The use of pet banks arose after the dismantling of which financial institution?

• A. The First Bank of the United States
• B. The Second Bank of the United States
• C. The Federal Reserve
• D. The National Bank

Answer: (B)

Pet banks appeared after the Second Bank of the United States was dismantled. When Andrew Jackson refused to renew the Second Bank’s charter, he moved federal deposits out of the national institution and into various state-chartered banks that the administration favored. These state banks were nicknamed pet banks because they carried out federal financial functions at the state level, effectively shifting control from a centralized national bank to multiple state banks and encouraging broader lending and speculation. The First Bank existed earlier and the Federal Reserve had not yet been created, so they aren’t the institutions involved in this shift. The term National Bank isn’t the specific institution at issue here.