BANK OF THE UNITED STATES (FIRST NATIONAL BANK)

The nation's founding fathers differed on whether a national bank should be created when they drafted the U.S. Constitution (1788) and established the federal government. This split led to the formation of the two major political parties. The first Secretary of the Treasury Alexander Hamilton (1755–1804) led the Federalist Party. The Federalists believed that the government could use all powers except those expressly denied by the Constitution. Hamilton promoted the establishment of a national bank, arguing it would strengthen the government and promote economic growth. Secretary of State Thomas Jefferson (1743–1826) headed the Democratic-Republicans. They argued that powers not specifically mentioned in the Constitution could not be exercised. Jefferson regarded the national bank as a potential monopoly that could infringe upon civil liberties in the United States.

In 1791 the Federalists won the argument and the First Bank of the United States was established. Eighty percent of its stock was privately held. The other 20 percent was owned by the U.S. government. Its capital was $10 million (two million dollars of which was supplied by the U.S. government). The bank had eight branches in U.S. cities. The bank could issue notes, hold deposits, and make loans. It also paid the salaries of public officials and monitored the states' issuance of bank notes (promissory notes issued by a bank which had to be paid—converted to coin—by the bank on demand of the holder). The government's involvement in the bank was short-lived: In 1802 it sold its interest to private investors at a profit. When the charter for the bank came up for renewal it was allowed to expire and the bank ceased to exist in 1811.