Branches were organized in New York, Boston, Baltimore, Norfolk, Charleston, Savannah, Washington and New Orleans, and the bank at once became a successful and prosperous institution. After the abandonment of the Bank of North America by the government as a place of deposit for public funds, the customs receipts of 1790 and 1791 had been deposited in state banks. These were drawn against for current outlays, and the cash receipts were placed in the Bank of the United States, thus gradually the accounts of the government in the state banks were depleted and extinguished and the national funds passed into the hands of the Bank of the United States. The great bank thus became the custodian of the government funds. It sold bonds, transferred funds from place to place as needed, and disbursed public money on warrants as directed by the treasurer. It also made loans to the government, and by 1795 these amounted to nearly $6,000,000. The bank was a great financial success. By its policy of satisfactory dealings with the public and the government it maintained an excellent reputation. Its paper currency had the effect of giving stability and uniformity to the money of the country, and in many ways it contributed to the national prosperity and welfare, besides earning dividends at an average rate of 8 3/8 per cent. for its stockholders.

The government was very slow with the payment of its installments to the capital stock of the bank and in 1796 the first, second, third, fourth and fifth installments were due and almost wholly unpaid. The government then began selling its stock to private individuals and by 1802 its entire interest had been disposed of. In 1809 Secretary Gallatin reported that the government had made a profit of $671,860 on the sale of its stock in the bank. A large portion of the stock had passed into the hands of foreigners, so that only 7,000 shares were owned by American citizens, while 18,000 were held abroad. The circulating notes outstanding at that time were $4,500,000; specie on hand, $5,000,000; loans and discounts, $15,-000,000. Thus the bank was in excellent condition, and the stockholders in 1810 applied for a renewal of its charter, enumerating in their petition to Congress the advantages which the bank had afforded the government, as a depository of the public funds; the transfer and disbursement of public money free of cost; loans to the government; a stable paper currency; profit from the sale of stock, etc.

A contest of extreme bitterness ensued. Secretary Gallatin strongly recommended the renewal of the charter, with an increase of the capital of the bank to $30,000,000. Of this amount $15,000,000 should be subscribed by such states as desired it, and branches should be organized in all states thus subscribing. In anticipation of the prospective war with England, Mr. Gallatin inserted a clause in the proposed charter obligating the bank to lend three-fifths of its capital to the government whenever required to do so. Just at this time the feeling against England ran high, and the fact that 18,000 shares of the bank were held abroad, mostly in England, aroused a strong feeling of resentment and opposition towards the bank. Mr. Gallatin reminded the people that foreigners had no voice in the conduct of the bank, and that in case the renewal of the charter was denied, it would be necessary to remit about $7,200,000 abroad at once in settlement for the stock held there, that being its market value, and that the country could illy afford to spare that amount of specie on the eve of war, when every dollar would be needed at home, whereas if the charter was renewed it would only be necessary to remit to England the annual dividend of about 8 1/2 per cent., equivalent in effect to having an English loan of $7,200,000 at 8 1/2 per cent. to aid us in the war. But such arguments only seemed to inflame the opposition. Henry Clay, then just coming into popularity, threw his influence on the side against renewal, on the grounds that "the Constitution did not originally authorize Congress to grant the charter," hence a renewal of it would be unconstitutional for the same reason. Five years later Mr. Clay was a strong advocate of the establishment of the Second Bank of the United States, having reversed his former opinion on the question of constitutionality.

The decisive vote for renewal was taken in the House on January 24, 1811, and failed by a majority of 165 to 64. The Senate voted on a similar bill on February 20, resulting in a tie - 17 to 17, whereupon George Clinton, the Vice President, cast the deciding vote against the bank. The bank went into liquidation and paid the shareholders $434 for each share of $400. Irresponsible state banks now sprang into existence everywhere, hoping to reap the profits heretofore enjoyed by the Bank of the United States. The country was flooded with paper money, secured* by insignificant reserves. In this state of affairs, with its financial machinery disorganized, the country in the following year entered upon a war with Great Britain. A more reckless and unfortunate condition of affairs could scarcely exist. Bank charters were very loosely granted by the various states, and in some instances banks were allowed to begin business before their capital stock had been actually subscribed, and they traded on the money received from depositors. At the time of the closing of the Bank of the United States in 1811 there were in existence eighty-eight state banks with a combined paper circulation equal in value to the notes of the United States Bank, and hence equal to gold, amounting to $28,000,000. This number increased until in 1815 there were 208 banks with $110,000,-000 notes outstanding. This unwarranted increase in banks and paper money was fast placing the country in a condition where disaster was inevitable. In 1814, the British captured the city

