BANK ORGANIZATION AND ADMINISTRATION 1. bank is ordinarily incorporated, and its first requirement is a charter. The steps which must be taken before beginning business are set forth clearly and explicitly in the National Banking Act and in the laws of the various states. An association of a 'certain number of incorporators, usually five or more, is required. They unite for the purpose of establishing the bank and of making their application for a charter. Application must be made to the Comptroller of the Currency, when a national bank is contemplated, or to the State Banking De partment, when a state charter is sought. Applica tion blanks may be secured from these offices.
The application must give the name of the pro posed bank, its location, the names of the incorpora tors, the amount of capital and the number of shares into which it is to be divided and other information. The requirements which must be satisfied before be ginning business vary widely in the different states. Anyone interested should inquire at the proper office and follow minutely the instructions as given in the law and in the rulings of the administrative author ities.
When the application is filed, certain advertising is required and an examination is made by the au thorities to make sure that the incorporators are 'act ing in good faith and that the bank will have a fair chance of success. One of the most important re quirements is that a certain amount of capital be paid up in cash at the beginning of business. If every thing is found to be satisfactory, the bank is author ized to go ahead with its organization.
2. Board of next step is to adopt a set of by-laws and elect a board of directors. The Comptroller of the Currency and most of the state banking departments furnish model by-laws which will serve as a guide. The law usually requires that there be at least five directors and that each director own a specified minimum amount of unpledged stock.
The chairman of the board may, or may not, be the president of the bank. There is a growing tendency among the larger banks to elect one of the principal stockholders as chairman without imposing upon him any responsibility for the routine work of the bank.
A retiring president is sometimes elected to this posi tion. The chairman may be vested with considerable supervisory power.
The work of the board is done thru various com mittees, of which the most important is the loan com mittee. This committee passes upon loans and dis counts. It usually delegates to officers of the bank the power of making loans up to a maximum amount and it expects the officers to warn it when the line of credit to one individual or firm, or even to a single industry, is becoming too large.
The amount of authority delegated to the officers varies with different banks. The best policy is to choose the officers carefully and then give them ex tensive powers. Even when an officer has power to make a given loan, he will refer it to the committee if he has reason to doubt the wisdom of making it. Often, he will refer a loan, which he is convinced the bank should not make, simply to save himself the em barrassment of refusing it personally. The loan may never be actually brought to the attention of the com mittee, but the applicant is told that his request has been denied. Frequently, a man who is told that his application will be referred to the committee might as well set out to find another bank, especially if the amount he seeks is small.
In many banks, the work of the loan committee is done by the executive committee. It is unnecessary to name any of the other committees, for the Neal daily work of the bank is done, not by the board, but by the officers it has chosen.
3. president is usually one of the directors. He may be merely a figurehead or he may be the active dominating force in the bank. In small banks, he is usually the chairman of the board. He may be a successful farmer or business man who has retired, become the principal stockholder in a bank and taken the presidency as an honor. Sometimes, such a man, without any previous experience in prac tical banking, undertakes to run the bank. The re sult may be satisfactory but it is often calamitous. Most of the good bank presidents come up thru the ranks, altho there are many notable exceptions to the rule.