American ambivalence toward banks and central bankers has never been shared by the U.S. Supreme Court, whose decisions in banking law have supported both a national bank and a national banking system, thus contributing to the growth of American industry and business.
During the early nineteenth century, Supreme Court decisions regarding banking were at the center of the first national debates over the powers of the federal government and its role in the expansion of American business. Federalists such as Alexander
Reflecting perhaps a suspicion of central bankers, however, the Constitution did not explicitly authorize the creation of such a bank. Thus, when Hamilton’s First
The first political parties took sides in the controversy over the proper economic role of the federal government. The Democratic-Republicans, led by Thomas
After a protracted struggle, the U.S. Bank was not rechartered in 1811. In 1816, however, Congress chartered the larger and more powerful Second
The state of Ohio, which also taxed the U.S. Bank, tried to evade the ruling of McCulloch v. Maryland by testing the legitimacy of its tax on the bank in the Ohio state courts. However, in
In McCulloch and Osborn, the Court established that no state could tax a federal entity and that no state court could preempt federal courts from adjudicating any issues that involved federal institutions. The eastern business interests, which saw a strong federal government as essential to their financial plans, rejoiced; President Andrew
With the demise of the Second Bank of the United States, the U.S. banking system became characterized by a proliferation of state banks operating under state laws. This situation provided little scope for the nation’s highest federal court. However, with the National Currency Act of 1863 and the National Bank Act of 1864, federal chartering of banks was reinstated and a role for the Supreme Court restored. This overlapping of state and federal chartering became known as a dual banking system. Under this system, the Supreme Court was often called on to adjudicate the competition between state- and federally chartered banks.
Despite these limitations, the Court found numerous bank powers that were authorized in federal law. These included the powers to certify checks (Merchants Bank v. State Bank, 1870); acquire stock (First National Bank v. National Exchange Bank, 1875); borrow money (Auten v. United States National Bank, 1899, and Wyman v. Wallace, 1906); collect judgments and pay taxes on behalf of depositors (Miller v. King, 1912, and Clement National Bank v. Vermont, 1913); sell mortgages (First National Bank v. City of Hartford, 1927); operate a safe deposit business (Colorado National Bank v. Bedford, 1940); and advertise the word “savings” (Franklin National Bank v. New York, 1954). As the Supreme Court recognized in National Bank v. Commonwealth (1869), banks were governed much more by state financial laws than by sporadic federal legislation. However much the stage was left to the states, though, the Supreme Court continued to insist that national oversight of banks was in the end a legitimate task of the federal government, holding in
The Tiffany v. National Bank of Missouri decision also established that federally chartered banks are allowed to charge the highest loan rates permitted under state law, even if state banks are restricted to lower rates. Likewise, in
After the passage of the Glass-Steagall Act in 1933, which President Franklin D. Roosevelt is shown signing, the Supreme Court dominated banking.
Although the Federal Reserve Act of 1913 reorganized the banking system, it was only with the New Deal’s Banking Act of 1933 that the Supreme Court re-emerged as a dominant force in banking law. The 1933 law, commonly known as the
Perhaps the most controversial banking law issue to face the Supreme Court was whether banks could engage in profitable businesses that were outside the scope of traditional banking, such as insurance underwriting, securities and mutual fund investing, international financing, and providing venture capital. In cases such as First National Bank of Logan v. Walker Bank and Trust Co. (1966), Investment Company Institute v. Camp (1971), and other cases decided during the 1960’s and 1970’s, the Supreme Court was reluctant to permit national banks to expand their geographical reach or to engage in such newly lucrative businesses as operating mutual investment funds. That reluctance would diminish as a result of both congressional legislation and changes in the Court’s own internal composition and direction.
During the 1980’s, President Ronald Reagan inaugurated a new era of federal deregulation of banking. Deposit interest rates were deregulated. Geographic and state barriers to bank growth were removed, permitting interstate banking. Banks were allowed to compete in numerous investment enterprises, such as underwriting and marketing stock and mortgage-backed securities, managing mutual funds, and selling whole-life and permanent life insurance. In cases such as Securities Industry Association v. Board of Governors of the Federal Reserve System (1984), Clarke v. Securities Industry Association (1987), NationsBank of North Carolina v. Variable Annuity Life Insurance Co. (1995), and Barnett Bank of Marion County v. Nelson (1996), the Court took the broadest view of banks’ ability to engage in a wide range of practices in the new economy.
The Reagan and post-Reagan era Supreme Court, with its traditional view of the centrality of banks in the American financial system, has been supportive of the entry of banks into the fields of insurance, marketing of securities and mutual funds, and venture capital. In addition, the Court has supported the efforts of banks to extend their operations in local branches and across state lines. However, partly in reaction to the savings and loan debacle of the 1980’s, the Court has also extended the legal liabilities that could be placed on banks, in cases such as Federal Deposit Insurance Corp. v. Meyer (1994) and O’Melveny and Myers v. Federal Deposit Insurance Corp. (1994). In
In the battles over the First and Second Banks of the United States in the beginning of the nineteenth century, the Supreme Court forcefully asserted the power of the federal government over the nation’s banking and financial systems. The decisions of the Marshall Court regarding these banks also helped establish for the Supreme Court powers more extensive than those originally envisioned by the Founders. Throughout the nineteenth century, the Court upheld the powers of the federal government over banking and sided with federally chartered banks over state-chartered banks at every opportunity. At the end of the twentieth century, the Court in numerous cases upheld and advanced federal legislation that firmly asserted congressional control over most aspects of the banking system. Supreme Court decisions were an important factor in enabling banks to participate fully in the financial boom of the 1980’s and 1990’s, as banks became central players in highly profitable areas of an increasingly securitized, monetized, and mobile global economy.
Horwitz, Morton. The Transformation of American Law, 1780-1860. New ed. Cambridge, Mass.: Harvard University Press, 2006. Explains American legal history in terms of class economic interest. Hughes, Jonathan, and Louis Cain. American Economic History. Reading, Mass.: Addison-Wesley, 1998. Readable textbook with chapters on banking and business law. Macey, Jonathan, Geoffrey Miller, and Richard Carnell. Banking Law and Regulation. Rev. 3d ed. Gaithersberg, N.Y.: Aspen Law and Business, 2001. Collection of Supreme Court and other court cases on banking law, with a helpful historical introduction. Newmyer, R. Kent. John Marshall and the Heroic Age of the Supreme Court. Baton Rouge: Louisiana State University Press, 2001. Working directly from Marshall’s papers, Newmyer emphasizes Marshall’s federalist convictions. Remini, Robert. Andrew Jackson and the Bank War: A Study in the Growth of Presidential Power. New York: W. W. Norton, 1967. Demonstrates how Jackson skillfully used the political and legal controversy over the U.S. Bank to shape the presidency. Schwartz, Bernard. A History of the Supreme Court. New York: Oxford University Press, 1995. Compact history of the Supreme Court emphasizing Marshall’s far-reaching jurisprudence.
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