The national bank act requires that every national bank shall have at least five directors. There is no legal limit to the maximum number and some of the large city banks have boards of fifteen, twenty-five, or more directors. Every director must be a citizen of the United States and at least three-fourths of them must be residents of the state or territory where the bank is located during their continuance in office, and must have resided there for at least a year before their election. Each director must own at least ten shares (five shares where the capital is $25,000) of the capital stock of the bank, which must not be hypothecated or pledged for any loan or debt.
The board of directors are responsible in a general way for the entire policy and administration of the bank, and the measure of its success will depend upon their ability and integrity. They choose from their own number the president of the bank who is usually the president of the board also, and the cashier who acts as secretary of their meetings. They appoint all the employees either directly or by approval of those selected by the officers. They are responsible for the employment of the bank's funds in loans and investments, and they determine the disposition of its earnings. In short, though the details of conducting the bank's everyday business must be left to the officers and clerks, the board of directors are responsible ultimately for everything done or projected by the bank. Further-more, each director takes an oath that lie will, as far as the duty devolves upon him, diligently and honestly administer the affairs of his bank, and will not knowingly violate, or willingly permit to be violated, the banking law. In case of such violation every director who participates in or assents to it is liable for damages which may have been sustained in consequence of it.
In earlier years these very important duties and responsibilities were often lightly assumed and just as lightly performed, but more and more public opinion is demanding of bank directors closer attention to the affairs of the bank. It is not customary to pay salaries to directors, yet the conscientious director has to give a good deal of his valuable time and thought to the bank's affairs. In some of the larger city banks directors receive a fee for each meeting they attend, but this does not compensate for the time they must take from their own business. Occasionally an influential business man will permit his name to be proposed for director though he realizes that he cannot give the position proper time and attention. He may feel flattered by the honor of so dignified a position, or he may think that it will give him added business prestige. No one, however should accept the position of director who cannot faithfully discharge the obligations of the position.
Various considerations outer into the selection of the board of directors. Sometimes they are chosen because they are among the largest stockholders, and so have a keen interest in the prosperity of the bank. In too many cases a small group of men secure a majority of the shares and elect themselves and their close associates to the board in order to control the policy and resources of the bank. Often an influential citizen is chosen because he will bring a large amount of business to the bank. A bank tries to have on its board prominent representatives of leading lines of business in the town. The most important duty of the directors is lending the funds of the bank. Applications for loans come from men in various lines of trade, and it is advantageous to have on the board a person who has special knowledge of the business in which the applicant is engaged. Above all, a bank director should be a man of unblemished character, enjoying the respect of the community, and a reputation for sound judgment, prudence and common-sense. If he is a director in other important business concerns, insurance companies, trust companies, banks and railroads, it indicates that other men think well of him, and can work harmoniously with him in positions of responsibility. There has been a marked tendency in recent years toward "community of interest" among different types of financial institutions by means of interchange of directors. Thus one or more directors of a powerful trust company are elected to the directorate of a national or state bank and vice versa. Something of the same purpose is found in the growing practice of electing to the board of the large city banks directors of financial institutions in other cities with which it may be desirable to have close business relations. This system of "interlocking directorates" has recently come in for considerable criticism.