At SmartCapitalMind, we're committed to delivering accurate, trustworthy information. Our expert-authored content is rigorously fact-checked and sourced from credible authorities. Discover how we uphold the highest standards in providing you with reliable knowledge.
“Pet banks” is a term most commonly used in reference to the economic operations of the United States in the 19th century. This term may also be used in any government where certain banks have a favorite status. In general, finance professionals don’t often refer to specific banks as pet banks in today’s financial world.
The original pet banks were also called wildcat banks. They resulted from a banking policy that involved a veto of the Second Bank of the United States by then president Andrew Jackson. Between 1816 and 1837, pet banks were given special status, and allowed to receive government surplus funds from the U.S. Department of the Treasury.
It’s important to note that the pet banks rarely succeeded, and that their end result was to flood the country with paper currency. The requirement of hard currency in the United States to purchase property resulted in an event that historians call the Panic of 1837, after which economic policy had to be adjusted. In the opinions of some financial experts, the crisis illuminated some of the general problems with favoring banking institutions, and with generating large amounts of “fiat money” not based on hard collateral.
Some of the ideas involved in the legacy of pet banks are interesting to today’s financial experts. Some critics of current economic policy might make a correlation to today’s main private bank in the U.S., the Federal Reserve. The idea of printing excessive paper currency also has a potential connection to the current operations of the Federal Reserve.
In addition to United States policy, critics of economic policies in any nation might use the term pet banks to talk about private institutions that receive unequal treatment by a government. For example, if a federal government blatantly hands over policy-making control to banking representatives, allows banks to use federal currency in improper ways, or makes backroom deals with banks, political dissidents can reveal this kind of activity in formal protest of state governments.
The idea of pet banks relates closely to the issues of running a government in a fair and transparent manner that represents the best interests of the entire country. A look at this kind of banking also provides suggestions on how to balance economic policy to prevent financial crisis. Both of these issues are at the forefront of many government critiques all around the world, as nations deal with significant economic crises and how they affect the respective general populations.