As heretofore stated, Comptrollers in the earlier years of the Currency Bureau were less disposed than some of those of later years to supply deficiencies in the statutes by administrative regulations for the correction of abuses and unsatisfactory conditions found to exist in banks, but were more inclined to recommend to Congress legislation which in their judgment was deemed necessary to enable them to correct and control such conditions.
In line with this policy, Mr. Knox in his several annual reports called the attention of Congress to a number of objectionable and unsafe practices indulged in by banks, for which the law provided no adequate remedy, and recommended the legislation necessary in his judgment to correct such evils.
The most important amendments to the law suggested by Mr. Knox, and the reasons therefor, are the following:
Shortly after the Civil War some of the Southern States issued certificates in the form of banknotes, receivable in payment for all debts due the State issuing them. It was claimed that under an opinion rendered by the Attorney General of the United States, such certificates were not subject to the tax of ten per cent. on State bank circulation imposed by the Act of March 3, 1865.
Mr. Knox disputed the right of a State to issue such certificates, claiming that the Constitution of the United States prohibited any State from emitting bills of credit, and that the Supreme Court of the United States had held that a note of circulation issued by a State on the credit of the State, was a bill of credit, and therefore was prohibited by the Constitution.
It also appears that savings banks, railroad, municipal and other corporations in some of the Southern States issued a large amount of similar certificates. To meet this situation, Mr. Knox recommended an amendment to the Act of July 17, 1862, which makes it a penal offense "to make, issue, circulate, or pay any note, check, memorandum, token or other obligation for a less sum than one dollar, intended to circulate as money, or to be received or used in lieu of money," so as to prohibit absolutely the issue of such circulation, and thus prevent ultimate loss to the people among whom such notes were then obtaining extensive credit.
This provision of law was brought prominently into notice by its re-enactment in the codification of the criminal statutes of the United States, approved March 4, 1909, and gave rise to the impression that it was new legislation, and that an ordinary bank check issued in payment for a sum of money less than one dollar was prohibited by this Act. The Treasury Department, in reply to numerous inquiries on the subject, advised correspondents that it had always been held by the department that this law did not apply to bank checks, for the reason that a bank check is an order on a banker to pay a particular sum of money and is not designed to circulate as a substitute for money, and therefore the issuing of checks for any amount, however small, was not in conflict with this statute.
Mr. Knox also recommended that all officers of national banks and of Government depositaries be required to stamp the word "Counterfeit" or "Illegal" upon all counterfeit and unauthorized issues presented at their counters.
In connection with the assets of insolvent banks Mr. Knox recommended that the Comptroller be required to return to an agent of the stockholders of failed banks all remaining assets after the depositors and other creditors had been paid in full.
When the declaration of a dividend to the creditors of a failed bank is delayed by protracted litigation or some other unavoidable cause, as is frequently the case, he recommended that provision be made for the investment of such funds of the bank on deposit with the Treasurer of the United States, in interest-bearing securities for the time being.
As a means of regulating and controlling the interest rates paid by banks on deposits, he recommended the repeal of the then existing law imposing a tax of one-half of one per cent. on all deposits and the substitution of a provision imposing a tax on individual and bank deposits placed with banks or bankers under an agreement or understanding, or with the expectation that interest would be paid thereon. Such legislation, he claimed, if rigidly enforced, would have the effect of not only reducing the interest rate paid on deposits but would tend to discourage the illegitimate organization of banks. It would also have the tendency to check competition for deposits through the inducement offered by high interest rates.
In connection with the provision of law authorizing the institution of a suit to forfeit the charter of a bank for violations of law, he called the attention of Congress to the fact that there was no means provided for the appointment of a receiver for such an institution after its charter had been adjudged forfeited by the court. This deficiency in the statute continues to exist, and there is a possibility of a question of jurisdiction being raised sometime between the court and the Comptroller as to which has the right in such a case to make the appointment. It always has been held by the Comptroller's office that in such a case the Comptroller would have authority to appoint the receiver under the decree of the court declaring the charter of the bank forfeited, but the court might dispute this right and make the appointment himself, in which case the Comptroller might decline to recognize the receiver so appointed, as was done in one case of a receiver appointed by the court on petition of some of the creditors of the bank, and thus create a complication.
The Comptroller recommended that deposits of one bank with another bank or banker, except national banks, be restricted to the limit on loans. Subsequent Comptrollers held that balances with banks and bankers other than national banks were loans subject to the limit, but in later years that ruling was modified, to hold that the limitation applies only to actual deposits with other banking institutions and not to balances subject to check, or withdrawal on demand. The Federal Reserve Act, however, restricted all balances with non-member banks to ten per centum of the member bank's capital and surplus.
The Act of June 30, 1874, making appropriations for sundry civil expenses of the Government, contained a provision requiring the banks to reimburse the Treasury Department the cost for replacing worn and mutilated circulating notes. Mr. Knox recommended the repeal of this provision and that such cost should be paid from the tax collected from the banks on their circulation, for the reason, he said, that the Government receives the benefit of all lost and worn-out circulation not finally returned for redemption, and the amount realized from this source being far greater than the amount expended in the replacing of the worn-out notes.
The corporate existence of the first bank organized under the national system expired January 1, 1882. The expiration of other associations followed in the order of their organization. To provide for the continuance of such banks as desired to remain in the system, Mr. Knox recommended an amendment to the law authorizing such expiring banks to amend their articles of association to provide for an extension of their corporate existence for a further period of twenty years, by the votes of shareholders owning not less than two-thirds of the capital stock and with the approval of the Comptroller of the Currency.
In the absence of such an amendment to the law it would have been necessary for every national bank desiring to continue in business to have secured a special Act of Congress, or to have reorganized as a new association under a new title. There was some question raised at the time as to the right of shareholders of a bank whose corporate existence had expired to organize a new association with the same name as the expiring association, and this question was referred to the Department of Justice for determination. The Attorney General, in an opinion rendered February 23, 1882, held that there was no legal objection to the stockholders of an expiring association organizing a new association, nor from assuming the name of the old corporation, with the approval of the Comptroller of the Currency.
Mr. Knox was very insistent upon the enactment of a law requiring the circulation of national banks to bear the written signatures of at least one of the officers of the issuing bank, and he deemed this to be a matter of so much importance that he prepared and had introduced in Congress a bill providing a penalty upon any engraver or lithographer who should print the signature of a bank officer upon any national bank note.
While the law requires the circulating notes of a bank to bear the signature of the president, or vice-president and cashier of the association issuing the notes, and contemplated that such signatures should be written on the notes, it also provides for the redemption of the notes by the bank, whether signed or not, or whether the signatures thereon are other than those of the officers indicated, or forgeries.
It is immaterial, therefore, whether the signatures are written, stamped or engraved, as far as the redemption of the notes is concerned, and while there was no authority in law for the engraving of the signatures on the plates from which the notes were printed until March 3, 1919, when the law was amended to authorize engraved signatures, many banks sent their notes to an engraving company for completion in this respect, or stamped the fac-simile signatures of the officers of the bank thereon. All the law requires in this connection is that the signatures appearing on the notes, whether written, stamped or engraved, shall be those of the president, or vice-president and cashier.
A number of the amendments recommended by Mr. Knox were enacted into law before he retired from office, and others were adopted later, with some modifications.
The National Bank Act was nearly ten years old when Mr. Knox assumed charge of the Currency Bureau, and between that date and the date he retired from the service, twenty-one amendments to the law were passed, principally among which were the following: