The National Bank Act was passed in 1864 to provide a uniform currency

The National Bank Act was passed in 1864 to provide a uniform currency, to eliminate the overissuance of bank notes, and to create a market for government bonds. Up to this point, the United States had some 1,500 state banks issuing their own notes, which circulated as money – not government money, but bank money. At the time of the Civil War, there were about 7,000 different types of legitimate bank notes in circulation, to say nothing of several thousand kinds of counterfeit notes. Thus, conditions were confusing, and businessmen – among others – demanded a uniform currency. Also, during the Civil War, the Union was having trouble selling its bonds, at least until Jay Cooke took them off its hands. Thus, in answer to its problems and those of businessmen, the government enacted the National Banking Act.

This Act permitted five or more persons to charter a national bank, the charter being issued by the federal government. The bank’s capitalization depended upon the size of the town in which the bank was located, with the capitalization level going higher for larger cities. For example, banks in towns of less than 6,000 people had to have a minimum capitalization of $50,000; banks in cities of 50,000 people or more had to have a minimum capitalization of $200,000.

Upon passage of the Act, it was felt that there would be a rush of state banks to take out national charters. At first, however, most state banks kept their state charters. A fair number of them had traditional, respected names, and they had no wish to exchange them for names like the First National Bank of Chicago. Other state banks, of course, stood to gain in prestige and customer confidence by making a name change, and so they switched over. The federal government, in any way, was determined to do away with the heterogeneous note issues of state banks and, to do so, in 1865 placed a prohibitive tax of 10% per year on state bank notes. The tax was effective. Not only were state bank notes made unprofitable and driven out of circulation, but a majority of state banks immediately shifted over to federal jurisdiction. Those banks that retained state charters were, for the most part, banks in big cities which had been rapidly replacing their notes with check transactions, anyway. So checks, based on bank deposits, displaced state bank notes as the most convenient form of money in state banks, and the use of checks did much to save the stronger state banks after 1865.

Q2: Which of the following can be logically deduced from the passage?

A Prior to 1864, some state banks issued more than one type of bank note.
B The National Bank Act decreased the number of counterfeit bank notes in circulation.
C Had Jay Cooke not purchased Union Civil War bonds, the Union would have been unable to sell them.
D Up until the National Bank Act, counterfeiting bank notes was a profitable enterprise.
E The majority of businessmen were pleased by the passage of the National Bank Act.