Philadelphia is the nation's oldest banking center, and Third Street between Chestnut and Walnut has been called the cradle of American finance. The first chartered commercial bank in the US was the Bank of North America, granted its charter in Philadelphia by the federal government in December 1781 and by Pennsylvania in April 1782.
The First Bank of the US was headquartered in Philadelphia from its inception in 1791 to 1811, when its charter was allowed to expire. Its building was bought by Stephen Girard, a private banker whose new institution quickly became one of the nation's largest banks. Girard's bank was closed after he died in 1831, but a new Girard Bank was opened in 1832; it merged with Philadelphia National Bank in 1926.
By the early 1800s, Philadelphia had reached its zenith as the nation's financial center. It was the home of the Bank of Pennsylvania, founded in 1793; the Bank of Philadelphia (1804); the Farmers and Mechanics Bank (1809); the Philadelphia Savings Fund Society (1816), the first mutual savings bank; and, most powerful of all, the Second Bank of the US (1816). After 1823, under the directorship of Nicholas Biddle, this bank became an international leader and the only rival to New York City's growing banking industry. When President Jackson vetoed the bank's recharter in 1831, Philadelphia lost its preeminence as a banking center.
Pittsburgh also rose to prominence during the Gilded Age, in great part because of the efforts of its most successful financier, Andrew Mellon. In March 1982, the state legalized multibank holding companies; subsequently, the Mellon Bank acquired Centre County Bank of State College, Girard Bank, and Northwest Bank. Other major institutions are Pittsburgh National Bank, part of PNC Financial, and Philadelphia National Bank. First Pennsylvania, in financial difficulty for several years, was saved from possible failure early in 1980 through a loan package engineered by the Federal Deposit Insurance Corporation.
In 2002, Pennsylvania had 285 insured banks with $283 billion in assets. Ninety-four of these banks were state-chartered.
The Federal Reserve made steep cuts in interest rates in 2001/02, and net interest margins (NIMs) (the difference between the lower rates offered to savers and the higher rates charged on loans) in Pennsylvania declined by the end of 2002. Banks' funding costs were already at historic lows when short-term interest rates stabilized, limiting further significant improvement in NIMs. The lower long-term interest rates resulted in consumers increased refinancing with long-term fixed-rate mortgage loans. If interest rates were to rise in 2004, those insured banks with high concentrations of long-term assets might experience NIM compression.
Pennsylvania's banks had lower past-due loan ratios than the rest of the nation in 2002, except for commercial real estate (CRE) loans. CRE markets were soft in 2002, and CRE loan delinquency levels were projected to increase.