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Shortly after Hamilton proposed the creation of a National Bank for the U.S. a bill was introduced into Congress to accomplish Hamilton's proposal. There was major opposition to the bill on the grounds that creation of such a bank with a monopoly on issuing money was unconstitutional. The bill passed and was signed into law in 1791 but it provided only a twenty year charter for a Bank of the United States. The charter would need to be renewed in 1811.
The Bank of the United States solved many of the monetary problems that troubled the country before 1791. But the Bank of the United States was a private institution and foreign buyers purchased ownership shares of the bank until the 70 percent of the bank was owned by foreigners. This was worrisome to American politicians but this high share of foreign ownership was not unusual in the American financial system. Britain had been supplying capital to the U.S. economy for some time.
The First Bank acted as the federal government’s fiscal agent, collecting tax revenues, securing the government’s funds, making loans to the government, transferring government deposits through the bank’s branch network, and paying the government’s bills.15 The bank also managed the Treasury’s interest payments to European investors in U.S. government securities.16 Besides its activities on behalf of the government, the Bank of the United States also accepted deposits from the public and made loans to private citizens and businesses.
James Madison, who represented Virginia in the House of Representatives, opposed the bank for similar reasons.8 In particular, he objected to the bank’s proposed 20-year affront to states’ rights and would make the states too subservient to the new federal government. Moreover, agreeing with Jefferson, many of the people who opposed the bank said that the Constitution did not grant the government the authority to establish banks. Still others thought that a national bank would have a monopoly on
government business, to the detriment of the state chartered banks.9