106 Unit 2 Money and Regulation Terms central bank era of free banking National Currency Act Offi ce of the Comptroller of the Currency (OCC) National Banking Act bank note bank panic bank run bond Section 5.1 History of the Federal Reserve System Objectives After completing this section, you will be able to: • Describe the fi rst two central banks in the US. fi • Explore the problems caused by the lack of a central bank. • Explain how the Federal Reserve System solved the nation’s fi nancial problems. Central Bank in the US The fi rst secretary of the Treasury, Alexander Hamilton, advocated fi and developed the First Bank of the United States. A central bank is the k organization that oversees a nation’s monetary system. Hamilton believed that a central bank would make the country stronger. The First Bank, chartered in 1791, was considered a central bank and: • assumed the debts of the individual states • made commercial loans • held federal funds and • issued payments. Although the bank performed well, its charter was allowed to expire in 1811. Rural interests, as voiced by Thomas Jefferson, did not like the idea of a central bank. Opponents believed it took power away from the states and put it into the hands of eastern bankers. Congress again saw a need for a central bank and chartered the Second Bank of the United States in 1816. The Second Bank was very similar to the First Bank, but it was much larger. The First Bank began with $10 million on deposit and eight branches. The Second Bank started with $35 million and 25 branches. From the beginning, the bank’s existence was challenged. Farmers from the South and West strongly opposed it. 1811 . Ru of a cent and put Con Second similar to $ 10 milli $ 35 mi challe Source: Shutterstock (ChipPix) Th e i d ea of a ce ntra l ba n k i n th e US was co ntrove rs i a l beca use ru ra l fa rm e rs fe lt it favo red u rba n po p u l ati o ns .