Pet banks is a derogatory term for state banks selected by the U.S. Department of Treasury to receive surplus Treasury funds in 1833. Pet banks are sometimes confused with wildcat banks. Although the two are distinct types of institutions that arose concomitantly, some pet banks were known to also engage in practices of wildcat banking.
They were chosen among the big U.S. banks when President Andrew Jackson vetoed the recharter for the Second Bank of the United States, proposed by 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 years beginning in 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.
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. 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.
Most pet banks eventually lost money and didn’t succeed in their investments. 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 in which there was a major dip in the economy due to the increased debt created by this banking system.
- ^Knox, John Jay. “A history of banking in the United States.” B. Rhodes & Co, 1903. Print.
- ^The Enduring Vision, A History of the American People, Fifth Edition. Paul S. Boyer, Clifford E. Clark, Jr., <3 Joseph F. Kett, Neal Salisbury, Harvard Sitkoff, Nancy Woloch
- ^Wiegand, S., Lessons from the Great Depression For Dummies (Hoboken, NJ: Wiley Publishing, Inc., 2009), p. 27.
- ^Tindall, George Brown, and David Emory Shi. America a Narrative History. 7th ed. New York: Norton & Company, 2007. Print