But instead of effectively regulating the currency and loans issued by local banks, the Bank of the United States participated in a speculative fever that swept the country after the end of the War of 1812. The resumption of trade with Europe created a huge overseas market for American cotton and grain. Coupled with the rapid expansion of settlement into the West, this stimulated demand for loans to purchase land, which local banks and branches of the Bank of the United States were only too happy to meet by printing more money. The land boom was especially acute in the South, where the Cotton Kingdom was expanding.

Early in 1819, as European demand for American farm products returned to normal levels, the economic bubble burst. The demand for land plummeted, and speculators lost millions as the price of western land fell. At this time, loans tended to be of short duration and banks could demand repayment at any time. The Bank of the United States, followed by state banks, began asking for payments from those to whom it had loaned money. Farmers and businessmen who could not repay declared bankruptcy, and unemployment rose in eastern cities.

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