Of the numerous amendments to the national banking laws that have been adopted since the enactment of the original Act of 1863, practically all have been in the interest of greater latitude or privileges to the banks. Whatever safeguards have been adopted in the way of increasing the security of creditors have been of the nature of administrative regulations. Opposition to additional restrictive legislation or increased supervisory powers has almost invariably come from the bankers of the country whose institutions would not be affected in the least by such legislation, except to be benefited to the extent that such legislation would be an additional insurance of the banking interests of their respective communities against disturbance.
Penitentiaries are provided and maintained for criminals and those who disregard the civil and property rights of others. Police regulations are necessary for the protection of law-abiding citizens. But it does not follow that because the great majority of citizens of every community are peaceful, law-abiding and considerate of the rights of their fellow-man, penitentiaries and police regulations are not necessary. The law-abiding citizen is not affected or interfered with by their existence, except that he is taxed for their maintenance, but the fact that they do exist insures to him freedom from disturbance in the full enjoyment and exercise of his individual rights without interference, so long as he does not encroach upon or jeopardize the rights or property of others.
So would it be with the additional restrictions that have been recommended by Comptrollers of the Currency from time to time for the better security of the depositors and other creditors of the national banks. Their adoption would have contributed largely toward the prevention, or at least the amelioration of numerous disturbances to the banking and business interests of a community resulting from the failure of banking institutions managed by men of the class heretofore described, who needed just such restrictions to control the conduct of their business as some of the proposed amendments to the banking laws contemplated, and which the conservative and successful banker who does not need them, selfishly or short-sightedly opposed.
A bank failure, no matter from what cause, is demoralizing to any community, but when such failures result from the excessive concentration of loans to one individual or concern, or an affiliation of interests in the form of discounted commercial or business paper, the law is as much responsible for permitting such imprudent and undue extension of credit as the directors of the bank who authorized the loans and discounts to be made.
The next most important amendment recommended related to the impairment of capital of the banks and the manner in which the law required such impairment to be made good.
The law in this respect is as defective as the statute relating to the limit of loans. The amendment proposed pointed out the defects and suggested the remedies, and was as follows:
If a bank's capital becomes impaired wholly or in part by losses, the law requires such impairment to be made good by a stock assessment within three months from the date of receipt by the directors of notice from the Comptroller of the Currency, or the alternative of placing the association in liquidation. Inability or refusal to do either within the prescribed time subjects the bank to a receivership.
There is an inconsistency between this provision of law and section 4 of the Act of June 30, 1876. While the former requires the capital to be made good within three months in order to escape a receivership, the latter requires the stock of any shareholder who fails to pay his proportion of the assessment within that time to he advertised for a period of thirty days after the expiration of the three months before it can be sold by the directors to make good the deficiency. The directors can not, therefore, enforce payment of the assessment on delinquent stock under four months from the date of receipt of the notice of impairment.
These provisions of law are also frequently responsible for the unsatisfactory conditions which are found to exist in banks, which the Comptroller is powerless to correct. Pending the collection of an assessment to make good an impairment of capital, the association remains in the hands of the same management responsible, in many cases, for the losses, either through incompetency, speculation, or otherwise. Depositors continue to put their money in the bank to be loaned or invested and perhaps lost or imperiled in a like manner.
There have been a number of instances in the past, and there no doubt will be others in the future, when it would have been and will be for the best interests of all concerned to temporarily close the doors of an association whose capital becomes badly impaired, instead of requiring innocent stockholders to risk additional capital in the hands of an incompetent or speculative management and further imperil the funds of confiding and unsuspecting depositors.
Under existing law the Comptroller has no authority to exercise his judgment and discretion in such cases. Where he has reason to believe that an assessment can not be collected from stockholders to make good an impairment of capital or where he has no confidence in the ability of the board of directors to restore the bank to a satisfactory condition, he should have discretionary authority to close an association under such conditions pending the reorganization or rehabilitation of its affairs.
While Mr. Murray admitted that the unsatisfactory conditions described were frequently found to exist in banks and that the law provided no adequate means for their prompt correction, he did not approve of the remedy proposed, but offered none better. He stated that when a bank's capital becomes impaired it should be made good forthwith, but he dissented to the suggestion that the Comptroller be authorized to close the doors of such a bank pending the restoration of capital as an impracticable expedient which would ruin any bank to which it was applied.