The Early 1800s
The Industrial Revolution produces a new class of merchants and manufacturers. The need for capital increases. Between 1815-1819, the U.S. economy booms and more banks exist. As a developing country, the U.S. has a reputation for not repaying loans, and many European banks refuse to lend to the U.S. government.
The Farmer's Exchange Bank in Glouchester, Rhode Island, fails—the first U.S. bank
The Second Bank of the United States, which is the U.S. government's second attempt at a central bank, is established. Its 20-year charter is not renewed, and the U.S. does not have another central bank until 1913.
More than 420 banks exist in the U.S. All of them printing bank notes and making loans.
|The Panic of 1819
|The Second Bank of the United States calls its loans, a panic sweeps the U.S., and many banks fail.
Approximately 300 banks operate in the U.S.
New York is the first state to adopt an insurance plan for bank obligations. Between 1829 and 1866, five other states adopt similar plans.
Comly Rich house, Philadelphia. First U.S. home financed by a savings and loan association. Rich, a maker of combs, received a loan in 1831 from the Oxford Provident Building Association, the nation's first savings institution.
With the demise of the Second Bank of the United States in 1837, only state-chartered banks exist. During this period, known as the Free Banking Era, state chartering standards often are not very stringent, and many new banks are formed. Large numbers of them will fail. The era ends with the passage of the National Currency Act in 1863.
|The Panic of 1837
|The mid-1830s witness an economic boom, characterized by inflation and speculation in public land sales and road and canal projects. The speculation is fueled, in part, by the following three policies:
The pressure on many banks increases and a lack of confidence in the state banks abounds. The resulting bank panic in 1837 causes many banks to fail over several years. This panic is followed by a sharp depression, tied to a general downturn in the business cycle that lasts until 1841.
- The removal of federal funds from the Bank of the United States and from other banks.
- A distribution of the federal surplus from these banks to state banks.
- A requirement that specie (gold or silver coin) be used to buy public lands (which leads to falling land sales and specie shortages).
The first issue of the Bank Note Reporter is published. This weekly report on the value and validity of the bank notes was the most respected of many such publications that merchants relied upon to evaluate the reliability of currency.
The Gold Rush begins.