Final answer:
Banks suspended convertibility to discourage gold withdrawals and maintain reserves, as excessive demands for specie could lead to the collapse of the banking system and a financial crisis. The correct option is C. To discourage gold withdrawals and maintain reserves.
Step-by-step explanation:
Banks suspended convertibility after Salmon P. Chase withdrew the proceeds of his loan in gold to discourage gold withdrawals and maintain reserves. The practice of suspending specie payments by banks, which means preventing the exchange of paper currency for gold or silver coin equivalents, was crucial in preventing a financial crisis.
During the post-1815 era, financial difficulties due to speculation and inflation prompted banks, including the Second Bank of the United States, to move away from inflationary policies and protect their species reserves.
This action, while self-protective for the banks, had significant repercussions for the wider economy, particularly after the Panic of 1819. The fear of excessive demand for species causing the collapse of the banking system was a key factor behind such measures. The correct option is C. To discourage gold withdrawals and maintain reserves.