Founding of the OCC & the National Banking System

On February 25, 1863, President Lincoln signed The National Currency Act into law. The Act established the Office of the Comptroller of the Currency (OCC), 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.

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.