If Mr. Murray had carefully read and considered the suggestion contained in this recommendation, as he should have done before his appearance before the National Monetary Commission, or if he had intelligently grasped its purport when he heard it read at the hearing, he should have known that the proposition did not contemplate that the Comptroller should close every bank whose capital became impaired until the impairment was made good, but that he should have the discretionary power of temporarily closing a bank when he had reason to believe that an assessment could not be collected from the stockholders to restore the capital, or when he had no confidence in the ability of the directors or the sincerity of their efforts to place the affairs of the bank in a safe and satisfactory condition.
In making this objection to the proposed amendment, Mr. Murray laid great stress upon the fact that the temporary closing of a bank under such circumstances would discredit it in the community to an extent beyond recovery. The records of the Comptroller's office disprove this theory beyond question, and show numerous instances of banks that have been temporarily closed and after a readjustment of their affairs and reorganization of their board of directors have resumed business and become stronger, more conservative and better institutions than they were before their temporary closing, and rank as high in the confidence of the community as any of their local competitors.
Mr. Murray was entirely wrong, therefore, in opposing an amendment to the law conferring upon the Comptroller of the Currency the discretionary power of temporarily closing and taking possession of an institution found to be in the condition described.
It does not follow, nor did the recommendation that was submitted to the National Monetary Commission assume, that because a bank's capital became impaired there must necessarily have been incompetency, speculation or dishonesty in its management. Losses may result to an extent sufficient to impair a bank's capital from a variety of causes, and under the very best and most conservative management, but the class of banks that the amendment proposed was intended to reach, by vesting certain discretionary powers in the Comptroller, were those whose management had been shown to be either incompetent, speculative or dishonest. The Comptroller should have the power to take possession of an association of this class when he finds it to be in an unsafe or dangerous condition, instead of permitting it to drift along until a condition of insolvency is developed before intervening.
Senator Knox also interposed an objection to the granting of such discretionary powers to an administrative officer, and suggested that the banking laws of Pennsylvania provided a remedy for what he termed "that sort of nonsense." Mr. Knox stated that the Pennsylvania law made the directors of a bank personally responsible for any deposits received by its officers after the bank's capital became impaired, which had the effect of making them very careful, and Mr. Murray declared such a law to be a very good one.
The Pennsylvania law contained no such provision as Mr. Knox alleged or as Mr. Murray endorsed. The law of Pennsylvania at that time prohibited the receipt of deposits by the officers of a bank when the bank was known to be insolvent, but not when its capital was impaired. Insolvency is an entirely different condition, and the Comptroller is vested by law with ample powers when such a situation is reached. A bank's capital and surplus may be entirely wiped out by losses and the association may still be solvent. A bank is not insolvent until its capital, surplus and undivided profits are entirely absorbed and its remaining assets are insufficient to pay its liabilities to depositors and other creditors exclusive of stock.
The views of Senator Knox, as expressed on that occasion, and as endorsed by Mr. Murray, as to the effectiveness or sufficiency of the remedy proposed by the former in its application to a case of impairment of capital would not meet the situation that the proposed amendment was intended to reach. The national banking laws already provided that if the directors of any association knowingly violate, or knowingly permit to be violated, any of the provisions of the banking laws, they shall be held liable in their personal and individual capacity for all damages which the association, its shareholders or any other person shall have sustained in consequence of such violations.
In the class of banks which the increased supervisory powers recommended were intended to reach and regulate, the records of the Comptroller's office show that the losses incurred which impaired their capital were the result of deliberate violations of law for which the directors of the association were responsible and consequently were individually liable. But if this individual liability did not deter them from violating the law, would an individual liability for receiving deposits knowing the capital to be impaired stop them from receiving deposits, as suggested by Senator Knox? No, and if they should refuse to receive deposits under such conditions and under such a law, would not such refusal advertise at once the fact that the institution was in an unsatisfactory condition and bring about the very result, but in a worse form, that Senator Knox and Mr. Murray objected to. It would become necessary under such circumstances to close an institution because of the run that would undoubtedly be made upon it by reason of the action of its officers in refusing to receive deposits. It would not be possible for the directors of a bank to comply with such a provision of law and at the same time keep the doors of the bank open for business.
The Comptroller had the power under the law to institute a suit to forfeit the charter of a bank whose directors had violated the law, but he had no power to bring such suit for violations of law which injured the bank committed by an officer of the association who was not a director, when such violations of the statute were not knowingly permitted by a director. Neither is an officer of a bank who is not a director individually liable under the provision of the statute referred to for any losses sustained by his association in consequence of violations of law committed by him. He may be criminally liable, if his acts partake of a criminal nature, but he is not civilly liable. The civil liability under this statute applies only to directors.