This section is from the "Practical Banking" book, by Albert S. Bolles.
As we have seen, the business of banking consists in getting a common fund of money, and in lending a part of it. With this general conception is associated the discounting of bills of exchange, the collection of notes and drafts and the issuing of circulating notes. The business may be conducted by one person, who is called a banker; or by partners, as in any ordinary business, who also are called bankers. Again, a number of men may join their capital under a State law, and organize a State bank or association, the capital of which is divided into shares. Capitalists may also unite under the laws of the United States, and form a National banking association.
Under these varying forms a banking business is done. We may look at the reasons why men prefer one form to another. If a man has considerable means and enjoys the confidence of the community, he may prefer to engage in banking alone, unfettered by State or National laws. He may conduct his business in his own way; and if the people do not like it they need not patronize him. A firm may do the same thing. They may be a law unto themselves. But when men organize under a State law, they are bound by the law. They are subject to inspection. They must pay a tax on the amount, of money used in their business. If they issue promises to pay, a coin reserve must be kept to pay them. By a National bank is meant not that the Government owns or runs it, but authorizes its creation and prescribes its mode of doing business. Every association under this law, whether in Maine or in Texas, is governed by the same principles, is subject to the same inspection, uses the same blanks in making returns to the Treasury Department at Washington, and is under the same penalties for the violation of any duty. All are treated \ alike. The advantage to the people, of this system over any other is, the existence of a power above the bank, to which they can appeal if injustice is done. Another advantage of this system is the general Government having seen fit to permit these associations to issue promises to pay, based on the security of United States bonds held in Washington, for the absolute and prompt payment of every note issued on such security, the poorest and humblest citizen knows when he gets his pay on Saturday night in a National bank bill, that he has the faith of the Government behind his paper promise to pay. He need not see what bank issued it; for any bank must receive it for a debt due, and the Government must pay for it in coin if the local bank fail.
The National banking system was based on the system of banking existing in the State of New York in 1862. That system had existed many years; it had furnished adequate protection to bill-holders; and in several respects was better than any system which had preceded it. The Rev. Dr. John McVicker, professor of Political Economy in Columbia College, was the author of the system, and set it forth in a letter to a member of the New York Legislature, entitled, Hints relating to Banking, written in 1827. As this is the principal banking system in the country, and the only one by which banks now issue notes of their own, the chief features are worth describing in this place.
By the National law, banking associations may be formed by five or more persons who must specify in their articles of association the general objects for thus uniting.
They must make "an organization certificate" specifying:
A.—The name assumed by the association.
B.—Its place of business.
C.—The amount of its capital stock and the number of shares into which it is divided.
D.—The names and residences of the shareholders and the number of shares held by each.
E.—A declaration that the certificate is made to enable them to avail themselves of the advantages of the act.
No association may be organized with a less capital than $100,000, except that banks with a capital of not less than $ 50,000, may, with the approval of the Secretary of the Treasury, be organized in any place with a population not exceeding 6,000 inhabitants. In cities with a population exceeding 50,000 persons, at least $200,000 capital is required. Any National banking association designated for the purpose by the Secretary of the Treasury, may become a depository of public money and be employed as financial agent of the Government.
Associations so designated must give satisfactory security by the deposit of United States bonds, or otherwise, for the faithful performance of their duties.
The association may sue and be sued, elect directors, who, in turn, may elect a president, vice-president, cashier and other officers; discount and negotiate promissory notes, drafts, bills of exchange, and other evidences of debt; receive deposits, buy and sell exchange, coin and bullion; loan money on personal security, issue and circulate its own notes, and make all needful by-laws not inconsistent with the Banking Act.
There must be at least five directors. Each director must own at least ten shares of the stock; he holds his office until the election and qualification of his successor. Annual meetings are held in January. The capital stock is divided into shares of $100 each, and is transferable. The liability of a shareholder is limited to a sum equal to the par value of his stock.
Before beginning business, fifty per cent, of the capital stock of an association must be paid in, and ten per cent, of the remainder monthly, until it is all paid.
The next step is the transmission by the association of a certificate to the Comptroller of the Currency (who is the chief official of the Government in this particular department) stating that fifty per cent, of the capital has been paid, and that all the provisions of the law with reference to organizing a bank have been observed. He then makes such an examination as may be thought necessary, and if he finds that the law has been properly complied with, he gives to the association a certificate to that effect, and that it is authorized to begin business. This certificate must be published within sixty days from the time of issuing it.*
Formerly the entire amount of bank notes which the banks were permitted to issue was limited to $300,000,000, but in 1875 the law. was changed, and they can now issue as many as they please, provided they have a certain amount of Government bonds deposited with the Treasurer.
As a necessary preliminary to furnishing notes for circulation, the Comptroller of the Currency under the direction of the Secretary of the Treasury, is entrusted with the important duty of engraving plates in the best manner, to guard against counterfeiting and fraudulent alterations, and to print therefrom and number so many circulating notes in blank as may be required to supply the associations entitled to receive the same.
After these notes have been signed by the president or vice-president and the cashier, they are issued, and circulate the same as money, and are received at par everywhere in payment of taxes excises, public lands, and all other dues to the Government, except for duties on imports; and also for all salaries and other debts owing
*The former Comptroller of the Currency, Mr. Knox, issued a very useful Government publication of forty pages, entitled Instructions and Suggestions of the Comptroller of the Currency in regard to the Organization, Extension and Management of National Banks. It contains, among other matters, many of the forms required by the National law, an excellent set of by-laws, and a summary of the principal restrictions and requirements of the National bank law, which, with National Banking Laws, is published by Homans Publishing Co. "by the United States, except interest on the public debt and in redemption of the legal-tender notes. They are also a legal tender for any debt or liability to every National banking association.