This section is from the "Practical Banking" book, by Albert S. Bolles.
Although of less relative importance than formerly they were, private banks continue to maintain a good standing, and prove well adapted to some phases of the business of banking. According to the last report of the Comptroller of the Currency (December, 1883) the private banks hold about fifteen per cent, of the totals of capital and deposits, excluding those of Savings banks. The capital employed by a private bank is apt to be variable in amount, not a fixed sum represented by stock certificates, so that the returns, which are made the basis of a tax, probably represent the minimum of capital employed.
In addition to this, it may be said that many of the State banks, while running as such, are in reality private institutions, the capital stock being held by one or two owners, and the directorship being nominal. This use of bank organizations is facilitated by the ease with which they can be formed in most of the States, and is resorted to from various reasons. In some cases it is to have the benefit, when starting a new concern, of the prestige and credit which the title of "bank" is supposed to give; in others, and more frequently, to secure the immunity of limited liability; in others, again, to retain the name and clientage of a long-established business. One of the largest State banks in the West, with a deposit line of millions, and a very large volume of business, reports a capital of $100,000, but in this instance the owner advertises that "the stockholders are individually responsible, without limit, for all the liabilities of this bank."
In view of these facts it is probable that private banking occupies a rather more important place than the returns published by the Comptroller would indicate.
His figures, however, furnish the only trustworthy basis of comparison to be had, and from them some interesting results are to be obtained.
The following table, taken from the last published volume of the Comptroller of the Currency, shows the geographical distribution of bank capital and deposits, excluding Savings banks:
State Banks and Trust Companies.
560 691 214
40 210 248 563
New Eng. States. Middle States... Southern States. W. States &Ter.
Millions. 8.30 40.60
The average capital and deposits in the three classes of banks are as follows:
The ratio of capital to deposits is, in the National banks.........433
" " State banks.............251
" " Private banks...........364
" " All classes..............376
The proportions of the totals of capital and deposits as held by each class in the several geographical divisions are given below:
Per Cent, of Total.
These figures show, among other things, that the average of capital and deposits is, as might be expected, lowest in the private banks, and highest in the National banks. About midway between the two, in respect to average capital, come the State banks, while the average deposits of the latter nearly equal those of the National banks. As the profits of banking come chiefly from loaning deposits, it would seem that in the greater ratio of deposits to capital is to be found a source of gain to offset that which comes from circulation, especially when, as at present, the margin of profit from this source is reduced to so thin a shaving. The high ratio of capital shown by the National banks is due, in part at least, to the provision of the National Bank Act, which fixes the minimum limit of capital for banks organized thereunder, scaling them proportionately, in some degree, to the population of the towns and cities in which they are located. The ratio of capital to deposits of the private banks closely approximates to that shown by three classes taken as a whole.
This analysis of the Comptroller's table furnishes other interesting and instructive comparisons, which, however, cannot be dwelt upon here, as they do not bear upon the subject of this chapter.