250 Years Later: How America Got Its Banks

*This article appears in the third quarter 2026 issue of Bank Director magazine. You can subscribe here.

There were no banks in the U.S. when shots were fired at Lexington and Concord in Massachusetts, marking the start of the Revolutionary War. That quickly changed as the Founding Fathers formed a new nation, and political battles over its banking system became a fundamental part of the American story.

Two very different men — banking’s founding fathers — can be credited for their early impact on the financial landscape we have today. The actions of Andrew Jackson, the seventh president, resulted in an array of state-chartered banks, and that financial diversity can still be found across the United States. And before him, Alexander Hamilton, the first Treasury Secretary, built a system from the ground up by envisioning and then establishing a powerful national bank to support economic growth.

Hamilton the Visionary
When George Washington met Hamilton in September 1776, the Continental Army had retreated to Harlem Heights, New York, following weeks of losses against well-organized and well-financed British troops. “We are now encamped with the Main body of the Army on the Heights of Harlem where I should hope the Enemy would meet with a defeat in case of an Attack, If the Generality of our Troops would behave with tolerable bravery,” Washington wrote in a letter from the battlefield, “but experience … has convinced me that this is rather to be wished for than expected.” It was a dark time for the eventual first president, but his arrival proved serendipitous. Not only did the beleaguered general defeat the British in the ensuing battle — boosting the militia’s morale — but he found himself impressed by the young Alexander Hamilton, who soon became a trusted aide and adviser. The relationship would change the course of American banking.

Contrary to popular perception, Washington and his men weren’t constantly fighting, explains Richard Sylla, a professor emeritus of economics at New York University’s Stern School of Business. There was a lot of downtime, which gave Hamilton time to read about financial history. “Hamilton began to ask himself why the Americans were having such a tough time beating the British on the Americans’ home ground,” he says. “He decided that the major problem was the British were much better financed than the Americans were.” Hamilton started advocating for a stronger financial system before the war ended in 1783. When Washington was inaugurated as president six years later, Hamilton was appointed Treasury Secretary. He quickly got to work. “He’s the right man at the right place at the right time, because he understands all this stuff,” says Sylla.

The financial system Hamilton envisioned included a national currency, securities markets, a banking system and an early version of a central bank: the Bank of the United States, which was founded in 1791 and headquartered in the nation’s financial capital at the time, Philadelphia. Based on the charter of the Bank of England, the national bank would issue banknotes. Early American banks issued paper currency based on the gold and silver held in their vaults, or specie, which led to a proliferation of currencies of uncertain value across the country. The Bank of the United States would also hold the deposits of the U.S. government, collect tax revenues, pay the government’s debts and function as a commercial bank. That included lending to the federal government. “[Hamilton] borrowed large amounts of money from the Bank of the United States on behalf of the United States government,” says Sylla.

A few banks were chartered by states before the Bank of the United States obtained its 20-year charter from Congress. One was the country’s first chartered bank, the Bank of North America, that continued as an independent entity until 1923; its DNA lives on within Wells Fargo & Co. Hamilton was also a founder of the Bank of New York in 1784, which operates today as The Bank of New York Mellon Corp., or BNY. But the Bank of the United States was larger than those others. It had $10 million in capital and branches in key cities such as New York, Boston and Charleston, South Carolina. The U.S. government owned 20% of the bank, while the rest was held by private investors, many of whom were foreign. The government earned dividends on its investments that exceeded its loan costs, Sylla says, which encouraged states to follow suit by chartering more banks. It was slow going at first; there were 28 banks by the turn of the century in 1800. But the U.S. banking system would, indeed, grow — despite financial panics during the nation’s early history.

In fact, Hamilton managed to quell the country’s first financial panic in 1792, says Sylla. Admittedly, the Bank of the United States, along with smaller institutions in populous cities such as New York, Boston and Philadelphia, contributed to the panic by lending to speculators, who in turn were driving up prices in the country’s nascent stock market. When those loans weren’t repaid, the market crashed. The Treasury Secretary leveraged the Bank of the United States as a de facto lender of last resort that initiated the purchase of bonds to prop up declining prices.

In just a few years, Hamilton greatly strengthened the republic’s economy, says Sylla. “This is one of the most important parts of American history that most people haven’t thought about, because they don’t understand the importance of finance,” he says. With that in place, “the U.S. begins to grow very fast.”

While Hamilton convinced Washington and Congress that the new nation needed a national bank, not everyone agreed — including Secretary of State Thomas Jefferson and James Madison, then in the House of Representatives. Both believed the bank was unconstitutional. Sylla says the debate over the country’s financial system was a key dispute between the two political parties of the era: the Federalists and the Jeffersonian Democratic-Republicans, who favored a more decentralized government.

Despite opposition, the Bank of the United States was an overall success. “It had earned consistent profits for its stockholders, helped to discourage irresponsible lending and banknote issues by state-chartered institutions, met the government’s funding needs, and served as a safe depository for federal receipts,” explained Sharon Ann Murphy in her book, “Other People’s Money.” However, Congress voted not to renew the bank’s charter in 1811, due to pressure from smaller competing banks as well as politicians who raised concerns about the influence of the bank’s foreign investors and, like Jefferson and Madison, questioned its constitutionality.

