Earnings are not entirely distributed to the stockholders of the bank, for a conservative management follows the policy of setting aside a portion to form a surplus in order to meet unexpected losses. Surplus is not always accumulated from earnings, but it frequently is paid in at the time of organizing the bank. In fact, the National Bank Act seeks to encourage the establishment of an initial surplus by stipulating that dividends cannot be declared until 10 per cent of the net profits of the preceding half year have been carried to the surplus until this account shall amount to 20 per cent of the capital. It is, therefore, customary to place the stock of a new bank on the market at a quotation of 120, and this premium from the start creates the necessary surplus. As an illustration: the organizers of a national bank are authorized to issue 1,000 shares, and if these are sold at a quotation of 120, the bank would start with $100,000 as capital and $20,000 as surplus. Under this plan the bank possesses the required surplus immediately, and the directors are soon able to declare dividends if profits warrant this step. From the standpoint of the stockholders another advantage is derived in enlarging surplus rather than capital, since the former involves no liability to the owners of bank's stock. It is, therefore, quite common for banks to accumulate a surplus far in excess of their capital.