Philadelphia's First Bank cited in Supreme Court ruling limiting Trump's power

Jul. 1—Listen to article —0:00 min

The First Bank of the United States shut in 1811, but the U.S. Supreme Court just ratified the enduring relevance of the Philadelphia-based central bank, whose marble-faced home on Third Street reopens Wednesday as a museum.

First Bank's independence from presidential authority was cited as precedent on the first page of Tuesday's 5-4 Supreme Court decision that backed the independence of the Federal Reserve.

The long-departed central bank also remains a center of controversy: A dissenting opinion challenged the First Bank's actual role, as did hostile Democrats back in its day.

The First Bank — along with the partly government-owned original Bank of the United States and the Second Bank of the United States — was cited by Chief Justice John Roberts and a bare majority in the decision that blocked President Donald Trump from firing Fed governor Lisa Cook.

"The United States has a long tradition of independent central banking," Roberts wrote, noting that Philadelphia-based central banking enjoyed "independence from the federal government," even though its job was maintaining a sound U.S. dollar.

After President Thomas Jefferson ended the First Bank and President Andrew Jackson refused to recharter the Second Bank, 80 years of "ruinous financial panics" convinced Congress to protect "public and private interests at times when they were imperiled" by setting up today's Federal Reserve, Roberts wrote for the majority.

The resulting system of independent Federal Reserve Banks in Philadelphia and 11 other cities shares control of the system with the presidentially appointed Federal Reserve Board of Governors. The governors are appointed to 14-year terms, stretching across three or four presidential terms. They can be fired only "for cause."

Calling the court's ruling an early Independence Day for the Fed, Michael Reynolds, vice president at Glenmede, a $50 billion investment firm based in Center City, said the court majority "are carving out a special place for the Fed," and it's not by accident.

The Fed "is a distinct case," and its "unique historical lineage" tracing back to the First and Second Banks of the United States in Philadelphia provided legal justification to the court for preserving its independence, he said in an interview.

The Cook decision contrasts with the court's 6-3 Slaughter opinion, posted the same day, which allows Trump freer rein to fire staff at the Federal Trade Commission and other "independent" federal agencies.

First Bank's independence echoes in Fed

Trump tried to fire Cook, a Fed governor appointed by President Joe Biden in 2024, alleging falsehoods in her mortgage application. Lower courts said Trump lacked the power to fire her that way. As Roberts put it, the president can fire a Fed governor "for cause" but subject to court review as to whether the president's target has committed a fireable offense.

"The Federal Reserve operates at a deliberate remove from the ordinary political process, including a budget free of congressional control and policies set not only by governors, but also by representatives of the private regional banks," Roberts wrote.

If a president could cite or make up any reason for firing a Fed official, "any perceived or alleged misstep, past or present, could provide a ready pretext for a governor's removal," Roberts wrote — and "nothing could be more corrosive of the independence that Congress sought" than for Fed leaders to know the president could fire them on any pretext, while pushing them to ratify his favored policies.

Trump didn't allow Cook to challenge her firing. She "was entitled notice and some opportunity to respond," which Trump denied her, Roberts wrote.

Liberal-leaning Justices Sonia Sotomayor, Elena Kagan, and Ketanji Brown Jackson concurred, along with Roberts' fellow conservative Brett Kavanaugh.

Kavanaugh added that letting a president fire Fed leaders at will would "expose the Federal Reserve to political influences and jeopardize the efficacy of U.S. monetary policy," sparking "political upheaval" and "turmoil in the U.S. and world economies. I would not go down that road. I would not risk destabilizing the U.S. economy."

Justice Clarence Thomas in his solo dissent disparaged Philadelphia's First and Second Banks as "short-lived corporations." He noted that Paul Warburg, one of the bankers who helped found the current Federal Reserve System in 1913, had sought to distance the planned Fed from the Philadelphia central banks, "ridiculing" them as no more advanced than banks of medieval Italy or even ancient Mesopotamia.

Justices Samuel Alito, Neil Gorsuch, and Amy Coney Barrett in separate dissents argued that Roberts wrote too sweeping an opinion in a case that should have been reviewed at greater length in the lower courts.

The Fed's Independence Day

"Central bank independence is not an abstraction," Glenmede's Reynolds wrote in a letter to investors Tuesday. "The premise that monetary policy is set by long-term price stability, rather than near-term political pressure, underpins the credibility of the dollar, the anchoring of inflation expectations," and the yield on Treasury debt.

"A Fed perceived as subject to political direction" would hurt the dollar's value, he added. Removing that risk "is a quiet but meaningful positive for the stability" of U.S. interest rates.

Reynolds said in an interview that the court's Slaughter decision, allowing the president wider powers to fire leaders of other agencies, is pro-business — even though its conclusion freeing Trump to fire Federal Trade Commissioners seems at odds with the Cook case.

Greater presidential control of regulatory agencies should "accelerate deregulation efforts, which is a priority of both the president and his Treasury secretary," Reynolds added.

But Reynolds predicted that it will be a few years until such changes are likely to significantly reshape U.S. business rules.

For now, he's more interested in the Fed's next jobs report, due Thursday.

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