Introduction of National Banking System; Purposes. - The original National Banking Act was framed in 1863, its establishment having been previously urged by various governmental officers, principally Salomon P. Chase, who believed its introduction would be of assistance to the government during the Civil War as a means of serving the following purposes:

First, it was believed that the introduction of the National Banking System would materially assist the government in marketing its war bonds. Second, that it would establish a uniform currency system for the country. Though the former purpose was never realized to the extent of original expectations, the unification of the currency system of the country was of great importance in later banking developments.

Organization Of The National Banking System Before The Adoption Of The Federal Reserve

The head of the national banking system was the Comptroller of the Currency. He would pass upon organization certificates on contemplated banks or would reject them as he saw fit. In the event of their acceptance, provided the law was complied with, a charter was issued to run for twenty years, except in cases of ultra vires acts, the commission of which would voluntarily dissolve the bank.

Capital Requirements; Shares and Dividends. - The capital requirements of such national banks were fixed by law, according to the population of the respective communities wherein the bank was sought to be established, the low limit of capital being twenty-five thousand dollars for banks in towns with a population of not exceeding three thousand; and two hundred thousand dollars capital in cities with a population of fifty thousand or more. Fifty per cent. of the authorized capital was required to be paid in before the bank was allowed to commence business, and the remaining fifty per cent, was to be paid in by installments of at least ten per cent, of the authorized capital each month, from the time of its authorization.

Shares were of the par value of one hundred dollars, and each shareholder was liable to an extent equal, and additional to, the amount of shares so held by him. National banks were further required to create a surplus fund of twenty per cent, of their authorized capital stock before the declaration of any dividends.

Management of National Banks; Powers and Limitations. - The affairs of the banks were managed by a board of directors, all of whom were required to be citizens of the United States. The board of directors were duly authorized, themselves, or through their agents or officers, subject to law, to carry on the business of banking, by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchanges, coin, and bullion; by loaning money on personal security and by obtaining, issuing and circulating notes according to the provisions of the Act. In connection with the last named purpose, a national bank was required to deposit one-quarter of its capital stock in government bonds, which later served as a basis for bank note issues.

National banks were not permitted to contract debts in excess of their unimpaired capital. The total liabilities of any one firm, person or other legal entity could not exceed ten per cent, of the bank's capital.