Second Bank of the United States

From Academic Kids

The Second Bank of the United States was founded in 1816, five years after the expiration of the First Bank of the United States out of desperation to stabilize the currency. This second bank was patterned after the first. The legality of the Bank was upheld in the 1819 Supreme Court of the United States case McCulloch v. Maryland that also declared null and void any state law contrary to a federal law made in pursuance of the Constitution.

However, renewal of the Second Bank of the United States was vetoed on July 10, 1832 by Andrew Jackson, so it declined until 1836. Henry Clay and Nicholas Biddle had made the Bank a campaign issue. Tensions were still very high when on August 16, 1841 then-President John Tyler vetoed a bill that called for the re-establishment of the Second Bank of the United States. This sparked a massive riot outside the White House from enraged Whig Party members.


The Second Bank of the United States is largely remembered for its fraud and corruption. The head of the Second Bank was William Jones. Jones, a friend of James Madison, had declared bankruptcy himself in 1815. He allowed political objectives to guide lending and gave loans to Congress without demanding payment. Under him, the Second Bank of the United States was run on whim. There was little oversight of the operations of the many branch offices, allowing widespread chaos among the branches. The worst of these branches was the Baltimore Branch. James Buchanan (manager) and James McCulloch (cashier) of the Baltimore Branch had unsecured debts of $1.4 million with no collateral. McCulloch had pocketed another huge sum, without the knowledge of his partner in crime, Buchanan.

At the time, there had been a post-war economic boom. American crops were in demand in Europe, due to the devastation of the Napoleonic Wars. The Bank aided this boom by its uncontrolled lending. At the time, land sales for speculation were being encouraged. This lending allowed almost anyone to borrow money and speculate in land, sometimes doubling or even tripling the prices of land. The land sales for 1819, alone, totaled some 55 million acres (220,000 km²). With such a boom, hardly anyone noticed the widespread fraud occurring at the Bank.

However, in the summer of 1818, the national bank managers realized the over-extension occurring in the bank. A policy of contraction began, and loans were recalled. This recalling of loans curtailed land sales. Simultaneously, the US production boom stopped due to the recovery of Europe. The result was the Panic of 1819 and the situation leading up to McCulloch v. Maryland.

Maryland adopted a policy to restrict banks, by placing a tax on any bank that was not chartered by the state legislature. This tax was either 2% of all assets or a flat rate of $15,000. That meant that the Baltimore Branch would have to pay this hefty tax. McCulloch filed suit against the state in a county court. The case made its way through the court system up to the United States Supreme Court.

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