The same playbook the Federal Reserve uses today—concentrated power, political influence, and the quiet transfer of wealth—was written nearly two centuries ago. One man saw it clearly and decided to destroy the institution that embodied it. His name was Andrew Jackson. He would go on to defeat the National Bank in the Bank War

The Second Bank of the United States

Its Purpose

Congress chartered the Second Bank of the United States in 1816, shortly after the War of 1812.  Several factors led to Second Bank, but because of the war, the United States authorized the suspension of specie payments due to poor banking practices (for a more in depth analysis, refer to our article “The Complete History of the Federal Reserve, here).  President James Madison was opposed to a Central Bank.  But, with the situation getting out of hand, he folded.  On paper, the institution made sense. It would hold federal deposits, issue a more uniform currency, restrain inflation, and serve as a fiscal agent for the government.

The Reality

In practice, it was a private corporation operating under a government charter. The federal government owned one-fifth of the stock and appointed five of the twenty-five directors. The remaining four-fifths belonged to private stockholders who elected the rest of the board.

By the late 1820s the Bank’s president, Nicholas Biddle, exercised enormous influence over the American economy. The Bank held the federal government’s tax revenues, extended loans, and could expand or contract credit across the country through its network of branches.  There was one major issue: there was no oversight over the loans, and many of them were large, nonperforming, and made to insiders and friends.  Because of this, the Bank was near bankruptcy just two years into its existence.