A number of weaknesses developed in the operations of the second bank during its earlier years. The subscription to its stock by means of stock notes was a mistake in that the method of payment amounted to a margin purchase of the stock and was therefore speculative in character; besides, the payments on the notes were very dilatory and renewals were freely made.
Friction also developed with the state banks over the transfer of public deposits and over the credit to be given to state bank notes. The state banks, with the exception of those in New York, Philadelphia, and Baltimore, refused to help the national bank effect the resumption of specie payments, and when this resumption was accomplished without their help they became embittered. When the national bank charged the delinquent banks interest on overdue balances, they regarded this as "an unprecedented grievance." The withdrawal of government deposits from a state bank usually led to a collision, not with the Treasury but with the national bank with which the funds were placed.
A controversy which centered in the West, where inflation had been carried further than elsewhere, arose over the acceptance of state bank notes tendered in payment of public revenues. The Treasury and the bank instead of co-operating in the matter worked at cross-purposes. The Treasury permitted the collectors of internal revenue to receive state bank notes, the collection of which was thrown upon the national bank. This responsibility brought the latter into collision with the state banks, which were unable or unwilling to redeem promptly. The national bank held that whatever loss was incurred in the collection of the notes should devolve upon the Treasury, but the Treasury threatened to remove all public deposits rather than deprive the people of the means of paying for public lands and for their taxes. Naturally this dispute also contributed to the unpopularity of the national bank.
Political expediency as well as the terms of the charter demanded that many branches be established, and 27 in all were founded. Almost every state had at least one, and this was too many for the best business efficiency. Losses were greater in the branches than in the parent bank, for the reason that they were run more loosely and their management tended to yield to local pressure for favors in operation and policy. The branches were established with an eye to equalizing banking facilities over the country and consequently excessive amounts of cash were transferred to the South and West. Despite the number of branches, however, it was impracticable to open one in every collection district, and this was a further cause of complaint.
The volume of deposits fluctuated widely from month to month and this fluctuation was a very disturbing factor in the bank's loan operations. The original theory was that the bank and its branches were a unit and, since the bank was required to transmit government funds free of charge, the Treasury drew upon the bank at any place where public money was deposited, whether public funds happened to be there at that time or not, it being understood that the Treasury would give the bank reasonable notice of withdrawal so that provision might be made for meeting the draft. Trouble soon arose between the bank and the Treasury because of lack of sufficient notice, but later a schedule of lengths of notice was arranged. The transfer of public moneys by the bank was a convenient arrangement for the government, and better than any that could have been provided by the state banks.