Jackson Removes Federal Deposits to "Pet Banks" Selected Through Political Patronage, Not Financial Merit

President Andrew Jackson orders the removal of federal government deposits from the Second Bank of the United States and their redistribution to state-chartered banks derisively called “pet banks” because they are selected based on political loyalty rather than financial soundness. The deposit removal, executed in September 1833 after Jackson fires two Treasury Secretaries who refuse to carry out the order, represents a blatant use of executive power to reward political allies while destabilizing the national banking system. Jackson elevates Attorney General Roger Taney to acting Treasury Secretary specifically to implement the deposit removal, bypassing Senate confirmation and demonstrating how personal vendettas against institutions can override constitutional processes and professional expertise in financial management.

The selection of pet banks exposes the naked patronage at the heart of Jackson’s banking policy. By 1833, 23 state banks receive Treasury deposits not based on “monetary fitness but on the basis of the spoils system, which rewarded friends and political allies of Andrew Jackson with positions in government.” One prominent example is Baltimore’s Union Bank of Maryland, headed by Thomas Ellicott, a Quaker friend of Taney’s, whose subsequent misuse of government funds becomes a major source of embarrassment. The pet bank system demonstrates the hypocrisy in Jackson’s rhetoric against the Second Bank’s alleged corruption and insider dealing—he incessantly condemns such practices from the national bank while replicating them on a larger scale when politically expedient. The banks receiving deposits are selected for their political connections rather than their capacity to safely manage public funds or regulate currency, creating a distributed system of patronage that enriches Jackson supporters while removing the monetary stability the Second Bank provided.

The constitutional crisis surrounding deposit removal reveals the lengths Jackson will go to consolidate executive power. When Treasury Secretary Louis McLane refuses to remove deposits, Jackson transfers him to the State Department. When McLane’s replacement William J. Duane also refuses, citing the Treasury Secretary’s constitutional duty to report to Congress rather than blindly follow presidential orders, Jackson fires him in September 1833—the first cabinet secretary dismissed for refusing to execute presidential directives. Jackson then appoints Taney, who “gleefully” carries out the deposit removal despite never being confirmed by the Senate. Congress responds by censuring Jackson on March 28, 1834, declaring he “assumed upon himself authority and power not conferred by the Constitution and the law”—the only censure of a U.S. President in history. The Senate also rejects Taney’s nomination as Treasury Secretary in June 1834, the first cabinet nominee in the nation’s history to be rejected.

The deposit removal accelerates the Second Bank’s decline while unleashing the inflationary pressures that contribute to the Panic of 1837. With federal deposits drained away, the Bank loses its ability to restrict state bank currency issues and ceases functioning as a central bank. State banks holding federal deposits engage in excessive lending and currency printing without the regulatory oversight the Second Bank provided, creating the speculative bubble in land and commodities that Jackson’s later Specie Circular attempts to contain. Jackson rewards Taney’s loyalty by appointing him Chief Justice of the Supreme Court in 1836, where Taney later authors the Dred Scott decision. The pet banks episode demonstrates kakistocracy through the subordination of sound financial policy to personal loyalty and political revenge, using public resources to reward supporters while dismantling institutional checks on executive power and creating the conditions for economic crisis.