The national banking system of the United States was established by an
act of Congress in 1863, revised in 1864, and amended by later
legislation. The great advantage of the system, it is said, is the
feature of uniformity, the fact that it brings the banking business of
the whole United States under one authority and under the supervision
of one set of administrative officers. The note-issuing department is
subordinate in its public usefulness to the facilities afforded by
banks and clearing-houses for the interchange of credits. The
essential features of national banks are briefly set forth as follows:
1. There is a bureau of the Treasury Department having charge of all
matters relating to national banks, the chief officer of which is the
comptroller of the currency.
2. Any number of persons, not less than five, may form an association
for banking purposes, to continue not more than twenty years, but
renewable for twenty years with the approval of the comptroller.
3. The powers of the bank are limited to the discounting of promissory
notes, drafts, bills of exchange, and other evidences of debt;
receiving deposits, dealing in exchange, coin, and bullion, loaning
money on personal security, and issuing circulating notes. It cannot
hold real estate except such as may be necessary for the transaction
of its business, or such as may have been taken as security for debts
previously contracted in good faith.
4. There can be no national banks anywhere of less capital than
$50,000, and these small ones are restricted to places of not
more than 6000 inhabitants. In cities of more than 6000 and less
than 50,000 inhabitants there can be no bank of less than
$100,000 capital, and in cities of 50,000 inhabitants or more
none of less than $200,000. One half of the capital must be paid
in before the bank can begin business and the remainder must be
paid in monthly instalments of at least ten per cent. each.
5. Shareholders are liable for the debts of the bank to an amount
equal to the par value of their shares in addition to the amount
invested therein.
6. Each bank having a capital exceeding $150,000 must deposit in the
treasury of the United States registered interest-bearing bonds
to an amount not less than $50,000. Those having a capital of
$150,000 or less must deposit bonds equal to one fourth of their
capital stock. Each bank may issue circulating notes to the
amount of ninety per cent. of the market value of the bonds
deposited by it, but not exceeding ninety per cent. of the par
value of the same, and not exceeding ninety per cent. of the
paid-in capital of the bank; but no bank is compelled to issue
circulating notes. No bank-notes shall be issued smaller than $5.
The notes are receivable at par for all dues to the United States
except duties on imports, and are payable for all debts owing by
the United States within the United States except interest on the
public debt and in redemption of the national currency.
7. Every bank in certain designated cities, called reserve cities,
must keep a reserve of lawful money equal to twenty five per
cent. of its deposits. All other banks must keep a like reserve
of fifteen per cent., but three fifths of the said fifteen per
cent. may consist of balances on deposit in banks approved by the
comptroller in the reserve cities.
8. Each bank must keep on deposit in the treasury of the United States
lawful money equal to five per cent. of its circulation as a fund
for redeeming the same. This five per cent. may be counted as
part of its lawful reserve. This does not relieve banks from the
duty of redeeming their notes at their own counters on demand.
9. One tenth of the net profits must be carried to the surplus fund
until it is equal to twenty per cent. of the capital.
10. A bank must not lend more than one tenth of its capital to one
person, corporation or firm, directly or indirectly, nor lend
money on the security of its own shares, nor be the purchaser or
holder of its own shares unless taken as security for a debt
previously contracted in good faith, and if so taken they must
be sold within six months under penalty of being put in
liquidation.
11. Each bank must make to the comptroller not less than five reports
each year, showing its condition at times to be designated by
him, and he may call for special reports from any particular
bank whenever he chooses to do so.
12. Each bank must pay to the treasurer of the United States a tax
equal to one per cent. per annum on the average amount of its
notes in circulation. The shares are liable to taxation by the
States in which they are situated at the same rate as other
moneyed capital owned by the citizens of such States.
13. Any gain arising from lost and destroyed notes inures to the
benefit of the United States.
14. The comptroller has the absolute appointment of all receivers and
fixes their compensation. All moneys realised from the assets
are paid into the treasury to the credit of the comptroller, and
all dividends are paid out by him.
15. Over-certification of cheques is strictly prohibited, rendering
officers or clerks liable to imprisonment.
16. National bank directors are by law individually liable for the
full amount of losses resulting from violations of the national
banking laws.