An Uncertain Era
The absence of the Bank of the United States was quickly felt. The U.S. declared war on Great Britain the following year, in response to the British practice of boarding American ships, seizing their sailors and conscripting them into the British navy. But the American government struggled to finance the War of 1812, which lasted for almost three years. The U.S. lost several early battles, including a disastrous invasion of Canada, so few were willing to confidently invest in the American government. British forces in August 1814 burned down the White House and Capitol, sparking a financial panic. “Fearful that their banknotes, treasury notes, and bonds would quickly start to depreciate in value, [investors] went to their banks demanding specie in exchange for their banknotes,” wrote Murphy.

The Bank of the United States would have been obligated to lend to the government as part of its charter, but state banks didn’t have that same obligation. Much of the war was instead financed through bond sales. Treasury Secretary Albert Gallatin struggled to sell the bonds, which were advertised widely at 6% annual interest. A third effort, underwritten by a group of wealthy Americans that included the merchant John Jacob Astor, was more successful.

By the war’s end, the U.S. owed a lot of money. Inflation was rampant. The country needed a uniform currency and wanted to curb the issuance of banknotes by state-chartered banks, which had a tremendous influence on local money supplies and could be easily counterfeited or made worthless when a bank closed. President James Madison — who had initially opposed the first Bank of the United States — threw his support behind its successor. The Second Bank of the United States was chartered by Congress in 1816.

The economy was soon rocked again, however, and the Second Bank of the United States was a contributor to the Panic of 1819. Settling the U.S. government’s debt with France for the Louisiana Purchase in 1803 wiped out much of its reserves, leading the bank to reduce banknotes in circulation and call in loans. This had a domino effect on state banks, according to Murphy. “Many state banks began to reduce their own banknote circulation and call in their own loans, which contracted the money supply even more,” she wrote. Debtors couldn’t pay their loans and had to default. Many blamed banks, particularly the The Second Bank, for the disaster. That included Andrew Jackson, a hero of the War of 1812, who would become president in 1829.

“When Jackson comes into the limelight, he’s personally affected by the Panic of 1819,” says Cody Youngblood, the director of visitor experience at Andrew Jackson’s Hermitage, the president’s historic home in Nashville, Tennessee. “He notices that it affects the common man adversely.”

Hydra of Corruption
Jackson entered office intending to end the Second Bank of the United States. “He runs on this idea of decentralizing not only the government as a whole, but more specifically the bank,” says Youngblood. Jackson saw the war over the country’s biggest bank as an intrinsic fight over who would control the country — “entrenched elites” in Washington or the people, says Youngblood.

Jackson faced a tough opponent. The Second Bank was much larger than its predecessor, with $35 million in capital compared to $10 million. It had 25 branches, compared to eight for the first. Like the First Bank, it made payments on behalf of the U.S. government and held its deposits. The U.S. owned 20% of the bank’s stock and appointed five of its board seats. Its banknotes were widely accepted, and it was expected to lend to the government. After the Panic of 1819, Nicholas Biddle was named president of the bank in 1823 and through it, helped stabilize the economy.

Biddle and the Second Bank had a lot of influence. Jackson believed the bank supported his political opponent John Quincy Adams in the vicious 1828 election. The bank had a powerful effect on the economy, which was evident in 1819. Members of Congress were on its side, including Henry Clay, a perennial opponent and thorn in Jackson’s side.

The decision to go to Congress to recharter the Second Bank of the United States in 1832 was essentially a game of political chicken. The charter wouldn’t expire for another four years, but Biddle chose to force Jackson’s hand. Given the bank’s power, he believed, a veto could lead to Jackson’s defeat in the election that year and end his presidency — and put bank ally Clay in the White House.

Jackson would veto the bill in July 1832. He was reportedly ill — partly from an old gunshot wound earned in an 1813 Nashville brawl. “The Bank, Mr. Van Buren, is trying to kill me,” he said to his friend and eventual vice president, Martin Van Buren. “But I will kill it.”

Convention holds that Jackson hated banks and personally disliked Biddle, driving his animus against the Second Bank of the United States. There could be some truth to that. But Daniel Feller, a professor emeritus at the University of Tennessee, Knoxville, who edited six volumes of “The Papers of Andrew Jackson” that encompass his presidency, disputes that narrative. “It wasn’t so much that he was dead set against debt. He was dead set against imprudent borrowing, which is not the same thing,” he says. As early as 1829, he says, Jackson believed the bank was unconstitutional and “dangerous to liberty” due to its vast power. “Jackson’s opposition to the bank was quite fundamental,” Feller says. “It mingled private interest with public policy.” As for Biddle, “Jackson personalized every one of his political disputes,” he says. “He always found somebody to blame, somebody to hate.”

