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Banking in the United States

Early history - 1700s and 1800s
In 1781, an act of the Congress of the Confederation established the Bank of North America in Philadelphia, where it superseded the state-chartered Bank of Pennsylvania founded in 1780 to help fund the American Revolutionary War. The Bank of North America was granted a monopoly on the issue of bills of credit as currency at the national level. Prior to the ratification of the Articles of Confederation & Perpetual Union, only the States had sovereign power to charter a bank authorized to issue their own bills of credit. Afterwards, Congress also had that power.

Robert Morris, the first Superintendent of Finance appointed under the Articles of Confederation, proposed the Bank of North America as a commercial bank that would act as the sole fiscal and monetary agent for the government. He has accordingly been called "the father of the system of credit, and paper circulation, in the United States." He saw a national, for-profit, private monopoly following in the footsteps of the Bank of England as necessary, because previous attempts to finance the Revolutionary War, such as continental currency emitted by the Continental Congress, had led to depreciation of such an extent that Alexander Hamilton considered them to be "public embarrassments." After the war, a number of state banks were chartered, including in 1784: the Bank of New York and the Bank of Massachusetts.

After the US Constitution subsumed the Articles of Confederation, which still persist in the hard-copy edition of US Code Title 1 as a foundation stone of American government, Congress chartered in 1791 the First Bank of the United States to succeed the Bank of North America under Article One, Section 8. However, Congress failed to renew the charter for the Bank of the United States, which expired in 1811. Similarly, the Second Bank of the United States was chartered in 1816 and shuttered in 1836. Despite this (and more on the commercial banking side of the spectrum), in the early 1800s, up until around the mid-1800s, many of the smaller commercial banks within New England were easily chartered as laws allowed to do so (primarily due to open franchise laws). This private banking sector witnessed an array of insider lending, due primarily to low bank leverage and an information quality correlation, but many of these banks actually spurred early investment and helped spur many later projects. Despite what some may consider discriminatory practices with insider lending, these banks actually were very sound and failures remained uncommon, further encouraging the financial evolution in the United States.

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