These institutions, favored by President Andrew Jackson, were state banks chosen to receive surplus federal funds when he dismantled the Second Bank of the United States. The selection process was often influenced by political considerations, with banks whose officers and directors were friendly to Jackson’s administration receiving preferential treatment. As an example, the Bank of the Metropolis in Washington D.C. and the Girard Bank in Philadelphia were among those designated to hold these substantial government deposits.
The rise of these state-chartered entities had significant repercussions. By distributing federal monies, the administration aimed to weaken the national bank and decentralize financial power. This strategy contributed to an economic boom driven by readily available credit, facilitating land speculation and expansion. However, the loose lending practices and inadequate regulation of these institutions ultimately fueled inflation and contributed to the Panic of 1837, a severe economic depression that plagued the nation for several years.
