Bank of Indiana - Aftermath

Aftermath

The closure of the bank did not have any significant impact on the regional economy. The state bank notes were exchanged for federal bank notes or hard money, and the surplus of funds was paid out to the bank shareholders. In 1851 General John Coburn, a delegate at the constitutional convention, proposed that any profit the state made from the bank be applied to the state's common school system. At the time most delegate believed the bank would end with a debt and thought the suggestion was fanciful, but the clause was added to constitution. The state's share of the profit, which was more than $3.5 million dollars, was put into an education fund which helped the state continue to maintain the first state funded school system in the nation.

Many of the bank's notes were still not redeemed when the bank closed. To remedy this problem, and to maintain their reputation, the bank made arrangements with the national bank to deposit an amount equal to the outstanding notes that could be redeemed at the national bank out of that account, even if the Bank of Indiana ceased to operate. The bank is one of the few in history up to that time that was still solvent when it closed and actually paid out a profit to its investors.

The state passed legislation late in 1859 to permit the bank to incorporate privately. By then its stock had mostly been paid out, but it still retained its branch buildings and infrastructure which was reincorporated as the Second Bank of Indiana, a private institution with McCulloch continuing as president. James Lanier became so wealthy from his investments that when the state verged on bankruptcy during the American Civil War that he was able to privately bankroll the state and pay maintenance on their debt. He would use his wealth to become the largest shareholder in the Second Bank of Indiana, which during the Civil War financed the cost of calling up and equipping the state's regiments. The second bank continued until 1865 when, in an attempt to reestablish the primacy of the national bank, a 10% tax was created on bank notes that crippled the bank's profitably, forcing it to close.