Act that imposed federal regulation on banks, the first such
control since the dissolution of the Second Bank of the
United States in 1837.
An economic crisis in 1857 caused several banks to fail because of the inadequacy of the banking system that had been
established to replace the Second Bank of the United States.
(The Second Bank had operated as the national bank and had
provided some stability, but it closed in 1837. Between 1837
and 1857, state banks operated but were not regulated by the
federal government.) Once the Civil War began, Abraham
Lincoln proposed the first National Currency Act of 1863 to
help finance the war by creating a system of national banks
that were to issue the only legal paper currency. Congress
passed the law on February 25, 1863. Its three main goals
were to create a system of national banks, create a uniform
national currency, and finance the Civil War.
The law intended to create a stable financial system
though stricter supervision of banks by the federal government. The act established new operational standards for
banks, established minimum amounts of capital to be held by
banks in reserves, and defined how banks were to make and
administer loans.
The law’s second aim was to eliminate the more than
10,000 types of paper money issued by individual banks and
to guarantee that legal paper currency could be exchanged for
gold or silver currency. A uniform currency made transacting
business easier. The new currency was issued against federally
backed bonds, as is modern money. The government financed the war by selling these bonds and the limited printing of the new “greenback” banknotes.
The act established the Office of Comptroller of the Currency under the direction of the Treasury Department. Hugh
McCulloch, the first appointed comptroller, wrote a revised
version of the National Currency Act known as the National
Bank Act of 1863. These two acts served as the foundation of
the United States banking system until the Federal Reserve
Act was passed in 1913.
—Deana Covel