— Ch. 1 · Antebellum Banking Chaos —
National Bank Act.
~4 min read · Ch. 1 of 6
In 1836, the Second Bank of the United States closed its doors. Control over banking regimes devolved mostly to individual states. Wisconsin adopted a total ban on banking. Indiana and Illinois allowed only a single state-chartered bank. Ohio limited chartering to specific instances. New York permitted free entry for any applicant who met basic requirements. This fragmentation meant that while all banknotes were denominated in dollars, they circulated at steep discounts outside their home states. A note from Michigan might be worth less than face value when used in Pennsylvania. Well-publicized frauds arose in states like Michigan which had adopted free entry regimes but did not require redeemability for specie. The perception of dangerous wildcat banking grew alongside poor integration across state lines. Public support for a uniform national banking regime increased as these issues became known.
Civil War Financial Crisis
Lincoln and Congress struggled to finance war efforts without a national mechanism for issuing currency other than metal coinage. The administration could not exploit powers available to Britain's central bank to cover high expenses. In early days of the Civil War, Congress approved the Legal Tender Act of 1862 allowing issuance of $150 million in national notes known as greenbacks. These bills were fiat money backed only by the government's promise to redeem them. Their value depended on public confidence and future ability to provide gold or silver exchange. Many thought this backing was about as good as the green ink printed on one side. The Second Legal Tender Act enacted the 11th of July 1862 expanded limits to $450 million. The largest amount outstanding at any time reached $447,300,203.10. Using the war crisis allowed Lincoln to expand national bank chartering despite previous damage that would be done to state banks.