On June 2, 1892, a committee was appointed by the United States Senate, under authority of a resolution adopted by that body, to inquire whether the laws relative to national banks and the customary proceedings under such laws in connection with failures of national banking associations, furnished sufficient protection to the depositors and stockholders in such institutions. Senator William E. Chandler was made chairman of the committee.

This committee made an exhaustive investigation into the causes which led to the failure of the Maverick National Bank and the manner in which the law was administered by the Comptroller of the Currency. The investigation also covered the failures of the Keystone and Spring Garden National Banks of Philadelphia.

The conclusion reached by the committee, as shown by the report, was that the results of the operations of the national banking laws during a period, at that time, of nearly thirty years, indicated to the minds of the committee that the svstem as a whole had worked very satisfactorily and had resulted in as few failures and losses as could reasonably be expected under any banking system that could be devised.

There had been many failures, however, the committee stated, that could probably have been avoided if the system had been as perfect as it could have been made.

What the committee intended to imply by this comment is not clear. But there was a disposition on the part of the committee to reflect upon the course of the bank examiners who examined these banks previous to their failure. And there was considerable justification for this, as the testimony showed undue intimacy and improper relations between the examiner and the officers of the bank in one case, and great laxity or culpability in the others.

It might also be implied by the comment of the committee that Congress itself was derelict in the performance of its duty, in not having given due consideration to the recommendations of the Comptroller of the Currency, from time to time, for such amendments to the banking laws as would in the judgment and experience of the Comptrollers, have strengthened some of the weak features in the statutes which were largely responsible for the conditions known to have existed in these banks before their failure.

Evidently the committee was of the opinion that additional legislation was necessary to reach abuses of the nature of those disclosed by the investigation of the causes which led to the failure of these banks, as a bill to amend the laws relating to national banks was introduced in the Senate by Senator Chandler on February 11, 1893, and referred to the Select Committee on Failed National Banks, which committee reported it favorably five days later.

This bill provided for an increase in the limit of loans of the banks from ten per cent. of the capital stock to an amount equal to ten per cent. of the capital and surplus, the latter to be determined by the report of the examiner at the time of the last previous examination of the association. In case of any violation of this statute it was made mandatory on the part of the Comptroller to bring a suit to forfeit the charter of the offending association, and the Comptroller was prohibited from discontinuing such suit without authority of the Secretary of the Treasury.

While the law at that time contained a provision authorizing such a proceeding, its enforcement always had been held to be discretionary with the Comptroller, and the failure on his part to institute a suit of this character against banks which had been known to persistently disregard the limitations of law in making loans, has subjected him to severe criticism in the past by Congress and the press of the country when banks have failed through losses sustained upon loans which largely exceeded the prescribed limit.

This bill provided further that no loan should be made to any officer, director, employee or stockholder of the bank in excess of one thousand dollars, except upon the authority, previously granted in writing, and signed by the president or vice-president of the bank and three-fourths of the directors, or by a majority vote of the directors at a meeting of the board duly recorded on the minutes of such board meetings. The directors were also required to keep a liability register, in which all loans should be recorded, and any false entry in such liability record, or any intentional omission therefrom, should subject the guilty party to a fine of not exceeding five thousand dollars, or to imprisonment for a term of not exceeding one year, or both, in the discretion of the court.

This bill also empowered the Comptroller to summon to Washington any officer or director of a bank who persisted in violating the law after due admonition, to show cause why he should not be removed from office, and authorized the Comptroller, with the approval of the Secretary of the Treasury, after a hearing, to remove from office such offending officer or director.

In order to facilitate the collection of assessments from shareholders to make good an impairment of the capital stock of a bank, the Comptroller was authorized to file with the Recorder or Register of Deeds in the county or district in which the stockholder resided, or in which he owned real estate, a certificate reciting the name of the stockholder, the number of shares owned by him and the amount of the assessment thereon, which certificate should constitute a lien upon any real estate owned by such shareholder for the amount of the assessment.

There were other provisions in this bill, but the foregoing covers its most important features. Like all previous attempts to impose additional restrictions by legislative enactment upon the banks, or to confer increased supervisory powers upon the Comptroller, so as to enable him to more effectively enforce an observance of the statutes, this bill failed to become a law and the exhaustive inquiry made by the committee came to naught.

The National Bank Act requires the Comptroller of the Currency to report annually direct to Congress, and to recommend among other things:

Any amendments of the law relating to banking by which the system may be improved and the security of the holders of its notes and other securities may be increased.

No noteholder of a national bank ever has lost a dollar through the failure of the association issuing the notes to redeem its circulation at its face value. The circulation of national banks being absolutely secured by a deposit of interest-bearing bonds of the United States with the Treasury Department, Comptrollers of the Currency did not deem it necessary to make any recommendations to Congress for the better security of noteholders of national banks.

But what of the depositors and other creditors, the safety of whose funds depend wholly upon the good judgment and honesty of the management of a bank and the sufficiency of the security held for its loans. What has been done since the passage of the original Bank Act to increase the security of deposits, either by way of legislation enacted or recommendations submitted?

While numerous recommendations for amendments to the law were submitted to Congress from time to time by the various Comptrollers, which in the judgment of each would have improved the system and added to the security of depositors, very few of these suggested amendments were enacted into law or received the serious consideration of Congress.

Of the numerous amendments of the original Bank Act adopted since 1864, not one of such amendments can be said to have had for its object the increase of the security of depositors in national banks. Whatever additional safeguards were adopted in the interest of the depositor were in the nature of administrative regulations, which in the absence of statutory authority were not always capable of enforcement, especially in cases where enforcement was most needed.

The continued indifference of Congress before the passage of the Federal Reserve Act to the recommendations of the Comptroller of the Currency for such amendments to the national banking laws led Mr. Lacey to conclude his annual report for the year 1890 with the following pointed comments:

The Comptroller desires to emphasize the fact that the national banking system has arrived at a point in its history when continued neglect on the part of Congress is as potent for evil as unfriendly action. Certain burdens resting upon it must be removed without unnecessary delay, if immediate stagnation and ultimate decay are to be prevented. It should receive such wise and just treatment as will result in a healthful growth, or else provision should immediately be made for the inauguration of some new system, more completely adapted, if possible, to the wants of the people. Banks are indispensible to the successful conduct of the various business enterprises which form a prominent feature in modern civilization. These agencies must keep pace with the progress made in manufactures, in commerce, and in all forms of industrial activities, or serious embarrassements will surely follow. The national system must occupy the field or give way to another.

What Mr. Lacey said with so much truth and force had no apparent effect on the legislative branch of the Government. No material amendment was made to the laws until the adoption of the Federal Reserve Act in December, 1913.

The inability of national banks in the meantime to handle certain lines of business within their corporate powers and the limitations of law led to the formation of trust company adjuncts in many of the cities and towns to enable the banks to hold a class of business that they could not transact as national associations, until it was not uncommon to see a national bank, a savings bank, and a trust company, operated and controlled by the same stockholders and the same management, and frequently in the same building. This condition became a necessity, for, as Mr. Lacey said, "The national system must occupy the field or give place to another."

Under State laws commercial banks were found doing a commercial and savings bank business, savings banks doing a commercial business, and trust companies doing all three classes of business, while national banks were restricted in their operations to purely a commercial business.

A commercial bank with a separate and distinct savings and trust department, under proper restrictions, can be as safely operated by one corporation and management as the three classes of business can be conducted by separate corporations operating under independent charters but owned, officered and controlled by the same management and stockholders, and certainly much more economically, and therefore more profitably.