State Bank Expansion of Washington and burned the White House. The news spread consternation throughout the country and caused a bank panic, resulting in the suspension of specie payments throughout the country, with the exception of portions of New England. There the laws had been more stringent and imposed a penalty upon any bank which should fail to redeem its notes in coin. This had the effect of restraining the over issue of circulating notes, and hence the New England banks were able to weather the storm, and kept their notes at par with specie throughout the crisis. Wherever specie payment was suspended, there depreciation of the currency at once set in, and since the paper money was issued by banks in different states, under a variety of laws and conditions, the depreciation was not uniform. In New York it was 20 per cent., in Philadelphia 24 per cent. and in Baltimore 30 per cent. The citizens of New England paid their taxes and other obligations in money as good as gold, while those of New York, Pennsylvania or Maryland paid in depreciated paper. The injustice of this was apparent, but the government could not remedy the evil, since the depreciated paper was the only money to be had in a large portion of the country. Government bonds were selling at 85 cents on the dollar, although paid for in currency worth only 70 to 80 cents. To prosecute a war successfully under these conditions would seem a very difficult undertaking. Its success must have been due in a very large measure to the patriotism of the people. Many of the state banks scattered throughout the various states were government depositories, and held large amounts of government funds, but as the depreciated currency of one state would not circulate in another the government was unable to transfer the surplus it might have in one locality to places where it was needed to meet public demands. To overcome this evil, it became necessary to issue treasury notes. The friends of the United States Bank ascribed all of the existing evils to the failure to renew the charter of the bank and its resulting consequences, and this view was generally acquiesced in. If the bank's charter had been renewed $7,200,-000 in specie need not have been shipped to Europe to pay the stockholders, thus draining the country of a large part of its gold and furnishing England with money to prosecute a war against us. The increase in the number of state banks would have been prevented and their issues of paper money in excess of their power to redeem would have been avoided. Secretary Gallatin said: "Suspension (of specie payments) might have been prevented at the time when it took place had the former Bank of the United States been still in existence." During its life-time the bank had regulated the currency by means of its example, its strength, and the fact that it was the fiscal agent of the government. Its own notes were always equal to specie and the state banks were required to keep theirs up to the same standard, or otherwise they would be "thrown out" by the great bank, and no longer received for taxes and government dues. With a bank's notes thus discredited its customers would desert it for other and mare responsible banks or for the branches of the United States Bank, located throughout the country. Thus the term "Regulator of the Currency" was not a misnomer when applied to the great Bank of the United States.

Notwithstanding the war was over a few months after the suspension of specie payments, and commerce resumed its customary channels, no effort was made by the state banks to resume specie payments. It was not to their pecuniary advantage to do so, as long as they could float a large volume of irredeemable paper money. A year passed and yet the banks showed no sign of attempting to resume. The welfare of the country demanded that something should be done, and yet Congress had not power to compel the state banks to change their policy. Naturally public opinion turned in favor of a new bank modeled on the plan of the former one. President Madison, although opposed to the first bank on constitutional grounds, now in his message of December 5, 1815, suggested a national bank as a suitable instrumentality for bringing about the resumption of specie payments. Secretary Dallas urged the organization of such a bank, and on April 10, 1816, Congress passed a law creating the Second Bank of the United States, on lines similar to the first, with a capital of $35,000,000. Later on Mr. Webster introduced a bill to the effect that after February 20, 1817, the secretary of the treasury should receive for public dues only treasury notes, the notes of the United States Bank and of those state banks which were paying specie on demand. This virtually compelled the resumption of specie payments on the date mentioned, after a suspension of two and a half years.