Organization. - State banks are organized under and subject to the regulations and restrictions of the banking department of the particular state in which they are located. The preliminary steps necessary in the organization of a state bank are quite similar to those already outlined for national banks.

State and National Banks compared. - State and national banks may be compared as follows:

1. Their management is similar.

2. Their scope is nearly the same.

3. They are equally careful and conservative in the matter of making loans.

4. In many cases the protection afforded the creditors of state and national banks is equally strong.

State and National Banks contrasted. - State and national banks may be contrasted as follows:

1. National banks are organized under and subject to national law and authority. State banks are purely state institutions, organized under and subject to state law and authority.

2. National banks issue circulating notes, while state banks do not.

Note. - Prior to July 1, 1866, state banks issued circulating notes. On that date an amendment to the National Bank Act imposed a tax of 10% on these notes. This tax proved too high to allow any profit to the state banks, and the circulating notes were withdrawn.

3. National banks are subject to examination by persons appointed by the National Government, while state banks are examined by persons appointed by the authority of the given state.

4. National banks are required to invest a portion of their capital in United States bonds. These bonds are deposited with the Treasurer of the United States to secure circulation, and are not available to the bank until all of its circulation has been redeemed. As state banks do not issue circulating notes, they are not required to purchase United States bonds.

If a national bank should fail, its circulating notes would be redeemed by the United States government without loss to the holder, but the United States bonds deposited at Washington do not afford security for the payment of depositors.

Note - In Massachusetts and a few other states there are no state banks, loan and trust companies having superseded them. Authentic information respecting the organization of state banks and trust companies may be obtained by addressing the proper Secretary of State.