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 Abraham Lincoln. 16th president of the United States, 1861 - 1865 

Abraham Lincoln. 16th president of 
the United States, 1861 - 1865

 photo of Salmon P. Chase, Secretary of the Treasury, 1861 - 1864 

Salmon P. Chase. Secretary of the 
Treasury, 1861 - 1864

 photo of Hugh McCulloch, Comptroller of the Currency, 1863 - 1865 

Hugh McCulloch, Comptroller of the 
Currency, 1863 - 1865

Created as a bureau of the U.S. Department of the Treasury by the National Currency Act of February 25, 1863, the Office of the Comptroller of the Currency (OCC) was charged with responsibility for organizing and administering a system of nationally chartered banks and a uniform national currency. In June 1864, the legislation underwent substantial amendment and became known as the National Bank Act. Modified and supplemented over the years, the National Bank Act continues to provide the basic governing framework for the national banking system today.

The Comptroller of the Currency is a presidential appointee subject to Senate confirmation. The 1863 legislation contained a unique provision requiring the U.S. Senate’s consent to the Comptroller’s removal, a measure intended to protect the Comptroller and the OCC staff from political pressure and interference. Constitutional concerns led lawmakers to drop this requirement, but the confidentiality of national bank supervision and the OCC’s operational independence are still protected by statute and practice. For the same reasons, the OCC has always financed its operations through assessments and fees paid by the banks it supervises rather than from taxpayer funds appropriated by Congress.

The National Banking System

Through the National Bank Act, Congress sought to achieve both short- and long-term goals. One crucial objective was to generate cash desperately needed to finance and fight the Civil War. After prospective national bank organizers submitted a business plan and had it approved by the OCC, they were required to purchase interest-bearing U.S. government bonds in an amount equal to one-third of their paid-in capital. Millions of much-needed dollars flowed into the Treasury in this manner.

But the national banking system was also designed to achieve longer term economic goals. Under the new system, the purchased bonds were to be deposited with the Treasury, where they were held as security for a new kind of paper money: national currency. Bearing the name of the issuing national bank and the signatures of its officers, these notes were otherwise identical in design, size, and coloration. Anyone holding a national bank note could present it for redemption in, gold or silver coin, at the issuing bank or at reserve banks around the country. If, for whatever reason, the issuing bank was unable to meet the demand for cash redemption, the system was set up so that the government could sell the bank’s bonds and pay off the noteholders directly.

Once accepting and holding national currency became essentially risk-free, it gained in public confidence and circulated throughout the nation. This represented a marked improvement over the pre-Civil War money supply, which had involved thousands of different varieties of paper money issued by local banks, rampant counterfeiting, chronic uncertainty about the value of paper money, and, as a result, difficulty conducting private business. Through the more orderly national money and banking system, Congress sought to promote economic growth and prosperity and a stronger sense of American nationalism.

Shortly after the turn of the 20th century, the country adopted a new currency system based on Federal Reserve notes, which were obligations of the government rather than individual banks. With that change, national currency faded in importance, and the OCC's mission focused increasingly on the safety and soundness of national banks.

The Comptroller of the Currency

The first Comptroller of the Currency was Hugh McCulloch, formerly the president of the Bank of Indiana. McCulloch came to Washington to lobby against the National Currency Act, which was viewed as a threat to state banks like his own. McCulloch was not the first choice of President Lincoln and Treasury Secretary Salmon P. Chase. But it was an inspired choice, for with McCulloch on board, the administration removed a political obstacle to the achievement of its legislative goals and gained McCulloch’s formidable banking and administrative skills—skills that were essential in creating a new system from scratch. McCulloch headed the OCC for less than two years before going on to serve two terms as Secretary of the Treasury.

The ranks of Comptrollers of the Currency include some of the important financial statesmen of their day. John Jay Knox, who served more than two terms as Comptroller during the 1870s and '80s, produced several landmark histories of American banking and finance. Charles G. Dawes (Comptroller between 1898 and 1901) later served as Vice President of the United States and won a Nobel Peace Prize for his work on post-World War I reparations. James J. Saxon (1961 to 1966) was instrumental in modernization the U.S. banking system. Read more about former Comptrollers.

The Dual Banking System

The founders of the national banking system envisioned it becoming the country’s only banking system, a system operating under a single set of rules and uniform oversight provided by the OCC. To that end, the National Bank Act encouraged existing banks to join the new system and penalized banks that chose to continue operating under state authority. But many bankers preferred the more relaxed rules and oversight of the states and state authorities were loath to relinquish control over these institutions. A compromise thereby evolved under which states continued to supervise the banks they had chartered, but with additional oversight and support contributed by the Federal Reserve and the Federal Deposit Insurance Corporation. It is said that the United States has a “dual” banking system in which regulatory responsibility is shared between the federal government and the states.

The Role of the Bank Examiner

The National Bank Act required national banks to submit regular reports of condition for the OCC’s use in verifying their safety and soundness. The Act also required the OCC to conduct an on-site examination of every national bank and to prepare “a full and detailed report” on its condition. To satisfy this requirement, the early OCC essentially became an organization of bank examiners with a small headquarters staff to coordinate their activities and address matters of policy. Examiners, especially in more sparsely populated states, spent much of their time traveling from one bank to the next, often under trying circumstances. Although the largest, most complex national banks today are overseen by full-time cadres of OCC examiners, the majority of national banks are smaller, community-based institutions, and their direct supervision is carried out by examiners who, like their predecessors, are responsible for the direct supervision of a portfolio of national banks in a particular part of the country.

Supervising Federal Savings Associations

On July 21, 2011, the responsibility for supervising federal savings associations transferred from the Office of Thrift Supervision to the Office of the Comptroller of the Currency as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.  Federal savings associations, or federal thrifts, have roots dating back to 1831, when townspeople in Frankford, Pennsylvania, agreed to pool their money to purchase their homes.  The result was the Oxford Provident Building Association.  Thrifts continue to serve the shelter and deposit needs of millions of Americans today.

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