“Pet banks” does NOT refer to pet food banks which are gaining in popularity in the UK due to the cost-of-living crisis! Both pet banks and wildcat banking now have an historical interest and no more it seems to me. As I understand it, both pet banks and wildcat banking emerged out of an era when there was a lack of proper regulation of the banks in the United States and I’m talking about your standard main street bank.
There is an overlap in pet banks and wildcat banking. This is because some pet banks engaged in wildcat banking.
“Wildcat banking” refers to the issuance of paper currency in the US by state-chartered banks that were poorly capitalised. They were built on shaky foundations. They existed during the Free Banking Era in the USA from 1836 to 1865. At this time the country had no banking system and states granted banking charters in a much less controlled way than today and the regulations were applied far less effectively if at all apparently.
This led to scams and bank closures which left people with worthless currency. Modern banks rely on deposit accounts whereas the core activity of wildcat banks was the monetisation of assets and financial obligations into bearer notes which were used as a medium of exchange. You could redeem them into gold or silver coins but normally they were redeemed into government bonds or real estate notes.
The term “pet banks” referred to state bank selected by the US Department of Treasury to receive surplus Treasury funds in 1833. The history is a little bit technical and will only interest anybody who is interested in the American banking system and politics and I don’t think readers of this short article will be interested in those topics😊 as they are cat people. I will be frank and tell you that I am briefly writing about these topics to try and enhance advertising revenue from this site and of course they have cat connotations.
Essentially, as I understand it, pet banks arose during the era of President Andrew Jackson who vetoed the recharter for the Second Bank of the United States. The “pet banks” were chosen because their owners were the “pets” i.e. friends and political allies of Andrew Jackson with positions in government. By 1833 there were 23 pet banks with US Treasury funds.
This led to a big increase in land speculation because the managers of these banks were unqualified and US citizens with savings chose to invest in land because it was more secure. They avoided the banks resulting in land speculation during this time. That’s my understanding of this era of US banking.
Nowadays with banks being so highly regulated and therefore reliable (if not greedy!) and institutions upon which depositors can depend (agree?), it is hard to imagine the wild West nature of US banks the middle of the 1800s, the Free Banking Era as it is called.
Nowadays, in the US, the banks are chartered which means that their banking services are governed by a state or national charter and they must abide by certain regulations. Chartered banks are financial institutions which are guided by national or state administered banking rules. The idea of chartered banks arose in around 1863 on the instigation of President Abraham Lincoln and his Treasury secretary Salmon P Chase. They enacted the National Currency Act. This established the Office of the Comptroller of the Currency. The National Currency Act became known as the National Bank Act. This provides the national banking system.
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