Private banking is, perhaps, the oldest form of banking, and some of the most powerful banking concerns in the world to-day are private institutions. They are distinguished from public or incorporated banks in that they are conducted as individual or partnership enterprises, and that, until recently they have not been subject generally to the supervision of the state. The tendency in recent years has been toward public regulation of private as well as incorporated banks. In several states, private banks are now forbidden to use a corporate name, or to use the name "bank' or any similar title. Some states require private bankers to have a minimum capital, and in a few Eastern states certain classes of private bankers are required to post a bond. In a few states the banking business is absolutely denied to unincorporated concerns.1
Private banks perform two principal functions: (1) as an adjunct to the brokerage business in large cities; (2) as a means of supplying banking accommodations in small communities where a state or national bank would not be profitable.2 In larger cities their main business is dealing in securities, foreign exchange and foreign loans. Some of the larger banking houses have been prominent in recent years in promoting large industrial combinations and consolidations, and in underwriting stuck and bond issues. Generally speaking, they do not make a practice of discounting commercial paper, making business loans, and accepting checking deposits as commercial banks do. In the smaller communities, having only meager banking facilities, they do perform this service.
Public or chartered banks are created by the state or Federal Government, which usually exercises some supervision over them. Savings banks, trust companies, and state commercial banks are chartered, that is, licensed to do business, by the several states; national banks are chartered by the Federal Government, under the terms of the national banking act and its amendments, and the Federal reserve banks are also chartered by the Government. In the early days of banking, each bank was created by a special charter granted by the legislature; now, nearly all the states have a general incorporation or banking law by complying with the terms of which a group of men proposing" to establish a bank may set a charter.
1 Barnett: State Banks and Trust Companies (Nat. Mon. Comm.), pp. 213-218. 2 Ibid., p. 206.