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The First US Bank

120 South Third Street
Philadelphia, Pennsylvania

   The First Bank Seed is Sown

 Like most of the Southern members of Congress, neither Secretary of State Thomas Jefferson nor Representative James Madison had any particular interest in two of Hamilton's tripartite recommendations:

 The establishing of an official government Mint, and the chartering of the Bank of the United States.

They believed this centralization of power away from local banks was dangerous to a sound monetary system and was mostly to the benefit of business interests in the commercial north, not southern agricultural interests, arguing that the right to own property would be infringed by these proposals.

Furthermore, they contended that the creation of such a bank violated the Constitution, which specifically stated that congress was to regulate weights and measures and issue coined money (rather than mint and bills of credit).

   The first part of the bill, the concept and establishment of a national mint, met with no real objection, and sailed through; it was assumed the second and third part (the Bank and an excise tax to finance it) would likewise glide through, and in their own way they did:

   The House version of the bill, despite some heated objections, easily passed. The Senate version of the bill did likewise, with considerably fewer, and milder, objections.

 It was when "the two bills changed houses, complications set in. In the Senate, Hamilton's supporters objected to the House's alteration of the plans for the excise tax."

   The establishment of the bank also raised early questions of constitutionality in the new government.

 Hamilton, then Secretary of the Treasury, argued that the Bank was an effective means to utilize the authorized powers of the government implied under the law of the Constitution.

Secretary of State Thomas Jefferson argued that the Bank violated traditional property laws and that its relevance to constitutionally authorized powers was weak.

Another argument came from James Madison, who believed Congress had not received the power to incorporate a bank, or any other governmental agency.

 His argument rested primarily on the Tenth Amendment: that all powers not endowed to Congress are retained by the States (or the people).


The Fruit of The Bankers' Labor

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Why were these people really arrested?
My best guess would be that the bank did not have enough money on hand to pay for the withdrawals......... How many people would put their hard earned dollars in a bank if they were told the bank would use that money to buy stock, that in no way benefits the depositors? 
Why does the government require banks to keep a certain percentage of their deposits on hand?

In most legal systems, a bank deposit is not a bailment. In other words, the funds deposited are no longer the property of the customer. The funds become the property of the bank, and the customer in turn receives an asset called a deposit account (a checking or savings account). That deposit account is a liability of the bank on the bank's books and on its balance sheet. Because the bank is authorized by law to create credit up to an amount equal to a multiple of the amount of its reserves, the bank's reserves on hand to satisfy payment of deposit liabilities amount to only a fraction of the total amount which the bank is obligated to pay in satisfaction of its demand deposits.

Fractional-reserve banking ordinarily functions smoothly. Relatively few depositors demand payment at any given time, and banks maintain a buffer of reserves to cover depositors' cash withdrawals and other demands for funds. However, during a bank run or a generalized financial crisis, demands for withdrawal can exceed the bank's funding buffer, and the bank will be forced to raise additional reserves to avoid defaulting on its obligations. A bank can raise funds from additional borrowings (e.g., by borrowing in the interbank lending market or from the central bank), by selling assets, or by calling in short-term loans. If creditors are afraid that the bank is running out of reserves or is insolvent, they have an incentive to redeem their deposits as soon as possible before other depositors access the remaining reserves. Thus the fear of a bank run can actually precipitate the crisis.

Many of the practices of contemporary bank regulation and central banking, including centralized clearing of payments, central bank lending to member banks, regulatory auditing, and government-administered deposit insurance, are designed to prevent the occurrence of such bank runs.

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