Mr. Cortelyou, who was Secretary of the Treasury at that time, injected some sensible views into the discussion of this subject. He stated that his experience had been that it was not possible to devise an examination that would extend much beyond the mere technical qualifications as determining the fitness of an applicant to satisfactorily discharge the duties of a bank examiner. He said that a high school or college graduate might demonstrate his ability to pass a satisfactory examination as an expert in figures and otherwise, but by no means could his personal integrity, his discretion and his good judgment, characteristics so vitally essential in a national bank examiner, be determined by examination. He stated further, in answer to a question by a member of the Commission, that he would have to part company with Mr. Murray on the proposition that good judgment as to credits could be obtained for a compensation of $2,000 or even $5,000 a year.

The recommendation, therefore, that the banking laws be amended so as to place examiners on a salary and expense basis of compensation, instead of a fee allowance, as at that time, in order to correct some of the conditions for which the fee system was admitted by all to be largely responsible, did not receive the favorable consideration of the Commission, and principally because the bankers who were present were unwilling that the banks should bear the increased cost of examinations that a change from a fee to a salary and expense allowance would be likely to entail. The fee system, with all its defects, was therefore continued until the passage of the Federal Reserve Act, which placed the examiners on a salary and expense basis.

The next recommendation to the Commission, which developed considerable discussion, but apparently little favor, was the proposed amendment of Section 5200 of the Revised Statutes, relating to the limit of loans that the banks may make.

This recommendation is considered of sufficient importance to warrant its reproduction in full, and was as follows:

This section excepts from the limit of loans the discount of bills of exchange drawn against actually existing values, and commercial paper actually owned by the person negotiating the same.

The evident purpose of these exceptions was to facilitate trade by enabling the owner of such paper to realize on it at once, instead of tying his capital up until the maturity of the paper or the collection of the draft and the remittance of the proceeds. But in facilitating trade by permitting the discount of such paper without restriction as to the aggregate in any one case, and in addition thereto allowing the same person or interest to become liable at the same time for money borrowed to an amount equal to the limit of a loan that a bank may lawfully make, the security of the depositor, whose funds were used in such transactions, is left entirely to the judgment and discretion of the officers of the bank.

It is just as essential to the safety of a bank and the security of its creditors that the discount of commercial paper and bills of exchange be kept within prudent limits as it is to restrict the amount of a loan that may be made to any one person or interest. More bank failures have resulted from the excessive concentration of funds in the hands of single or allied interests than from all other causes combined. It matters not, so far as the security of such funds is concerned, whether the liabilities consist of direct loans made in excess of the limit in violation of the statutory restriction or the discount of commercial or business paper beyond the limits of prudence and safety, but within statutory authority.

Realizing the dangers of such a situation, administrative regulation has endeavored to supply a protection to the depositor, which the law does not afford him, by insisting that the aggregate liabilities of any person, or of any company, corporation, or firm, or allied interests, for discounted commercial paper or bills of exchange shall be kept within the limits of pudence and safety, but as there is no authority of law to support such regulation when disregarded, appeal can be made only to the conservative judgment of the directors of the bank as to the dangers attending such a policy.

Unfortunately for the welfare of the bank, such admonitions are too frequently unheeded. Disaster finally overtakes the individual or enterprise, and the bank meets with losses which impair its capital or produce a condition of insolvency and then only was the Comptroller of the Currency vested with power to take decisive action.

This section should be amended so as to place a limitation upon the aggregate liabilities of any person, company, corporation or firm for money borrowed and for discounted commercial paper and bills of exchange. This limitation should be based upon a percentage of the total loans and discounts of the bank. This would cause a wider distribution of the loans and discounts of a bank, and tend to prevent such concentrations of funds as are frequently found, which endanger the solvency of the association.

A specific penalty should also be provided for violation of this section, enforceable against the officers or directors responsible for such violation, in addition to the general penalty of forfeiture of the charter of the association now provided for any violation of the bank act. The individual and not the corporation should be punished in such cases.

The original bank act of 1863 provided:

That the total liabilities of any person, or of any company or firm (including in the liabilities of the company or firm the liabilities of the several members thereof) to any association, including liabilities as acceptor on bona fide bills of exchange, payable out of the State where the association is located, shall at no time exceed one-third; exclusive of liabilities as acceptor, one-fifth; and exclusive of the liabilities on such bills of exchange, one-tenth part of the amount of the capital stock of such association actually paid in.