STATE BANKS AND TRUST COMPANIES 1. Growth of state banks.—State banking has not received the attention from writers on banking which its relative importance warrants. This neglect is probably due in part to the great difficulty of obtain ing accurate information concerning the many varie ties of banking practice which have been developed in the different states.
The years immediately following the Civil War witnessed a rapid decline in the importance of state banking institutions. This was due to the repres sive influence of the National Banking Act, hastened in its effect by the ten per cent tax on state bank notes. The number of state banks fell from one thousand five hundred and sixty-two in the year 1860 to two hundred and forty-seven in 1868. The state banking systems became moribund. The old laws regulating banks of issue were swept away by code revision, or remained unchanged on the statute books. It was generally thought that a bank could not oper ate profitably without the right to issue notes.
The national banking system had not been long in operation, however, before it was seen that there was a field for banks of discount and deposit. The in elasticity of the national bank note system gave an impetus to the use of the check book. Furthermore, national banks in certain parts of the country found that the bond-secured circulation was not yielding a profit because of the high price of United States bonds. There were certain restrictions, too, which hampered the operation of national banks and put them at a disadvantage with state banks.
Chief among these restrictions was the prohibition against making loans on real estate. This did not benefit the state banks to any great extent during the early stages of the development period. During the years immediately following the Civil War both the South and the West were drawing capital from the East. Eastern capital preferred to go into pure commercial banking as practised by the national banks, rather than into real estate loans, which were not easily liquidated and the safety of which could not be judged easily at a distance.
After a few years the South and the West began to accumulate capital of their own. Immediately the number of state banks began to grow. The rapid growth of state banking since that time (about 1886) may be ascribed to four causes. First, the note issue of national banks was not highly profitable; second, state banks were serlerally permitted to make loans on real estate, whereas national banks were not; third, state banks were not required to have as high an initial capital in most states as was required of national banks, and could therefore be more easily established in new communities; fourth, the reserve requirements were not so strict in most states as they were in the national banking system. To these four factors might be added others, such as the fact that in some states banks were allowed to establish branches. Perhaps the most important advantage which state banks had was the comparative freedom in making loans.
On June 30, 1916, the Comptroller of the Cur rency reported 7,579'national banks with combined re sources of nearly $14,800,000,000. At the same time he published reports from 15,450 state banks with combined resources of nearly $5,553,000,000. The capital and surplus of state banks was about $832, 000,000, as compared with $1,797,000,000 for na tional banks. The figures are gathered annually for the Comptroller of the Currency by the state officials having supervision over banking. In addition `to these, there were 1,864 savings banks, 1,606 loan and trust companies, and 1,014 private banks reporting. A great many private banks did not report. In all, reports were received from 19,934 banking institu tions operating outside of the national banking sys tem, with combined resources of over $18,000,000,000, and capital and surplus of over $2,000,000,000. The growth of state and private banking institutions has taken place largely in the western, southern and Pa cific states.