Abraham Lincoln signs the National Banking Act into law

Background. Prior to the National Banking Act, the U.S. relied on state-chartered banks. The Legal Tender Act of 1862 had already introduced national notes, known as greenbacks, to facilitate paper money circulation. However, the banking system remained fragmented, with state banks dominating the landscape. The new act aimed to stabilize currency by establishing federally chartered banks, subject to federal rather than state regulation.

Legislative Process. The National Bank Act, originally known as the National Currency Act, was passed by the Senate in February 1863. It was the first attempt to establish a federal banking system since the failures of the First and Second Banks of the United States. The act created the United States National Banking System and established the Office of the Comptroller of the Currency to oversee national banks.

Impact on Banking. The act levied high taxes on state banks to discourage competition, leading to a decline in state banking. By 1865, most state banks had either received national charters or collapsed. The number of state banks dwindled significantly from 1,466 in 1863 to 247 in 1868, marking a shift toward federally-issued bank charters.