes, and arranged for their engraving, printing, and distribution." As an end result of McCulloch's efforts, many banks were just not willing to conform to his system of operations. This prompted Congress to pass "a 10 percent tax on the notes of state banks, signaling its determination that national banks would triumph and the state banks would fade away." A later act, passed on March 3, 1865, imposed a tax of 10 percent on the notes of state banks to take effect on July 1, 1866. Similar to previous taxes, this effectively forced all non-federal currency from circulation. It also resulted in the creation of demand deposit accounts, and encouraged banks to join the national system, increasing the number of national banks substantially.[3] Legacy[edit] The National Banking Acts served to create the (federal-state) dual structure that is now a defining characteristic of the U.S. banking system and economy. The Comptroller of the Currency continues to have significance in the U.S. economy and is responsible for administration and supervision of national banks as well as certain activities of bank subsidiaries (per the Gramm-Leach-Bliley Act of 1999).[3] In 2004 the Act was used by John D. Hawke, Jr., Comptroller of the Currency, to effectively bar state attorneys general from national bank oversight and regulatory roles. Many blame the resulting lack of oversight and regulation for the late-2000s recession, the bailout of the U.S. financial system and the subprime mortgage crisis.[12] See also[edit] Banks portal US banking law Cuomo v. Clearing House Ass'n, L.L.C. Notes[edit] ^ Dowd, Kevin (1992). "US Banking in the 'Free Banking' Period". In Dowd, Kevin (ed.). The Experience of Free Banking. ISBN 9780415048088. ^ Lincoln and the Founding of the National Banking System ^ a b c d Gale Encyclopedia of U.S. Economic History. Detroit: Gale, 2000. ^ ch. 142, 12 Stat. 532 ^ United States Congress. Resolution of January 17, 1863, No. 9. Washington D.C.: 1863 ^ ch. 73, 12 Stat. 709 ^ Backus, Charles K. (1878), The Contraction of the Currency, Chicago, Ill.: The Honest Money League of the Northwest – via Google Books ^ a b Grossman, Richard S. (2010), U.S. Banking History, Civil War to WWII, Economic History Services, archived from the original on 2012-09-01 ^ The North American (1891). Philadelphia and Popular Philadelphians. Philadelphia: The American Printing House. p. 67 – via Google Books. ^ a b Dieterle, David A.; Simmons, Katherine M. (2014). Government and the Economy: An Encyclopedia. ABC-CLIO. pp. 249–250. ISBN 9781440829048. Retrieved 15 May 2016. ^ Mason, James E. (2013). The Transformation of Commercial Banking in the United States, 1956-1991. Routledge. p. 24. ISBN 9781136747250. ^ Berner, Robert & Grow, Brian (October 9, 2008). "They Warned Us About the Mortgage Crisis". Business Week. Further reading[edit] Allen, Larry (2009). The Encyclopedia of Money (2nd ed.). Santa Barbara, CA: ABC-CLIO. pp. 298–299. ISBN 978-1598842517. Friedman, Milton; Schwartz, Anna J. (1963). A Monetary History of the United States, 1867–1960. pp. 3–7. ISBN 978-0691003542. Niven, John (1995). Samuel P. Chase: A Biography. New York: Oxford University Press. pp. 330–331. ISBN 978-0195046533. External links[edit] National-Bank Act as Amended, the Federal Reserve Act and Other Laws Relating to National Banks. February, 1920: Document compiled under the direction of the Comptroller of the Currency for the use of the Senate, providing dates of acts relating to national banks, 1863–1920, text of the acts and amendments, and indexes. An Act to Provide a National Currency, Secured by a Pledge of United States Bonds, and to Provide for the Circulation and Redemption Thereof, Act of June 3, 1864, National Bank Act of 1864, National Banking Act of 1864 An Act to Provide for a National Currency, Secured by a Pledge of United States Stocks, and to Provide for the Circulation and Redemption Thereof, Act of February 25, 1863, National Bank Act, National Banking Act, National Currency Act The Library of Congress History of the Office of the Comptroller of the Currency History of banking at About.com v t e Bank regulation in the United States Federal authorities Consumer Financial Protection Bureau Farm Credit Administration Federal Deposit Insurance Corporation Federal Financial Institutions Examination Council Federal Housing Finance Agency Federal Reserve Board of Governors Financial Stability Oversight Council National Credit Union Administration Office of the Comptroller of the Currency Major federal legislation Independent Treasury Act National Bank Act Federal Reserve Act McFadden Act 1933 Banking Act Glass–Steagall Act Federal Credit Union Act Bank Holding Company Act Interest Rate Control Act of 1966 Truth in Lending Act Bank Secrecy Act Fair Credit Reporting Act Home Mortgage Disclosure Act Community Reinvestment Act Electronic Fund Transfer Act Financial Institutions Regulatory and Interest Rate Control Act of 1978 Monetary Control Act Depository Institutions Act Competitive Equality Banking Act of 1987 FIRREA FDICIA Truth in Savings Act Riegle-Neal IBBEA Gramm–Leach–Bliley Act Fair and Accurate