In this country three kinds of institutions must be distinguished : the national banks, founded under authority of federal law; the state banks, organized in accordance with the provisions of the banking acts of the various states; and private institutions which have sprung up without the authorization of any special or general statute. In 1900 the number of the first was 3732, of state banks 4369, and of private banks more than 6000.*
The national banks occupy a central and dominant position in our system, partly because they are supervised and regulated by the federal government, partly because they are the most convenient correspondents for the state and private banks, and partly, probably chiefly, because they enjoy a monopoly of the right of note issue. Their characteristics may be seen in the regulations pertaining to note issues and deposits.
Every institution which is organized under the authority of the National Banking Act is obliged to invest a portion of its capital in United States registered bonds, to the par value of which it is permitted to issue notes, provided their market value is not below that point. These bonds must be placed on deposit with the Comptroller of the Currency at Washington, and in addition an amount of cash equal to five per cent of the notes circulated by the bank. This latter sum is intended to be used in the redemption of notes, for which the Comptroller of the Currency acts as the agent of the banks. Secured by the bonds, the government guarantees the The Chief Banking Systems of the World. 195 payment of the notes in case of the failure of the banks.
* The number of private banks can only be estimated, no actual count of them ever having been made.
From the standpoint of the depositors, especially noteworthy are the provisions requiring the accumulation of a surplus equal to twenty per cent of the capital stock, the assessment of stockholders to the amount of the capital invested, in case the bank fails with inadequate resources, and the prohibition of investments in real estate. The most striking feature of the act, so far as the protection of depositors is concerned, however, is the provision relative to the cash reserves. For banks located in a number of specifically named cities, designated as reserve cities, the minimum cash reserve is fixed at twenty-five per cent of the aggregate amount of the notes and deposits. For all others the limit is fifteen per cent of this aggregate. Banks of the former class may receive on deposit sixty per cent of the reserves of the other banks, and may deposit one-half of their own in the national banks of New York City, Chicago, and St. Louis. Whenever the cash reserve of any bank falls below the limit fixed by law, it is the duty of the Comptroller of the Currency to notify such an institution of its condition, and to direct it to stop all discounts until it has accumulated the proper amount of cash, and, in case the bank fails to accomplish this within thirty days after due notice has been given, he is authorized to appoint a receiver and to wind up its affairs.
In order to ensure the rigid observance of all these regulations, the Comptroller is under obligations to inspect the banks at frequent intervals, and to call upon them for complete reports of their condition at least five times during each year, the dates to be fixed by himself.
The effect of the provisions relative to the deposit of reserves, together with her position as the commercial metropolis of the country, makes the city of New York the centre of our banking system. The banks in small towns and rural districts naturally use as their out-of-town agents those banks in the reserve cities in which they keep their deposits of cash, and these for the same reason use the banks of New York City. Private and state banks cannot avoid doing business through the same channels, and consequently group themselves about the same centres. The position of New York City in the exchanges of the United States is, therefore, not unlike that which the city of London occupies with reference to Great Britain.
It is impossible in a brief space to summarize the regulations pertaining to state banks. Certain features found in the laws of most of the states, however, will be described. Practically all the states authorize the issue of notes as well as the performance of the other banking functions, but the banks organized in pursuance of their laws do not make use of this right on account of a ten per cent tax levied upon such issues by a federal law which has been in force since July 1, 1866. Previous to that time state banks issued notes in large quantities and under a variety of systems of regulation, and this tax was levied for the purpose of compelling them to yield this field of activity to the national banks, then newly established. Friction and financial loss were diminished by a provision of the National Banking Act, providing for the easy reorganization of state banks and their transformation into national institutions. For the protection of depositors, most of the states have incorporated in their general banking acts the principles described in the preceding chapter. It is common to hold the stockholders of state banks liable to assessment for the pay-
The Chief Banking Systems of the World. 197 ment of the debts of the bank, in case of failure, to an amount at least equal to their capital stock, and in some instances to double that amount. Publication of accounts at frequent intervals is commonly required, and many of the states provide for the careful inspection of banks by public officials. They rarely require a minimum cash reserve, it being generally regarded as best to leave that matter to the discretion of bank officials.
As a rule private banks are free from statutory regulation. They do not come under the general banking acts which control corporate institutions, and special legislation pertaining to them has rarely been attempted. They are seldom required even to publish their accounts or to make a report of their condition to any state or national officer. The Comptroller of the Currency has attempted to induce private banks to send in reports of their condition, but a very small minority have seen fit to comply with his request. The only efficient regulations to which this class of banks is subjected are those imposed by the very nature of the business in which they are engaged, and grow out of the supervision which state and national institutions impose as a condition of doing business with them. Inasmuch as no bank can live to itself alone, the necessary connections which it must form with other institutions make this supervision quite efficient, and, in recent times at any rate, has been sufficient to prevent any great abuse of the principle of free banking.
Gold coin (including bullion in treasury)........................
Standard silver dollars.........................
Treasury notes of 1890.......................................
United States notes...........................................
Currency certificates (act of June 8, 1872)
It is thus seen that the volume of bank currency in the United States is nearly three times as great as that of all other forms of currency combined.