State Bank of Ohio
The State Bank of Ohio was founded in 1845, in response to Andrew Jackson's attack on the Second Bank of the United States and the Panic of 1837. In 1832, Jackson ordered the withdrawal of federal government funds, approximately ten million dollars, from the Bank of the United States. The president deposited these funds in state banks and privately-owned financial institutions known as “pet banks.” Ohio had nine of these banks. Nicholas Biddle, the director of the Bank of the United States, tried to keep the national bank operational by calling in loans, yet many businesses did not have the funds available to pay off their debts. As a result of Biddies actions, numerous businesses had to close their doors due to the lack of funds during 1833 and 1834.
After this brief economic downturn, the United States economy boomed. State banks began loaning money to industrialists and farmers. The banks also began printing exorbitant amounts of currency. This action led to high inflation. At the same time that banks were printing currency and loaning out large sums of money, foreign governments and businesses, hoping to benefit from the United States burgeoning economy, loaned large sums of money to American businessmen.
Due to the high inflation, United States and individual state currency quickly depreciated in value. In July 1836, Jackson issued the Specie Circular. Under this act, the government would only accept gold or silver in payment for federal land. Foreign investors also did not want to accept American currency as payment, and they began to call in their loans to American businessmen before the currency depreciated further. American citizens rushed the banks to withdraw the necessary funds to pay off their debts. Unfortunately, many banks had loaned out too much money and did not have sufficient reserves on hand to meet the demands of their customers. Approximately eight hundred banks closed their doors in 1837, stifling economic growth and bankrupting numerous businesses, including many of the banks.
In 1845, the Whig Party controlled Ohio's government. Mordecai Bartley currently served as governor, and Whig representatives dominated the state legislature. Whigs had traditionally favored the creation of banks. The Kelley Bank Bill of 1845 hoped to regulate banks operating within Ohio's borders. It also intended to encourage additional banks to open their doors within the state, providing Ohio residents with access to loans. Alfred Kelley, a Whig member of the Ohio legislature and a banker, introduced the bill.
The Kelley Bank Bill would still permit private banks to operate in Ohio, but a new State Bank of Ohio would oversee the activities of these other financial institutions. Under the Kelley Bill, the state would be divided into twelve districts. Each district would have at least one bank that belonged to the State Bank of Ohio and that oversaw the State Banks actions. In reality, the State Bank was no more than a commission made up of other banks in Ohio, and they were responsible to the Ohio legislature. The Kelley Bank Bill gave this commission, also known as the Board of Control, the power to regulate the amount of currency produced by the individual banks. It also required all banks to maintain thirty percent of the total funds deposited in the bank in reserve. The banks could invest the other seventy percent as they saw fit, it would primarily be through loans. As a result of the State Bank of Ohio and its regulatory ability, Ohio's banking system became much more stable.