In the 1820s, the federally chartered Second Bank of the United States (the First Bank had been established in 1791 and was allowed to expire in 1811) was clearly the largest and most important financial institution in the country. As the bank in which Federal revenues were placed and on which Federal drafts were drawn, it functioned as the Federal government's fiscal agent. Its bank notes effectively passed as a national, although legally unofficial, currency; when the Philadelphia publishing house of Carey and Lea needed to pay the Merriam printers of central Massachusetts, "Bank of the U.S." notes were the preferred medium.

Because of its size and its Federal role the Bank also functioned as a clearing house for the notes of many other banks, accepting those notes from its customers and returning them to the originating banks for redemption in specie. It thus operated as a regulatory force, keeping the note issues of Middle Atlantic, Southern and Western banks from rising too far beyond their specie reserves. In New England the Bank's policing role was not in evidence. New England's banks, the most sophisticated in the United States, were stabilized under their own Suffolk System, centered in the major commercial banks of Boston.

The Jacksonian Democrats came to power already hostile to the Bank of the U.S. For many of them it was the preeminent symbol of the rapidly growing system of banking and paper money: banks and banknotes were signs of speculation, inflation, and the domination of the economy by the wealthy. Some state chartered bankers saw it as a powerful financial competitor given special privileges, and the Bank in its policing role inspired the hatred that many regulatory agencies evoke. In the person of its president, the aristocratic Nicholas Biddle, the Bank was also a symbol of arrogant power and upper-class disdain for ordinary men.

Jackson himself had a visceral dislike of banks and bankers in general, and a distrust of paper money. However, some important state banking interests and bankers were part of his electoral coalition, and his policies and policy statements were thus often inconsistent. But his enmity to the Bank of the United States and Biddle was clear from early in his presidency. Jackson was clearly determined to limit the Bank's operations greatly, and eventually to end them. Biddle responded by trying to have the Bank's Federal charter, scheduled to expire in 1836, renewed early. In 1832 Congress voted for renewal, 28-20 in the Senate and 107-86 in the House. New England's Senators and Congressmen were virtually unanimous in their support. But Jackson vetoed the bill and had it sustained.

The "Monster Bank" and Jackson's veto of the Bank recharter became one of the most important issues of the 1832 campaign. Jacksonians pressed their attack on the Bank as an assault on monopoly and privilege. The Whigs, who had just emerged as a unified opposition party, defended the Bank as part of the American System, on the grounds of rational economic policy. It was, they maintained, essential for the maintenance of sound banking, financial stability, and ultimately of continued prosperity. Not surprisingly, Biddle openly supported the Whig candidate Henry Clay in the 1832 campaign; this probably did not help Clay's chances.

After his victory in the 1832 election, Jackson was unwilling to wait for the expiration of the Bank's charter in 1836. He was determined to continue his assault on the Bank by removing all Federal deposits. Many of his own cabinet members thought it unwise, and he went through three Secretaries of the Treasury until he found one who would do his will. By the end of 1833, all Federal funds had been transferred to 23 different state-chartered banks, satirically called "pet banks" by Jackson's critics. Not too surprisingly, the principal stockholders and managers of these institutions had generally been aligned politically with the Democrats. Jackson thus created a far more decentralized system for managing Federal funds, in which the government worked through different fiscal agents in each state. But he did this without a legislative mandate. The Senate, under Clay's leadership, passed resolution of censure against Jackson for overstepping his authority; the House, with a Democratic majority, defended him. In 1836, Jackson's system was formally authorized by statute with the Deposit Act.

Anti-bank Democrats cheered on Jackson's campaign, while Whigs, especially members of the financial and manufacturing communities, looked on with horror at what they saw as the President's total ignorance of finance and economics and his ruthless insistence on having his own way. Later historians, like contemporary observers, have tended to see this episode from either Jacksonian or Whiggish perspectives. Some have seen the attack on the Bank as striking a genuine blow for economic opportunity, crusading against the arrogance of big money, and ending an unfair monopoly of Federal banking business. Other have argued that the anti-Bank campaign foolishly destroyed the closest thing that the American economy would have to a central bank until the 20th century. This was an agency, they maintain, that not only policed other banks but could have stabilized the economy in times of crisis by controlling the expansion of credit and insuring the liquidity of the system. In this view, a fully functioning Bank might have been able to prevent or soften the Panic of 1837 and the downturn of the early 40s.

But both views are exaggerated. From the vantage point of modern economic history, the Bank of the U.S. was neither a genuinely evil monopoly nor a truly crucial institution in the American economy. On the one hand, there is no evidence that it monopolized economic power, crushed competitor banks, or made extraordinary profits at the government's expense. On the other, it never truly functioned as a central bank, increasing or decreasing the total volume of credit and acting as lender of last resort to its correspondent banks. Careful historical investigation suggests that such operations would have been a virtual impossibility, given the early 19th century's economic institutions and the way that bankers and policymakers of the period understood the economy.

Opinion at the time gave the Bank enormous economic importance, for good or for ill. But in actuality the Bank War had relatively little to do with expanding economic opportunity or with triggering the Panic of 1837 and subsequent economic downturn. The Bank was, however, a political symbol of enormous potency. Feelings, beliefs, and arguments about the Bank registered a very important split in attitudes about the pace and nature of change in the economy and society of the United States. To Jacksonians, trends toward increasing size and complexity in the economy threatened the ending of opportunity for ordinary men and the decline of simple republican virtue. They distrusted government involvement in the economy and feared an increasing concentration of economic power. To Whigs, new and more powerful economic institutions were vital engines of progress. For them, state and national government had a positive role to play in fostering the development of the banking system as well as in transportation and the protection of industry. They dismissed concerns about the concentration of power, fearing instead that Jacksonian scruples would make government insufficiently energetic to promote the public good.