National Banking Act

The National Banking Acts of 1863 and 1864 were two United States federal banking acts that established a system of national banks for banks, and created the United States National Banking System. They encouraged development of a national currency backed by bank holdings of U.S. Treasury securities and established the Office of the Comptroller of the Currency as part of the United States Department of the Treasury and a system of nationally chartered banks. The Act shaped today's national banking system and its support of a uniform U.S. banking policy.

After the expiration of the Second Bank of the United States in 1836, the control of banking regimes devolved mostly to the states. Different states adopted policies including a total ban on banking (as in Wisconsin), a single state-chartered bank (as in Indiana and Illinois), limited chartering of banks (as in Ohio), and free entry (as in New York). While the relative success of New York's "free banking" laws led a number of states to also adopt a free-entry banking regime, the system remained poorly integrated across state lines. Though all banknotes were uniformly denominated in dollars, notes would often circulate at a steep discount in states beyond their issue.

In addition, there were well-publicized frauds arising in states like Michigan, which had adopted free entry regimes but did not require redeemability of bank issues for specie. The perception of dangerous "wildcat" banking, along with the poor integration of the U.S. banking system, led to increasing public support for a uniform national banking regime.

The United States Government, on the other hand, still had limited taxation capabilities, and so had an interest in the seigniorage potential of a national bank. In 1846, the Polk Administration created a United States Treasury system that moved public funds from private banks to Treasury branches in order to fund the Mexican–American War. However, without a national currency, the revenue generated this way was limited.

One of the first attempts to issue a national currency came in the early days of the Civil War when Congress approved the Legal Tender Act of 1862, allowing the issue of $150 million in national notes known as greenbacks and mandating that paper money be issued and accepted in lieu of gold and silver coins. The bills were backed only by the national government's promise to redeem them and their value was dependent on public confidence in the government as well as the ability of the government to give out specie in exchange for the bills in the future. Many thought this promise backing the bills was about as good as the green ink printed on one side, hence the name "greenbacks."

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