The Bank of North America opened in 1781, but the First Bank of the United States came later and lasted longer

The Bank of North America, founded in Philadelphia in 1781, was technically the first bank chartered in the United States. It was created to help finance the Revolutionary War and operated with a charter from the Continental Congress. However, when people talk about "the First Bank of the United States," they usually mean a different institution: the First Bank of the United States, which opened in 1791 and became far more influential in shaping American banking.

The First Bank of the United States was created by an act of Congress signed by President George Washington. It was designed to be the federal government's bank — the place where the government kept its money, borrowed when it needed to, and managed the nation's finances. The bank also issued its own paper money, which people could use in everyday transactions. This was unusual at the time; most money in circulation came from state-chartered banks or was literally gold and silver coins.

The First Bank operated for 20 years before its charter expired in 1811. Congress did not renew it, partly because of political disagreement over whether the federal government should have this much control over banking. The bank's building still stands in Philadelphia today and is now a National Historic Landmark.

Key Takeaways

  • The Bank of North America (1781) was the first chartered bank in the United States, but the First Bank of the United States (1791) became the more historically significant federal bank.
  • The First Bank of the United States served as the government's bank, holding federal money and issuing paper currency that circulated throughout the country.
  • The First Bank was created by Congress and signed into law by President George Washington as part of the new nation's financial system.
  • The bank's 20-year charter expired in 1811 and was not renewed, ending the first attempt at a federally chartered national bank.

Why the federal government created a national bank in 1791

After the Revolutionary War ended in 1783, the United States faced a serious problem: it had no organized way to manage money. The government owed war debts to other countries and to its own citizens. Different states had their own banks, and they issued their own paper money, which made trade between states confusing and unreliable. There was no single place where the federal government could safely store its funds or borrow money when it needed to.

Treasury Secretary Alexander Hamilton proposed creating a national bank to solve these problems. The bank would hold the government's money, collect taxes, and lend to the government when necessary. It would also issue standardized paper currency that people could trust, because it was backed by the federal government. This was a new idea in America, and it was controversial — many people worried that a powerful central bank would give the federal government too much control over the economy.

Congress debated the proposal fiercely. Some members believed the Constitution did not give Congress the power to create a bank. Others thought it was necessary for the nation's survival. In the end, Congress voted to approve it, and Washington signed it into law in February 1791. The bank opened for business in Philadelphia that December.

What the First Bank actually did with people's money

The First Bank of the United States was not a bank where ordinary people opened accounts, the way you might open a checking account today. It was a bank for the government and for other banks. Wealthy merchants and some state-chartered banks could deposit money there, but the average person had no direct relationship with it.

The bank's main job was to hold the federal government's tax revenue and manage the government's spending. When the government needed to pay soldiers, build roads, or pay interest on war debts, it drew money from the First Bank. The bank also lent money to the government when tax revenue was not enough to cover expenses — similar to how the government borrows money today through Treasury bonds.

The bank issued its own paper notes, which were essentially IOUs promising to pay the holder a certain amount of gold or silver on demand. These notes circulated as money in the economy. Because the First Bank was backed by the federal government, people trusted these notes more than the notes issued by smaller state banks, which sometimes failed and left people holding worthless paper.

How the First Bank competed with state banks

The First Bank of the United States did not operate alone. Dozens of state-chartered banks existed alongside it, each with its own charter from its state government. These banks competed with the First Bank for deposits and business, and many of them resented the federal bank's power and prestige.

State banks issued their own paper money, which sometimes lost value if people doubted the bank could pay. The First Bank, by contrast, could always pay because it had the backing of the federal government. This gave the First Bank an advantage in the marketplace. Some state banks saw the First Bank as a threat to their business and lobbied their state legislatures to oppose it.

The First Bank also had the power to regulate other banks indirectly. When a state bank's notes came into the First Bank's possession, the First Bank could demand payment in gold or silver. This forced state banks to keep enough gold and silver on hand to cover their notes — a form of discipline that some banks resented but that made the overall financial system more stable.

Why Congress let the First Bank's charter expire

The First Bank's charter was set to expire in 1811, and Congress had to vote to renew it. By that time, political attitudes had shifted. The Democratic-Republican Party, which had grown more powerful, opposed a strong federal bank. They believed states should control their own banking systems and that a national bank gave too much power to wealthy merchants and the federal government.

The bank also faced opposition from state banks, which had grown stronger and more numerous. These banks wanted the First Bank out of the way so they could operate without federal oversight. They lobbied Congress hard against renewal.

In 1811, Congress voted 65 to 64 against renewing the charter — one of the closest votes in early American history. The First Bank closed its doors in 1812, just as the United States was entering the War of 1812. Without a national bank, the government struggled to finance the war and had to borrow from state banks at high interest rates. This experience eventually convinced Congress that a national bank was necessary, leading to the creation of the Second Bank of the United States in 1816.

What happened to the First Bank's building and legacy

The First Bank of the United States building, located at 116 South Third Street in Philadelphia, still stands today. After the bank closed in 1812, the building was used for various purposes, including as a customs house and a museum. Today it is part of Independence National Historical Park and is open to visitors as a historic site.

The First Bank's legacy shaped American banking for decades. It demonstrated that a national bank could work and that the federal government could manage a large financial institution. Even though the First Bank itself lasted only 20 years, the idea of a federally chartered national bank became permanent. The Second Bank of the United States operated from 1816 to 1836, and the National Banking System created during the Civil War established a network of federally chartered banks that still exists today.

Frequently Asked Questions

Was the First Bank of the United States the same as the Bank of North America?

No. The Bank of North America (1781) was the first chartered bank in the United States, but it was smaller and more regional. The First Bank of the United States (1791) was created specifically to serve as the federal government's bank and was much more powerful and influential.

Could regular people put money in the First Bank?

Wealthy merchants and some state banks could deposit money there, but the First Bank was not designed as a bank for ordinary people. Most people interacted with it only indirectly, through the paper money it issued.

Why did Congress not renew the First Bank's charter?

Political opposition had grown. Many lawmakers believed states should control banking, and state banks wanted the federal bank out of the way. The vote to renew failed by just one vote in 1811, and the bank closed in 1812.

Did the United States have a national bank after the First Bank closed?

Not when ready. The First Bank closed in 1812, but Congress created the Second Bank of the United States in 1816 after realizing the government needed a national bank to function properly.