national banking system

The National Banking System

One of the potential sources for financing the American Civil War was note-issuing private banks. These banks provided a large part of the circulating currency in the country. If the federal government could find a way to tap this resource, funding the war would be easier.

The result was the National Banking Act, passed on February 25, 1863. The act was primarily intended to raise money for the war effort but was also a long-overdue attempt to overhaul the chaotic banking system. Under its provisions, private banks were encouraged to apply for federal charters and become “National Banks.” They could then issue “national bank notes” which were backed by Federal bonds purchased by the banks. The banks could issue notes for up to 90 percent of the value of the government bonds they held, and because the notes were backed by government bonds, the notes would be more stable than their own private issues. Each bank charter would run for a renewable period of 20 years.

There were four distinctive designs for the fronts of National notes corresponding to three charter periods from 1863 through 1923 and the change to small-size notes in 1929. Variations of the back designs, the color of the seal and the format for the bank names were also introduced. National Bank notes were discontinued in 1935 in the wake of the banking crisis of 1933.

Did You Know?

Our present currency measures 2.61 inches wide by 6.14 inches long, and the thickness is 0.0043 inches. Larger sized notes in circulation before 1929 measured 3.125 inches by 7.4218 inches.


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