Bank of Indiana - Background

Background

The Indiana Territorial legislature had charted two banks in 1813. With no other established banks operating in Indiana, they were the first attempt by the government to bring banking and a standard currency to the young territory. The banks were granted twenty-year charters, but they quickly fell into financial difficulties following the Panic of 1819. By 1823 both banks had folded. Without any banks in the state, the government and the citizens came to rely on the use of notes issued from the Second Bank of the United States.

In 1832 President Andrew Jackson vetoed a bill to extend the charter of the Second Bank of the United States and removed federal deposits, forcing it to cease most operations by 1833 due to a lack of reserve cash. The result caused a shortage of hard money (coin) at a critical time in Indiana's development. The state had just begun a large series of internal improvements and was funding the projects with millions of dollars of loans. The sudden hard money shortage required the use of paper money to pay maintenance on the state's debt, but with the closure of the national bank there was no means by which the state could easily obtain paper money.

The looming crisis became a major political issue in the state's 1833 election campaign. That year a Whig majority was elected to the Indiana General Assembly. They responded to the problem by passing legislation to establish the Bank of Indiana with the intention that the bank would be able to issue paper money and help to finance the state's debt. The bill was drafted by Samuel Hannah and was enacted into law on January 28, 1834.