National Banking Act
Exactly one year after authorizing greenbacks, Congress passed the National Banking Act, creating a system of federally chartered banks empowered to issue uniform 'national bank notes' backed by Treasury bonds. The act also created the Office of the Comptroller of the Currency, the first federal bank regulator. Before 1863, banking had been entirely a state-by-state matter, with thousands of different bank notes of varying credibility circulating. After 1863, a uniform national currency emerged, and bank failures could be addressed by a federal authority for the first time. The act remains the legal basis for federal bank chartering in the United States, with the OCC still operating today.
The 1863 Act applied a 10 percent tax to state bank notes, intentionally driving them out of circulation by 1866. State banks did not disappear — they pivoted to issuing checking deposits instead of notes, which is why the modern American banking system runs on deposits rather than bank notes. The 10 percent tax is also why the United States has a dual banking system to this day, with both federal (national) and state-chartered banks operating in parallel.
02 · Greenbacks & the Fed
Before 1862 the United States had no federal currency. State-chartered banks issued their own notes; over 7,000 different note designs circulated by the Civil War. The war forced the federal government to create a national currency for the first time, and the panics of the late 19th century forced it to create a central bank to backstop that currency. Two laws passed in 1862 and 1863, and the Federal Reserve Act of 1913, are the institutional foundation that the SEC, the FDIC, and every later regulator was built on top of.
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