The Panic of 1819 and the Second Bank of the United States

Abstract

In 1822, the directors of the Second Bank of the United States contemplated the election of a new president of the bank. The policies of the new president would either continue those of the retiring incumbent, which had contracted the nation's money supply, restoring the bank's stability after a panic but also stoking outrage across the United States, or deviate from them to support national economic development by providing more credit and a sound paper currency usable throughout the country. The case frames the contest for control of the Second Bank that would ultimately determine the bank's role in the American economy. The case presents opportunities for financial analysis of the health and performance of the Second Bank, for assessment of the governance and management of the bank, and for consideration of the timing of a change in strategy regarding the bank. Excerpt UVA-F-1815 Rev. May 26, 2020 The Panic of 1819 and the Second Bank of the United States In the summer of 1822, the board of directors of the Second Bank of the United States began to contemplate the election of a new president of the bank. The retiring incumbent, Langdon Cheves, had served as president since 1819 and favored policies of austerity oriented toward stabilizing the bank after an episode of fraud and mismanagement. Cheves's policies contracted the nation's money supply, which stoked outrage across the United States and prompted personal vilification of Cheves. Although these policies restored the bank to a sound footing, contemporaries believed that they worsened the economic depression that followed the Panic of 1819. Cheves favored the appointment of William Meredith as his successor he believed that Meredith would continue the policies that had brought the bank to the threshold of recovery. Roswell Colt, a dissident investor who was personally acquainted with President James Monroe and Treasury Secretary William H. Crawford, instead nominated Nicholas Biddle. Biddle had served as a member of the bank's board of directors from 1819 to 1821 and had supported Cheves's election as president in 1819. However, in 1821, he broke with Cheves over the bank's strategy. Biddle asserted that the policy of austerity had gone too far and that the Second Bank should support national economic development by providing more credit and a sound paper currency usable throughout the country. (See Exhibit 1 for brief profiles.) The bank's board consisted of 25 directors, many of whom were loyal to Cheves but sensitive to the popular outrage generated by the bank's policies. Meredith and Biddle represented stark strategic alternatives. Which candidate should the board select? . . .