Pet banks

The term "pet banks" gained currency because most of the banks were chosen not because of monetary fitness but on the basis of the spoils system, which rewarded friends and political allies of Andrew Jackson with positions in government. After winning reelection in 1832 significantly due to his argument for the removal of the Second Bank of the United States, Jackson ordered the removal of the government's deposits in the Second Bank of the United States to these pet banks, which were essentially state-chartered banks that were loyal to the Jackson administration because of the spoils system. By 1833 there were 23 "pet banks" or state banks with US Treasury funds. The institution of these pet banks led to a huge increase in land speculation, mainly due to the managers' inability to effectively handle and control the nation's money. The nation's banking capital, loans, and note circulation all increased by an incredible amount during the period of the pet banks because of the unqualified management, leading to an increase in land speculation during this period.

Most pet banks eventually lost money and didn't succeed in their investments, partially because the 23 pet banks were not sufficient to hold the entirety of the public's money. 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. Eventually, the way that all of the government's funds were spread throughout the country because of pet banks made it so that it was near impossible to mobilize the remaining money in the specie reserves, which were the reserves of gold and silver created by the Specie Circular. These factors ultimately contributed to the major dip in the economy that was dubbed the Panic of 1837.