Pet banks

Pet banks is a pejorative term for state banks selected by the U.S. Department of Treasury to receive surplus government funds in 1833. Pet banks are sometimes mistaken with wildcat banks; however, the two are distinct types of institutions that arose during the same period of time, although some pet banks were known to engage in the practices of wildcat banking.^[1] They were chosen among the big U.S. bank when President Andrew Jackson vetoed the recharter for the Second Bank of the United States, proposed by Daniel Webster and Henry Clay four years before the recharter was due. Clay intended to use the rechartering of the bank as a topic in the upcoming election of 1832. The charter for the Second Bank of the United States, which was headed by Nicholas Biddle, was for a period of twenty five years beginning January 1816, but Jackson's distrust of the national banking system (which he claimed to be unconstitutional) led to Biddle's proposal to recharter early, and the beginning of the Bank War. Jackson cited four reasons for vetoing the recharter, each degrading the Second Bank of the United States in claims of it holding an exorbitant amount of power.^[2]

The term implied that the state banks were controlled by Jackson. By 1833 there were 23 "pet banks" or state banks with US Treasury funds.^{[citation needed]} The term gained currency because most of the banks were chosen not because of monetary fitness but on the basis of the spoils system, which rewarded political allies of Andrew Jackson.^{[citation needed]}

Most pet banks eventually lost money and didn't seceed.^{[citation needed]} The pet banks and smaller "wildcat" banks flooded the country with paper currency. Because this money became so unreliable, Jackson issued the Specie Circular, which required all public lands to be purchased with gold and/or silver. This contributed to the Panic of 1837 where there was a major dip in the economy due to the increased debt created by this banking system.^[3]

References