The first Bank of the United States was chartered by Congress in 1791, on lines laid down in a report by Alexander Hamilton, the first Secretary of the Treasury, as a part of the general scheme to support the public credit of the new Government.1 The establishment of the bank was opposed on the ground that Congress was not empowered by the Constitution to create banks. Hamilton contended that this power was implied and his arguments prevailed with Congress and the President. The bank, patterned largely after the Bank of England, was intended to provide a depository for public money, to act as fiscal agent of the new Government, and to be a regulator of the currency.

It was capitalized at $10,000,000, divided into 25,000 shares. The Government was to subscribe $2,000,000, payable in ten annual installments with interest at 6 per cent. The balance was open to public subscription and was to be paid one-fourth in specie and three-fourths in government securities. The bank was governed by twenty-five directors, of whom not more than three-fourths were eligible for election the next succeeding year. Each stockholder was entitled to cast one vote for one share, an additional vote for the next two shares and so on, but no stockholder could have more than thirty votes, and no foreign stockholder could vote by proxy. The bank was allowed to issue notes which were legal.tender in payment of all debts to the United States. The maximum amount of debts which it might owe at any time, except for deposits, was never to exceed its capital, except by authorization of Congress, and in case of excess the directors were personally liable for the amount. It could not buy or sell goods, except forfeited collateral, under penalty of forfeiting three times the value of the commodities. It might sell, but not buy, United States stocks. It was permitted to hold only such real estate as it needed for banking purposes or such as had been mortgaged to it as security or conveyed to it in satisfaction of debts previously contracted. Loans and discounts were not to be made at a rate above 6 per cent. It was subject to inspection by the Secretary of the Treasury. The charter was to run for twenty years.

1 See Holdsworth: First Bank of the United States (Nat. Mon. Comm.) for a full account of this bank.

The central institution was located in Philadelphia, having a capital of $4,700,000 assigned to it, and branches were established in New York, Boston, Baltimore, Washington, Norfolk, Charleston, Savannah and New Orleans. From the start the bank was in every way successful. It carried the bulk, probably two-thirds, of all government money deposited in banks; it made loans to the Government whenever requested, collected the bonds of importers for customs duties, and made transfers of money at the order of the Treasury without charge. It refused to receive the notes of state banks which did not promptly redeem such notes in specie and so became a powerful influence in establishing a sound currency. It loaned to private individuals and firms and paid dividends for twenty years at an average rate of 8 per cent.

Within four years after its establishment the bank had loaned to the Government $6,200,000, nearly two-thirds of its entire capital. The loan of so large a proportion of its funds crippled its services to commerce and manufacturers and made it difficult to advance temporary loans to the Government. It therefore requested the Government to repay the loans. As there was no market for government bonds it became necessary for the Government to sell its holdings of bank stock. These sales extending over a period of five years were made at premiums of from 20 to 45 per cent. In 1802 the Government ceased to be a stockholder. In addition to dividends averaging about 8 3/8 per cent the Government made a profit of $671,860.

In 1809 the stockholders of the bank petitioned Congress for a renewal of the charter, and Gallatin, Secretary of the Treasury, strongly indorsed the petition. Unfortunately the question of renewal became a political issue and strong opposition developed against it. The Republican party, which had come into power, believed in the strict construction of the Constitution and so opposed the bank on the ground that it was unconstitutional. They denounced the hank as being aristocratic and under foreign influence, eighteen thousand of its shares being held abroad, though the management was in the hands of the seven thousand stockholders living in the United States. The state banks, which in 1811 numbered eighty-eight, felt the competition of the great bank and its branches, and they united with the political enemies of Gallatin in opposing renewal. The bill to renew the bank's charter was lost by a majority of one vote in the House and a tie in the Senate, and the bank went into liquidation. The assets were purchased by Stephen Girard, the merchant prince of Philadelphia, who organized the Girard Bank with a capital of $1,200,000. The stockholders of the Bank of the United States received $434 for each $400 share.