Download National Banking Acts of 1863 and 1864 - mrs. la ferney

National Banking Acts of 1863 and 1864
Despite these private or state-sponsored efforts at reform, the state banking system still exhibited
the undesirable properties enumerated earlier. The National Banking Acts of 1863 and 1864 were
attempts to assert some degree of federal control over the banking system without the formation
of another central bank. The Act had three primary purposes: (1) create a system of national
banks, (2) to create a uniform national currency, and (3) to create an active secondary market for
Treasury securities to help finance the Civil War (for the Union's side).
United States Treasury Securities are government debt instruments issued by the United States
Department of the Treasury to finance the national debt of the United States. Treasury securities
are often referred to simply as Treasuries. Since 2012 the management of government debt has
been arranged by the Bureau of the Fiscal Service, succeeding the Bureau of the Public Debt.
There are four types of marketable treasury securities: Treasury bills, Treasury notes, Treasury
bonds, and Treasury Inflation Protected Securities (TIPS). There are also several types of nonmarketable treasury securities including State and Local Government Series (SLGS),
Government Account Series debt issued to government-managed trust funds, and savings bonds.
All of the marketable Treasury securities are very liquid and are heavily traded on the secondary
market. The non-marketable securities (such as savings bonds) are issued to subscribers and
cannot be transferred through market sales.
The first provision of the Acts was to allow for the incorporation of national banks. These banks
were essentially the same as state banks, except national banks received their charter from the
federal government and not a state government. This arrangement gave the federal government
regulatory jurisdiction over the national banks it created, whereas it asserted no control over
state-chartered banks. National banks had higher capital requirements(Capital is net worth) and
higher reserve requirements than their state bank counterparts. To improve liquidity and safety
they were restricted from making real estate loans and could not lend to any single person an
amount exceeding ten percent of the bank's capital. The National Banking Acts also created
under the Treasury Department the office of Comptroller of the Currency which occasionally
inspected the books of the national banks to insure compliance with the above regulations, held
Treasury securities deposited there by national banks, and, via the Bureau of Engraving, was
responsible for printing all national banknotes.
Comptroller is an independent bureau within the United States Department of the Treasury that
was established by the National Currency Act of 1863 and serves to charter, regulate, and
supervise all national banks and thrift institutions and the federal branches and agencies of
foreign banks in the United States.
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ensures the safety and soundness of the national banking system;
fosters competition by allowing banks to offer new products and services;
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improves the efficiency and effectiveness of OCC supervision especially to reduce the
regulatory burden;
ensure fair and equal access to financial services to all Americans;
enforces anti-money laundering and anti-terrorism finance laws that apply to national
banks and federally licensed branches and agencies of international banks; and
is the agency responsible for investigating and prosecuting acts of misconduct committed
by institution-affiliated parties of national banks, including officers, directors, employees,
agents and independent contractors (including appraisers, attorneys and accountants).
The second goal of the National Banking Acts was to create a uniform national currency. Rather
than have several hundred, or several thousand, forms of currency circulating in the states,
conducting transactions could be greatly simplified if there were a uniform currency. To achieve
this all national banks were required to accept at par the banknotes of other national banks. This
insured that national banknotes would not suffer from the same discounting problem with which
state banknotes were afflicted. In addition, all national banknotes were printed by the
Comptroller of the Currency on behalf of the national banks to guarantee standardization in
appearance and quality. This reduced the possibility of counterfeiting, an understandable
wartime concern.
National Bank Note
This 1929 note was issued by the Atlanta and Lowry National Bank. The writing over the red
seal reads, "Redeemable in lawful money of the United States at United States Treasury or at the
bank of issue." At the time, lawful money referred to gold coin, silver coin, gold or silver
certificates, or United States notes. The reverse is the same as modern $20 Federal Reserve
notes.
The writing over the portrait of Andrew Jackson reads, "National currency secured by United
States bonds deposited with the Treasurer of the United States of America." This refers to the
requirement of the National Banking Acts that the amount of currency a national bank could
issue be based on the market value of Treasury bonds on deposit with the Comptroller of the
Currency.
Who knows? Perhaps this very bill was used to buy a ticket to the premeir of Gone With the
Wind.
The third goal of the Acts was to help finance the Civil War. The volume of notes which a
national bank issued was based on the market value of the U.S. Treasury securities the bank held.
A national bank was required to keep on deposit with the Comptroller of the Currency a sizeable
volume of Treasury securities. In exchange the bank received banknotes worth 90 percent, and
later 100 percent, of the market value of the deposited bonds. If the bank wished to extend
additional loans to generate more profits, then the bank had to increase its holdings of Treasury
bonds. This provision had its roots in the Michigan Act, and it was designed to create a more
active secondary market for Treasury bonds and thus lower the cost of borrowing for the federal
government.
It was the hope of Secretary of the Treasury Chase that national banks would replace state banks,
and that this would create the uniform currency he desired and ease the financing of the Civil
War. By 1865 there were 1,500 national banks, about 800 of which had converted from state
banking charters. The remainder were new banks. However, this still meant that state banknotes
were dominating the currency because most of them were discounted. Accordingly, the public
hoarded the national banknotes. To reduced the proliferation of state banking and the notes it
generated, Congress imposed a ten percent tax on all outstanding state banknotes. There was no
corresponding tax of national banknotes. Many state banks decided to convert to national bank
charters because the tax made state banking unprofitable. By 1870 there were 1,638 national
banks and only 325 state banks.
While the tax eventually eliminated the circulation of state banknotes, it did not entirely kill state
banking because state banks began to use checking accounts as a substitute for banknotes.
Checking accounts became so popular that by 1890 the Comptroller of the Currency estimated
that only ten percent of the nation's money supply was in the form of currency. Combined with
lower capital and reserve requirements, as well as the ease with which states issued banking
charters, state banks again became the dominant banking structure by the late 1880's.
Consequently, the improvements to safety that the national banking system offered were
mitigated somewhat by the return of state banking.
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