Second Bank of the United States: Biddle Versus Jackson - Business in United States of America
Second Bank of the United States: Panic of 1819
Second Bank of the United States: McCulloch v. Maryland
The appointment of Nicholas Biddle as bank president in 1823 continued to strengthen the nation’s fiscal confidence. However, a controversy developed over the amount of specie backing the nation’s paper currency. The controversy generated criticism of the bank from those who did not understand the institution’s function; they were joined by state bankers who felt increasingly constrained by the bank’s regulatory practices.
President Andrew Jackson made the bank an issue during his first term as president. For Jackson, the bank violated his interpretation of the proper spheres of action of the states and the federal government. He urged that the private business of the bank be taxed by the states. Jackson challenged the Supreme Court’s verdict in McCulloch v. Maryland, believing the Second Bank to be unconstitutional. He sought to expand the scope of the Tenth Amendment, which reserves to the states or the people all powers not delegated to the central government. He believed it was wrong for a private banking institution to act as a central bank for the federal government and as a potential rival in financial policy to the president and the Congress.
President Jackson, in championing himself as the voice of the people, placed himself against the perceived moneyed interests of the East, represented by Biddle. Jackson warned Biddle not to renew the bank’s charter early. Biddle listened instead to Jackson’s political rival, Henry Clay, who persuaded Biddle to renew the charter in 1832 instead of 1836. The charter renewal passed both houses of Congress by the summer of 1832, but Jackson vetoed it on July 10, 1832. Jackson’s stubbornness and Biddle’s arrogance led them to butt heads during the 1832 election campaign, making the constitutionality of the bank part of the national election debate.
Jackson won the election, bringing about the demise of the bank. Federal funds were not immediately withdrawn, but no new funds were deposited. Biddle raised interest rates excessively in 1834, undermining any chances of Congress revisiting the bank’s charter. When the Second Bank’s charter expired in 1836, the federal government’s funds were withdrawn. The state of Pennsylvania granted the bank a charter, however, and it continued to do business until 1839, when it was forced to close because it had extended too many loans. The remaining resources of the Second Bank of the United States were liquidated in 1841. The government’s failure to renew the charter of the Second Bank of the United States contributed to the Panic of 1837 and a six-year economic downturn in the U.S. economy.