Besides those already mentioned attention should be called to certain safeguards of a minor character, but nevertheless of value. Among these may be mentioned the limitation of the amount of the paper of any one man which a bank shall be permitted to discount, the prohibition or strict limitation of loans to stockholders, the limitation of the number of shares of stock which any single person may hold or of the amount of his declared wealth which a stockholder shall be permitted to invest in the banking business, and provisions for securing the frequent return of notes to the bank of issue.
Bankers are frequently tempted to accept in almost unlimited amounts the paper of business men of success and good reputation for sound financial methods. However, this practice is dangerous, and may be prevented by a judicious regulation of the sort above mentioned. The most successful business men sometimes make mistakes, their very success frequently blinding them to danger by giving them too much confidence in themselves. A man who has always succeeded in his undertakings may get the impression that failure in his case is impossible and become rash from mere faith in his so-called "lucky star." A strict statutory limitation of the amount of credit such men can obtain from banks serves frequently as a healthy check, and removes from the banks a temptation otherwise difficult to resist.
The limitation of loans to stockholders is very desirable. Some of the worst wrecks in banking history have resulted from stockholders' abuse of the privilege of using the banks in which they are interested for the discount of their own paper. Being in practical control of their own institutions, statutory provisions constitute the only efficient checks against such an abuse. Without these the proprietors of banks have the power practically to convert their own credit into money. If the bank's portfolios are filled with their paper instead of that of the stanch business men of the community, their own property becomes the sole basis for the bank's circulation, and that is liable to be dissipated by the same rashness which led them to put the bank in jeopardy.
The limitation of the amount of stock which any one person shall be permitted to own and of the proportion of his wealth which he may invest in this form has the double purpose of preventing the complete control of a bank by a single person and of rendering efficient the provision authorizing an assessment of the stockholders in case the bank fails without resources sufficient to pay its depositors and noteholders. It is seldom good policy to give to a single individual complete control of an institution of such great public importance as a bank. The combined judgment of several is usually safer than that of one, especially regarding the advisability of a loan or the assumption of a risk, and in the banking business several stockholders serve as checks upon each other and promote conservatism of management. The right to assess stockholders for the purpose of making up deficiencies in cases of bad failure is of no value if they have all their property at stake in the bank. The prohibition of the investment of all one's wealth in this form does not guarantee the existence of extra property upon which a levy may be made at the date of a bank's failure, the dissipation and loss of the property in other ways being, of course, possible. Such a provision, however, is a wise precautionary measure and may be of great value.
The importance of securing the frequent return of notes to the issuing bank has already been mentioned in connection with the Suffolk System of New England. It puts the power of the bank to redeem its notes to frequent test, and thus prevents overissue in cases in which otherwise banks might make improper use of the ease with which such notes circulate and of their tendency to remain in circulation for long periods of time. It should be here mentioned that this end can be secured by a statutory provision making it illegal for a bank to use the notes of other banks except in payments to them or as a means of securing coin by redemption. Whenever such notes were received on deposit or in payment of obligations due, it would then be necessary either to hold them as a reserve fund or to send them back to the bank of issue. Such a regulation would unquestionably diminish to some extent the circulation and increase the expensiveness of notes, but it would still leave to them a wide field of usefulness, and make practicable their issue against general assets in cases in which that would otherwise be of doubtful propriety. It is a measure not, perhaps, to be recommended in all cases, but to be held in reserve for use when considerable modifications of existing systems of note issue become necessary.