INSTITUTIONS OTHER THAN NATIONAL AND FEDERAL RESERVE BANKS Composition of the Banking System of the United States In Chapter XII were listed, under several classifications, the financial institutions that compose the banking system of the United States. The intervening chapters have described the national and federal reserve banks. In this and the succeeding chapter will be treated the other financial institutions of the country, but not with the fulness given to the national and federal reserve banks. Many of these other institutions are largely di vorced from commercial banking, which this book aims to present; many are closely concerned with the investment market, some with savings, some with personal loans, some with building homes; only indirectly do these affect commercial banking. They are, however, an essential part of our banking system and warrant proportionate treatment. State banks and trust com panies are largely commercial banks, and they are very numerous and important.
State Banks—Growth State banks, which include commercial banks incorporated under state charters, amounted in 186o to 1,562. By 1868 this number had decreased to 247 owing to national bank legislation, particularly the ro per cent tax on circulation. After 1870 they again began to increase. The state banks developed without regulation because the issue of bank notes was impossible and the regulation of deposit banking was not regarded a duty of the gov ernment until some time after the national bank system had led the way. In recent years the individual states have undertaken the general supervision of the financial institutions within the States.
In certain states constitutional prohibition delayed the growth of state banks. The state of Texas retained such prohibi tion longest—until 1905. In practically every state the incor poration of banks was hedged about with limitations, such as referendum of all banking laws, a two-thirds vote for the enact ment of banking laws, and incorporation by special legislation rather than general laws. The general tendency has been to
liberalize incorporation by means of general banking acts as distinguished from business incorporation laws.
Requirements as to Capital Most states have requirements as to the minimum capital of their banks. In some states the amount required is the same throughout the state; in others the amount is either graded according to the population of the domiciling city, or varies with the business done by the bank. The minimum capital required ranges from $5,000 to $50,000, the banks in the eastern and east middle states having the largest. Since the national banks up to 1900 had to have $50,000 or more capital, and $25,000 after that date, the smaller banks were obliged to take out state char ters. For this reason state banks are more ubiquitous. The ad justment of capital to population serves roughly to make the responsibility of the stockholders vary with the size of the banks, and also puts a check on excessive competition.
The states also vary in their requirements as to authorized, subscribed, and paid-in capital. There is a tendency, however, to follow the national bank system in this respect and to shorten the period within which capital must be fully paid. Most states require the accumulation of a surplus equal to 20 per cent of the bank's capital. The tendency is to require larger surpluses and faster accumulation of them. The declaration of dividends ex cept out of net earnings is usually prohibited, and some states provide elaborate rules for the calculation of net earnings. Most states follow the National Bank Law of 1873 and provide for the assessment upon stockholders of any impairment of capital. Since most states require stock to be fully paid, the liability for unpaid subscriptions is unimportant. There is a tendency also to impose a "statutory liability" upon stockholders beyond the stock held by them, usually a double liability.