Credit Transactions Act Emergency Economic Stabilization Act Credit CARD Act Dodd-Frank Federal Reserve Board regulations Extensions of Credit by Federal Reserve Banks (Reg A) Equal Credit Opportunity (Reg B) Home Mortgage Disclosure (Reg C) Reserve Requirements for Depository Institutions (Reg D) Electronic Fund Transfer (Reg E) Limitations on Interbank Liabilities (Reg F) International Banking Operations (Reg K) Consumer Leasing (Reg M) Loans to Insiders (Reg O) Privacy of Consumer Financial Information (Reg P) Prohibition Against the Paying of Interest on Demand Deposits (Reg Q) Credit by Brokers and Dealers (Reg T) Credit by Banks and Persons Other Than Brokers or Dealers for the Purpose of Purchasing or Carrying Margin Stock (Reg U) Transactions Between Member Banks and Their Affiliates (Reg W) Borrowers of Securities Credit (Reg X) Truth in Lending (Reg Z) Unfair or Deceptive Acts or Practices (Reg AA) Community Reinvestment (Reg BB) Availability of Funds and Collection of Checks (Reg CC) Truth in Savings (Reg DD) Types of bank charter Credit union Federal savings association National bank State bank State authorities California Colorado Florida Illinois Maryland Michigan New Jersey New York Ohio Oklahoma Oregon Pennsylvania Tennessee Virginia Terms Call report CAEL Rating CAMELS rating system Thrift Financial Report Other topics Banking in the United States Fair debt collection History of central banking in the United States Wildcat banking Category Economics portal Banks portal v t e Federal Reserve System Federal Open Market Committee (FOMC) Chair Vice Chair Governors Federal Reserve Banks Banknotes Federal Reserve Note Federal Reserve Bank Note Reports Beige Book Federal Reserve Statistical Release Monetary Policy Report to the Congress Federal funds Discount window Bank rate Federal funds Federal funds rate Overnight rate Primary dealer History (Antecedents) 1914–1939 Aldrich–Vreeland Act (1908) Federal Reserve Act (1913) Pittman Act (1918) Post–World War I recession (1918–1919) 1920–1921 depression Roaring Twenties (1921–1929) Wall Street Crash of 1929 Great Depression (1929–1933) Regulation D (c. 1930) Panic of 1930 Emergency Banking Act (1933) Regulation Q (1933) Glass–Steagall Act (1933) Gold Reserve Act (1934) 1937–1938 recession 1945–1973 Bretton Woods system (1944–1971) Employment Act of 1946 1949 recession U.S. Treasury Department Accord (1951) 1953 recession Bank Holding Company Act (1956) 1958 recession 1960–1961 recession FOMC actions (1961–present) Kennedy Slide of 1962 Truth in Lending Act (1968) 1969–1970 recession Nixon shock (1971) Smithsonian Agreement (1971) 1973–1982 1973–1974 stock market crash 1973–1975 recession Equal Credit Opportunity Act (1974) Home Mortgage Disclosure Act (1975) Community Reinvestment Act (1977) Federal Reserve Reform Act (1977) Electronic Fund Transfer Act (1978) Humphrey–Hawkins Full Employment Act (1978) DIDMC Act (1980) Early 1980s recession (1980; 1981–1982) Federal Reserve v. Investment Co. Institute (1981) 1982–2007 Northeast Bancorp v. Federal Reserve (1985) Savings and loan crisis (1986–1995) Black Monday (1987) Greenspan put Expedited Funds Availability Act (1987) FIRRE Act (1989) Friday the 13th mini-crash (1989) Early 1990s recession (1990–1991) FDIC Improvement Act (1991) 1990s U.S. economic expansion (1991–2001) Dot-com bubble (1994–2004) 1997 mini-crash Gramm–Leach–Bliley Act (1999) 2001 recession 9/11 stock market crash (2001) 2002 stock market downturn U.S. housing market correction (2006–2007) 2007– Great Recession (2007–2009) 2007–2009 U.S. bear market 2007–2008 financial crisis Subprime mortgage crisis responses (2007–2010) Emergency Economic Stabilization Act (2008) Unfair or Deceptive Acts or Practices (2008) Commercial Paper Funding Facility (2008–2010) Primary Dealer Credit Facility (2008–2010) Bloomberg v. 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Daly (San Francisco) Related Central bank Criticism of the Federal Reserve Fed model Fedspeak Retrieved from "https://en.wikipedia.org/w/index.php?title=National_Bank_Act&oldid=1037574408" Categories: 1863 in American politics 1863 in law 37th United States Congress United States federal banking legislation Hidden categories: Articles with short description Short description is different from Wikidata All articles with unsourced statements Articles with unsourced statements from March 2013 Articles with unsourced statements from August 2013 Articles with unsourced statements from October 2019 Navigation menu Personal tools Not logged in Talk Contributions Create account Log in Namespaces Article Talk Variants Views Read Edit View history More Search Navigation Main page Contents Current events Random article About Wikipedia Contact us Donate Contribute Help Learn to edit Community portal Recent changes Upload file Tools What links here Related changes Upload file Special pages Permanent link Page information Cite this page Wikidata item Print/export Download as PDF Printable version Languages Português Русский Svenska Edit links This page was last edited on 7 August 2021, at 11:38 (UTC). 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