The Fed-part 2

Hence, as noted in the last article, the First Bank of the United States was not popular with the banking community of America of the early 1800s. Therefore, when the advocates against it, primarily the state-chartered banks, managed to gain support inside of the Congress in order not to renew the bank's license for another 20 year period.

As the Arabic saying goes "Once the cat is gone, the mice play", the number of unsupervised state-chartered banks rose 180% by 1814! One can only imagine, the extent to which the dollar must have depreciated with all the fraud activities taking place in an uncontrolled banking environment. The mistrust in the community rose when some of these banks refused to provide its clients with specie payment, i.e. refund their savings in gold or silver on request. To the modern banking clients, this meant that you could not withdraw your savings if you needed to do so.

In a counteractive move, the Congress had to, five years after having dissolved the First Bank of the United States, establish the Second Bank of the United States.

Therefore, in order to stabilize the deteriorating money supply in the economy, the Second Bank of the United States was given the privilege to issue money. With time, the currency of the Second Bank become the most reliable choice of transacting in America amidst all the confusion.

Moreover, the new institution decided to strike with an iron fist on all banks for their specie backing in an attempt to try and reinstate the population trust in such institutions. However, banks in the southern and western areas of the county considered that discriminatory action, especially when northern banks were instructed not accept their inter-banking transactions in the case there were no silver or gold backing.

The Second Bank was successful in achieving its objectives just as was the first, despite them being both private, not governmental, institutions. However, opponents against any control over the industry were many, the most famous of which were presidential candidate Andrew Jackson who used the dilemma as the winning card in the 1832 election by vowing to dismantle the Second Bank's. This time around, requesting this from the Congress was not the easiest solution, instead President Jackson decided to withdraw the US government's Treasury funds from the Second Bank and deposit it in regular state-owned banks, thereby undermining its existence.

Ironically speaking, Jackson's face is printed on the twenty dollar bill that is issued by the Treasury department controlled by the current Fed's monetary policies.

However, after the dismiss of the Second Bank of the United States, the money supply was left once again to the vicious attacks of fraud and unreliable banking institutions.

To be continued...

Source: http://www.socialstudieshelp.com/Eco_Banking_and_Fed.htm