Nicholas Biddle Deliberately Contracts Credit to Create "Biddle's Panic" and Force Bank Recharter

Following Andrew Jackson’s September 1833 removal of federal deposits from the Second Bank of the United States, Bank president Nicholas Biddle responds by deliberately contracting credit nationwide to create economic distress and force Jackson to reverse his policy. Biddle raises interest rates, calls in loans, and restricts new credit—actions designed not to protect the Bank’s financial position but to “inflict harm on the community in order to convince Americans that a national bank was indispensable to a thriving, well-regulated economy.” The deliberately engineered economic slump, known as “Biddle’s Panic,” lasts from fall 1833 to summer 1834, causing business closures, unemployment, and financial hardship that Biddle cynically uses as political leverage. The episode demonstrates how financial institutions can weaponize their market power to hold the economy hostage for political objectives, prioritizing institutional preservation over public welfare.

Biddle’s strategy reflects a calculated decision to use the Bank’s economic power as a political weapon. Faced with the loss of federal deposits transferred to state banks, Biddle chooses not to attract private deposits or raise capital to offset the government funds’ removal. Instead, he deliberately minimizes the Bank’s risks and accumulates reserves by raising interest rates and demanding immediate loan repayment from borrowers. Individuals and financial institutions relying on the Second Bank for credit—especially state banks and merchants—must tighten their own credit in response. Manufacturers and farmers dependent on those institutions must immediately pay debts or scale back production, creating cascading economic contraction. Biddle explicitly believes this credit restriction will “create a backlash against Jackson and force the president to relent and redeposit government funds in the Bank, perhaps even renewing the charter.”

The contraction’s immediate effects validate Biddle’s expectation of creating economic pain, but the political calculation proves catastrophically wrong. As credit tightens nationwide, businesses close and workers lose employment. Business leaders, initially believing deflation is the inevitable consequence of deposit removal, flood Congress with petitions favoring Bank recharter. Senator Henry Clay pushes a resolution through the Senate in 1834 censuring Jackson for removing deposits, marking the only presidential censure in American history. However, Biddle’s strategy generates fierce criticism not only from Jacksonians but also from some Bank supporters who recognize the moral bankruptcy of deliberately creating recession for political advantage. By fall 1834, Biddle becomes so reviled for the nationwide credit curtailment that Philadelphia mobs hunt him, forcing him to bar his house doors and post armed guards for protection.

Biddle’s manufactured panic ultimately strengthens Jackson’s position by confirming warnings about the Bank’s “irresponsible power” serving institutional interests over national needs. Rather than demonstrating the Bank’s indispensability, the deliberate credit contraction reveals how concentrated financial power can be abused for political ends. In April 1834, the House of Representatives votes against rechartering the Bank and confirms that federal deposits should remain in state banks. The Second Bank’s Board of Directors votes unanimously in July 1834 to end all credit curtailments, recognizing the strategy’s failure. When the Bank’s charter expires in 1836, Biddle accepts Pennsylvania’s offer to convert it into a state-chartered bank, but the institution is “dogged by mismanagement and allegations of fraud,” ultimately collapsing in 1841.

Biddle’s deliberate economic sabotage demonstrates kakistocracy through the weaponization of financial institutions against public welfare. A bank president charged with managing the nation’s monetary stability instead deliberately creates recession, unemployment, and business failure to achieve political objectives—preserving his institution’s charter and his own power. The episode reveals how financial elites can hold the economy hostage, using their control over credit as a cudgel to force government policy changes regardless of human cost. Biddle’s willingness to “inflict harm on the community” for institutional advantage exposes the moral hazard when concentrated economic power lacks accountability mechanisms to prevent its abuse for political ends. The parallel to Jackson’s equally reckless deposit removal—both men prioritizing personal and institutional interests over sound economic policy—illustrates how the Bank War pitted one form of irresponsible power against another, with the public suffering the consequences of elites’ political battles. The absence of stable central banking regulation following the Second Bank’s demise contributes directly to the Panic of 1837, demonstrating how institutional destruction and financial manipulation, pursued simultaneously by opposing political factions, can combine to devastate economic stability.