Cases in which there is complete or partial government ownership of banking institutions should probably be considered as distinct from those in which the government merely controls or directs banking through the appointment of officers or directors of such institutions, yet the general principle is the same in both cases. The latter kind of participation is considerably the more common, but the former is still a widespread type of government activity. Examples in American history may be found in the First and Second banks of the United States (see pp. 390-396), while in contemporary life perhaps the best illustration is afforded by the Commonwealth Bank of Australia - completely owned and operated by the government. In the First and Second banks of the United States the federal government was a minority stockholder, controlling twenty per cent of the shares; in the Commonwealth Bank of Australia the government is sole owner and the institution represents the government in its financial capacity and does a regular banking business in all branches. A somewhat similar instance is that of the Philippine National Bank organized in 1916, with the government of the Philippines owning always a large majority of its stock. Among European banks somewhat similar examples, although of a less marked type, may be found. In all these cases the government undertakes the business of banking largely for the purpose of controlling and regulating rates of interest, insuring what it conceives to be a fairer distribution of loans, administering its own funds, and supervising the operations of the rank and file of the privately owned banks. As yet the judgment of economists with reference to public participation in banking is not absolutely unanimous. On the whole, however, the experience of governments which have thus participated in direct banking operations has not been very happy. This does not mean that business has always been carried on at a loss. Both in the past and at present, governments which have owned a part or the whole of large banking institutions have frequently profited handsomely. The difficulties in the way of this kind of government control have grown out of the fact that the banks were usually beset by those who desired accommodation on a political basis, but were unable to get it, or they were charged with having discriminated in favor of or against some element in the community, or in some other way there was furnished a ground for attack. In sundry cases governments which have yielded to political pressure have actually engaged in unsound loans, and the banks in which they were interested have speedily suffered the consequences of bad banking. They could not be saved from loss merely because of the fact that the public was a large stockholder in them.

On the whole, the opinion has become quite well developed that if the government is to participate in banking it will do so to best advantage as either a minority stockholder or simply as a minority director, acting through individuals who are chosen to represent it in the latter capacity. The most striking example of a banking system in which the government, without being a stockholder, nevertheless participates on a minority basis in operation, is the Federal Reserve system. Through the Federal Reserve Board the government of the United States appoints one-third of the directors of each of the Federal Reserve banks, and it thus has an indirect share in the management of these institutions. In some of the European banks the government may designate the chief officer or officers and at times a part of the directors. The situation in those institutions is very similar to that which exists in the Federal Reserve system. The tendency of such participation is merely that of giving to the bank a quasi-public character, and of assuring the rank and file of the people that the institution is to be operated not for the benefit of any particular group or section in the community, but in the interest of all. In the main it may be said that the success of this kind of government participation has been tolerably satisfactory and that it represents to-day the best type of relationship between the public and the banks. It should be emphasized, however, that success with this type of participation depends entirely upon the choice of capable, public-spirited, and well-trained men to represent the government in its banking functions.