This section is from the "Practical Banking" book, by Albert S. Bolles.
Although 2,589 banks (April 24) are in the National system, nearly eleven hundred banks are flourishing under State regulations. These in most cases existed before the enactment of the National banking law. They declined to change, though they were obliged to retire their circulation. A larger number of these banks are located in Missouri than in any other State. At the beginning of the year, 1884, 153 State banks existed there; New York had the next largest number, 98, while Pennsylvania had only one bank less. In Iowa there were 78, in California 71, in Kentucky 66, and in Kansas 50 Michigan had 36, Ohio 35, Virginia 43, Wisconsin 38, Nebraska and Minnesota each 32. Other States had a much smaller number.
The Government imposed a tax of ten per cent, on the circulation of the State banks, which took effect on the first of July, 1866, under an amendment to the law creating the National banking system. This rate was too high to allow any profit on the State bank circulation, and consequently it was withdrawn. Indeed the object of the law was to expel it, in order to make room for the circulation of the National banks. In other respects, however, the State banks are conducted as they were before the creation of the National banking system. But the internal mechanism of a State and National bank is quite the same, and, therefore, in describing the methods of conducting a discount bank, no distinction need be kept in mind between a National and State bank. The former alone issues circulating notes, and the mode of doing this will be explained more fully hereafter. The main function of receiving deposits and of loaning them is performed in essentially the same way by all banks. Of course, there are minor differences; every bank has some ideas of doing business that are peculiar to it, but it may be truly said that the main features of the banking business are the same throughout the country. The greatest differences exist between banks in the large cities and the small places, and these will be explained in their proper place.
State banks possess some advantages, in the opinion of some bankers, that are worth mentioning:
1. They are not examined so critically; in some cases are not required to make returns to State officials, and in no case are such full returns required as the National law requires to be made. Yet the numerous requirements by the Government strengthen public confidence in the banks, and probably the majority of banking officials would not have them removed or lessened if they could. Not all think so, however; hence some banks remain under the shadow of the State instead of the Nation, because they are watched less closely and can do things which would not be permitted if they were National banking institutions.
2. There is another advantage which State banks claim to possess over their National rivals. They can certify checks in excess of the amount which the depositor may have at the moment of certifying. The National banks are expressly forbidden to do this. In several cases they disregarded the law, but the Comptroller of the Currency dealt with the offenders so severely that the banks which were the most desirous of continuing the practice withdrew and reorganized as State banks. The institutions that withdrew were located in New York City, and they maintained that whatever advantages they would gain if they continued to exist as National banks would not equal their losses if the practice of over-certifying could not be continued. Wishing to continue it and not infringe the law, they became State banks, and as such could continue this objectionable practice without legal hindrance.
The banking laws of the States possess many variations, and we have not space for even an abridgement of them. As no State banks issue circulating notes, all regulations pertaining to that subject are dormant. The main provisions of the banking law of New York are similar to those of the National Bank Act, which were described in the previous chapter.