As a largely private entity, the Second Bank often acted in its own interests, not that of the government, says Feller. For example, the Treasury ordered the bank to pay off the last of the federal debt in 1832, using money in its vaults. The move, perhaps, didn’t make financial sense: The interest rate was low, the bonds didn’t have a call date, and the move could have strained the liquidity of the U.S. government. But it wasn’t the bank’s decision to make. “Biddle didn’t do it, and he didn’t tell the government he wasn’t doing it,” says Feller. Jackson’s “core objection,” he adds, “was that the Bank of the United States was an instrument by which privileged people ran the government to suit themselves.”

Jackson’s veto didn’t kill the bank. It had four more years on its charter, and Biddle could try his luck again with Congress and hope they would override the president. Jackson knew this, too. “The hydra of corruption is only scorched, not dead,” he said at the time. He moved to drain the federal government’s deposits from the bank, around 20% of its total reserves. These were distributed to various small, state-chartered banks, dubbed pet banks because they were seen as politically loyal to the president.

Jackson saw the 1832 election, which he won in a landslide, as a reflection of popular will about the bank. The move to drain the bank’s deposits, however, proved divisive as it went against the wishes of Congress and many in his own cabinet. This division can be seen in the political cartoons of the era. One depicted Jackson as “King Andrew the First,” with a veto in one hand and the U.S. Constitution in tatters under his feet. Another pictured Jackson valiantly battling the Second Bank of the United States, depicted as a hydra — a mythological snake with many heads. One of the heads, wearing a top hat, was Biddle; the others were the directors of the bank. Feller says Americans would have recognized those directors at the time.

Biddle fought back. He cut back on the bank’s lending, which sent the U.S. economy into a tailspin — seemingly proving Jackson’s point that the bank had too much power. Lawmakers and businessmen begged Jackson for relief, wrote Jon Meacham in his biography of Jackson, “American Lion.” Jackson said they should talk to Biddle. “Go to the monster!” he told a group from Baltimore, referencing the bank. “It is folly, sir, to talk to Andrew Jackson.”

Youngblood describes Biddle as a man more interested in preserving his bank than saving the U.S. economy. “This is a dangerous man with a dangerous amount of power,” he says.

The bank’s charter expired in 1836, but it continued operating as a state-chartered bank in Pennsylvania until its closure in 1841. Meacham argued that it probably would have been better for the U.S. if the Second Bank of the United States had been reformed rather than crushed. “The history of banking and finance and the American economy in the nineteenth century would have been different had the Bank survived,” he wrote. But Jackson’s veto was “good politics” that further aligned him with the American public.

Aftermath of the 
Bank War
Unfortunately, Jackson didn’t have much of a plan for the national economy beyond destroying the Second Bank, says Feller, which the president saw as a threat to the power of the presidency and the will of the people. His other policies also damaged the economy for a period. Along with Congress, he limited the federal government’s acceptance of banknotes, which drained gold and silver out of state banks and forced them to, once again, call in loans and contract credit. So-called “hard times tokens” were used as unofficial currency from roughly 1833 to 1843. They’re on display at the Hermitage. “They have printed on them little jokes, making fun of Jackson and the banking issue,” explains Youngblood.

But the banking system largely continued to grow. State-chartered banks thrived despite numerous panics and the passage of legislation during the Civil War that created a national currency, the Office of the Comptroller of the Currency and a national banking charter. By 1920, there were more than 30,000 banks, mostly state chartered, during a time when interstate banking was prohibited. The U.S. wouldn’t see anything close to a large, centralized bank until the creation of the Federal Reserve in 1913.

But the banking system took a Hamiltonian shift in the late 20th century. Congress passed legislation that removed bans on the integration of commercial banking, insurance and investment banking, as well as prohibitions that had prevented interstate branching. Institutions started to consolidate, and the biggest banks got even bigger over the ensuing decades. Today, four banks — JPMorgan Chase & Co., Wells Fargo & Co., Citigroup and Bank of America Corp. — hold the lion’s share of U.S. deposits.

At the Hermitage, Youngblood surmises what Jackson might think of today’s financial system. “I don’t think he would appreciate how we’ve moved forward,” he says. “I think he would want to go back to a time where there’s essentially direct representation of the people and how their banking system operates.” Jackson likely wouldn’t appreciate the Fed’s strong influence over monetary policy or the concentration of power by the biggest banks.

Hamilton, however, would likely approve, says Sylla. “Our system is more like what Hamilton wanted it to be to be from the beginning,” he says.

In 250 years, the U.S. has evolved from a financial system with zero banks to more than 4,000 across fifty states, not to mention an array of lenders and other financial providers. U.S. banks held more than $18 trillion in domestic deposits at the end of 2025. America’s financial system continues to evolve, with cryptocurrencies disrupting the centralized, federally controlled money supply — harkening back to early banknotes. And through it all, the United States has developed the largest economy in the world, per International Monetary Fund data. “Nobody would’ve thought that could happen back in 1790,” says Sylla. “Nobody except Alexander Hamilton, perhaps.”