Bank of Indiana

The banks were granted twenty-year charters, but they quickly fell into financial difficulties following the Panic of 1819.

[2] 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 board of directors included James Lanier, who would personally benefit from the bank the greatest.

The directors choose to establish branches in Indianapolis, Lawrenceburg, Richmond, Madison, New Albany, Vincennes, Bedford, Terre Haute, and Lafayette.

[5] Indiana was still a virtual wilderness inhabited by roving bands of American Indians and not at all appealing to the professional bankers of the east.

Many who had purchased the stock on credit found that the dividends paid out exceeded the interest they were charged, and by the time the bank's charter expired almost all of the public stock had been paid for with investors receiving as much a 650% return on investment when the bank closed.

In response to the bankruptcy crisis, the state sent James Lanier to London to negotiate with the bondholders.

The negotiations led the state to liquidate all of its public works, except the Wabash and Erie Canal, turning them over to the creditors in exchange for the bonds being reduced 50% in value.

The state received at least a 500% return on investment, but the profit was less than half the amount lost on the internal improvements, most of which were never completed or quickly fell into disrepair and became unusable.

Lanier personally delivered $80,000 in hard money to Levi Woodbury, the Secretary of the Treasury, knowing their situation.

[4] The bank was able to maintain its large reserves of hard money because many of the farmers in the state made their initial deposits in coin.

The "Free Bankers" considered the state bank a monopoly, which it was, and thought it was not liberal enough in offering loans.

[14] The bank lobbied to have its charter extended, but the Democrats and Free Bankers who controlled the General Assembly refused.

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.

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.

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.