The National Bank Act refers to three different congressionally passed acts which set up a regime of national banks for the disparate state banks across the United States. These three Federal Banking Acts enabled the U.S. National Banking System to arise. The idea was to foster the creation of a nationwide currency which would be backed up by U.S. Treasury securities held by banks.
The Office of the Comptroller of the Currency under the umbrella of the U.S. Department of the Treasury wanted to be the sole issuer of American currency. To this effect, Treasury authorized the Comptroller of the Currency to start examining and regulating the nationally chartered U.S. banks. These series of acts were responsible for determining the system of national banks in place today and supporting a cohesive banking policy for the United States as a whole.
The first such effort to create a central bank since the First and Second Banks of the United States had failed began with the National Bank Act of 1863. This became the model which was used in the Federal Reserve Act of 1913 eventually. This first act permitted national banks to be created, gave the Federal government permission to sell securities and war bands, and established a plan for creating a unified national currency backed up by government securities.
The Federal government itself directly chartered these subsequent national banks which became subjected to tighter regulation than other banks were at the time. The national banks had to maintain larger capital requirements and could not loan out in excess of 10 percent of their total deposits. The government discovered they could discourage the competition by levying a burdensome tax on the state banks. It only took until 1865 for the majority of the state banks to apply for national charters or to fail altogether.
In 1864, the Federal government waded into the realm of active supervision of all commercial banks. They did this using the National Bank Act of 1864, which was itself based on a law from New York State. This important act created the Office of the Comptroller of the Currency. This office carried the responsibility for chartering, supervising, and examining every national bank.
A year later Congress added still more to this new legislation in the form of the Banking Act of 1865. This July 13, 1866 passed legislation expanded the law to more than simply mandating a 10 percent tax on all of their own state bank proprietary notes. It extended the tax from state banks, national banking associations, and state banking associations so that individuals who utilized such proprietary state bank notes would also be subjected to an additional 10 percent tax.
The act became challenged and subsequently strengthened as a result of the court case known as Veazie Bank versus Fenno, supra. Thanks to the Chief Justices of the Supreme Court electing to rule with Congress on the matter, all final resistance offered by the state banks to the National Bank Acts of 1865-1866 collapsed.
The 10 percent taxed proved to be so onerous that the majority of state banks chose to change their charters for national ones in order to sidestep the heavy handed tax. This led to the decline for a few years of state banks. In the 1870’s and 1880’s, state banks saw a resurgence once again as state bank created checks allowed them to get around the failing profitability and importance of their own proprietary bank notes.