the problems facing the new Bank . The charter required that payment for Bank stock be made one-fourth in specie and the remainder in government securities or specie . Because of the premium on both specie and Treasury issues that existed at the time , this stipulation was often bypassed with the Bank accepting promissory notes secured by its own stock in payment . This meant that the Bank received neither the specie nor government securities it should have and began its operations in a weakened position .
Further , in an economy rife with speculation , it opened the way for an intense round of Bank stock speculation . This was particularly evident in Philadelphia and Baltimore , where a small group of individuals controlled much of the Bank ’ s stock and used their position to manipulate the stock ’ s price . Among the policies utilized was allowing stockholders to borrow on their stock holdings at a 25 % premium . Because of this advantage , at times the Bank ’ s stock traded in the market at a premium of 50 % or more .
Baltimore branch President James A . Buchanan , Cashier James W . McCulloch and Director George Williams were primary participants in the stock speculation and engaged in outright fraud . They accomplished this by giving “ themselves the sole right to discount loans on pledges of stock , by lying to the local board of directors , by false entries in the books of the branch , by false reports to the bank at Philadelphia …” In early 1819 the scheme came crashing down at a cost of over $ 1.4 million to the Bank .
By the end of 1818 , this mismanagement and fraud put the Bank in dire straights . Accommodations had fallen over 15 % since July , and circulation had fallen some 22 %. With specie holdings low relative to demand liabilities , when a call came in October from the Treasury for $ 2 million in specie to pay Louisiana Purchase obligations , the Bank could not comply . The Treasury had to settle for drafts on London instead .
That same month the House of Representatives instructed a committee to investigate the Bank , and its report in January 1819 spelled the end for President Jones . The report — combined with the losses suffered by the Bank from malfeasance — pushed it to the brink of failure . Popular opposition led to state efforts to tax the Bank ’ s branches and only Supreme
Correspondence letter from Langdon Cheves to the head of the Bank of the United States in New Orleans directing him to cash drafts on Stephen Girard , dated February 28 , 1822 .
Court decisions in the cases of McCulloch vs . Maryland and Osborn vs . Bank of the United States saved the Bank from being taxed out of existence .
In late January 1819 , Jones , encouraged by President Monroe , resigned his office . Backed by a group of Charleston , South Carolina , stockholders who had formed committees of correspondence with stockholders in other states , Langdon Cheves was elected to succeed Jones as president of the Second Bank in March 1819 .
Cheves brought a distinguished record to his new position . He had begun public service as a member of Charleston City Council in 1802 and was elected to the South Carolina House of Representatives later that same year . He was appointed Attorney General of the state from 1808- 1810 before being elected to the US House of Representatives in 1810 . There he strongly supported the War of 1812 , chairing the Select Committee on Naval Affairs . He then chaired the Ways and Means Committee before being elected Speaker of the House in January 1814 and serving until he decided not to seek re-election in 1815 .
With the country in the midst of a deepening depression and the Bank blamed for much of the resulting misery , Cheves began putting together a plan to restore the Second Bank ’ s solvency and to place its operations on sound footing . In addition , he immediately reduced salaries and cut operating expenses , dealt with the revelations of mismanagement and fraud with “ investigations , dismissals and prosecutions ” and orchestrated the appointment of new officers and directors .
Collection of the Museum of American Finance
38 FINANCIAL HISTORY | Winter 2018 | www . MoAF . org