The First Bank of the United States had been established by Congress at the urging of Alexander Hamilton in 1791. Despite its generally successful operation it was defeated in a renewal attempt in 1811, on account of political considerations. The War of 1812, however, demonstrated the need for a national bank and plans were formulated in 1814 by James J. Dallas, secretary of the treasury. Dallas' suggestions were watered down until in the end, the proposal was viewed as too weak and was rejected. President James Monroe then sought a stronger proposal, and Dallas provided one to John C. Calhoun, chairman of the House committee on the currency. He noted:
The services to be performed by the capital of the bank are important, various, and extensive. They will be required through a period almost as long as is usually assigned to a generation. They will be required for the accommodation of the government in the collection and distribution of its revenue, as well as for the uses of commerce, agriculture, manufactures, and the arts, throughout the Union. They will be required to restore and maintain the national currency; and, in short, they will be required, under every change of circumstances, in a season of war, as well as in the season of peace, for the circulation of the national wealth, which augments with a rapidity beyond the reach of ordinary calculation.Calhoun then pushed through the legislation needed. The Second Bank of the United States was created in 1816, and chartered for 20 years. It went into operation in January 1817, and was headquartered in Philadelphia. A key Supreme Court decision came in the case of McCulloch v. Maryland in 1819. The court ruled in two parts, first that chartering the Second Bank of the United States was within the power of the federal government, and further that the state of Maryland could not constitutionally tax a legitimate operation of the federal government. The Second Bank of the United States was a private concern, but acted to control the currency of the United States. This function brought it into frequent conflict with state and local banks, particularly in the South and West. Those other institutions often issued large amounts of paper money and followed liberal loan policies; such practices were frowned upon by the conservative directors of the Second Bank of the United States. Andrew Jackson was on record in opposition to the Bank. He argued on the one hand that no constitutional authority existed for the creation of a federal bank (the old Jeffersonian Republican argument) and on the other that the bank’s issuance of paper money was detrimental to the health of the economy. On this second point Jackson appeared to be somewhat contradictory. He was a "hard money" man, believing that all paper money had to be backed by specie (gold and silver). This view put him at odds with many working people in the South and West who were "soft money" advocates — believing that paper money should be issued liberally and need not be backed in full by specie. When Jackson, as part of his first annual message to Congress, a request that Congress begin considering renewal of the bank's charter, the Ways and Means Committee of the House was given the task of responding. Its chairman was George McDuffie of South Carolina. On April 13, 1830, the committee submitted a report to the House, in which the principal economic and constitutional arguments supporting the continuation of the bank were restated. It read, in part:
It is to be remarked, in the first place, that since the adoption of the Constitution, a bank has existed under the authority of the federal government for thirty-three out of forty years; during which time public and private credit have been maintained at an elevation fully equal to what has existed in any nation in the world; whereas, in the two short intervals during which no national bank existed, public and private credit were greatly impaired and, in the latter instance, the fiscal operations of the government were almost entirely arrested.The prime supporter of the Second Bank of the United States was Henry Clay, who hoped to make rechartering an issue in the coming Election of 1832. Clay urged the Bank to submit an early application for Congressional renewal; the request was made in 1832, and the expiration date was not to occur until 1836. Congress passed a rechartering measure as Clay had planned, with the Senate giving its approval on June 11 and the House concurring on on July 3, 1832, but it was promptly vetoed by Jackson. In his veto message on July 10, Jackson invoked many arguments against the bank, including national security:
Is there no danger to our liberty and independence in a bank that in its nature has so little to bind it to our country? The president of the bank has told us that most of the State banks exist by its forbearance. Should its influence become concentered, as it may under the operation of such an act as this, in the hands of a self-elected directory whose interests are identified with those of the foreign stockholders, will there not be cause to tremble for the purity of our elections in peace and for the independence of our country in war? Their power would be great whenever they might choose to exert it; but if this monopoly were regularly renewed every fifteen or twenty years on terms proposed by themselves, they might seldom in peace put forth their strength to influence elections or control the affairs of the nation. But if any private citizen or public functionary should interpose to curtail its powers or prevent a renewal of its privileges, it can not be doubted that he would be made to feel its influence.Congressional efforts to override the veto fell short. Jackson gauged public opinion more accurately than Clay and won an overwhelming victory in the Election of 1832. Interpreting his wide margin as a mandate, Jackson moved against the Second Bank of the United States. The president planned to kill the institution by withdrawing government deposits and placing them in favored state banks, the so called "pet banks." Two secretaries of the Treasury (Louis McLane and William J. Duane) refused to follow the president’s directive. Finally a third appointee, Roger B. Taney, complied and began the process of starving the B.U.S. The Senate would extract minor revenge in 1834, by failing to ratify Taney at Treasury. Illustrating the differing political influences in Congress, the Senate voted to censure the president for his bank action, but the House passed a resolution of support. B.U.S. president Nicholas Biddle, a wealthy Philadelphian, thought he could pressure the president, and began calling in loans and tightening credit. Jackson held firm and blamed Biddle when the economy weakened. The Second Bank of the United States expired on schedule in 1836; it continued operations as a state bank, but without the powers that the federal charter had provided. Five years later, it went bankrupt.