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Philadelphia merchants open the Bank of Pennsylvania on July 17, 1790, in order to provide funds for the Continental Army in the fight against Britain. Prior to this opening, the colonies had no established banking system, instead depending on each colonial government to issue money and coins. Colonists relied on credit from local merchants or merchants and banks in Britain.
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Secretary of the Treasury Alexander Hamilton asks Congress to set up a national bank for the new nation. The government deposits tax money in the Bank. The Bank, in turn, issues paper money to pay the government's bills and make loans to farmers and businesses. The new Bank thus encourages economic growth.
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Republicans realize that the nation needs a central bank to regulate the money supply, and they support a law to charter the second national bank. The second BUS restores order to the nation's money and helps American businesses grow.
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President Andrew Jackson, who sees the Bank as undemocratic, vetoes a bill to renew the charter four years early. As a result, the Bank becomes a major issue in the 1832 election, and the popular vote rejects the Bank's renewal. To further cripple the bank, Jackson demands that federal money be deposited in state banks rather than the BUS.
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Jay Cooke launches the first investment banking firm in the U.S. Borrowing three million dollars from the Pennsylvania government, he sets up Jay Cooke & Company, which helps finance Northern efforts during the Civil War. The company negotiates loans for the government and sells government bonds.
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The Act sets up a new system of federal banks, the first since the BUS closed in 1836. The Act also gives the government the power to raise or lower interest rates and control the money supply.
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In response to the Great Depression, President Franklin Delano Roosevelt launches his "New Deal" to attempt to fix the nation's economic problems. In his first major act, Roosevelt closes all of the nation's banks for four days beginning on March 6 1933, known as the Bank Holiday. When the banks re-open, he assures the public that they can return their money to the banks. This helps begin to restore balance to the economy.
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Roosevelt introduces further legislation with the Banking Act of June 16, 1933, also known as the Glass-Steagall Act, which separates commercial banking from investment banking. It also introduces federal deposit insurance and regulation of interest rates on deposits. The act is not repealed until 1999, when deregulation encourages banks to make bigger loans than they previously could.
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After the repeal of the Glass-Steagall Act, banks overextend their abilities to make loans and assume significant debt. The burst of the housing bubble directly leads to the Global Financial Crisis on August 9, 2007, which causes the worst financial crisis since the Great Depression. As the nation recovers, a series of reforms are put into place to increase banking regulation, which will hopefully prevent future crises.
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The Consumer Financial Protection Bureau finalizes a major overhaul of U.S. mortgage banking, affecting loan terms, origination, servicing and customer disclosures. The rules level the playing field between banks and non-depository mortgage lenders. Lenders that make “Qualified Mortgages” with specified characteristics are automatically considered to have satisfied the rule’s ability-to-repay requirements, as ABA advocates. The rules tighten mortgage lending in the months after they take effect.
