9. State bank two final tests of a banking system are the extent to which it meets the needs of the community, and the percentage of bank failures. Statistics of state bank failures are diffi cult to obtain. Many states are reluctant to give the officers charged with the execution of the banking laws any control over banks which have failed. For a long time the Comptroller of the Currency was unable to get any dependable information. It is claimed that such figures as the Federal authorities have published have been unfair to the state banks, because in many instances they included failures of private banks and savings banks. This mistake was made in the report of the Indianapolis Commission.
Since 1892 we have been fortunate in having the reports of the Bradstreet Commercial Agency, which are reasonably accurate. The Comptroller now relies chiefly on Bradstreet's for his information on bank failures. There is still a certain amount of confusion concerning state banks and savings banks. During the year ending June 30, 1916, twenty-three state bank failures were reported, the nominal assets of which at the time of the failure were slightly over 71 per cent of the liabilities. The total losses to cred itors, after stockholders had contributed the addi tional amounts for which they were liable, is not known. The affairs of fifteen insolvent national banks were closed during the year ending June 30, 1916, the average dividends paid to creditors, run ning from 65 to 100 per cent. During the year end ing June 30, 1916, the Comptroller received reports of failures of five savings banks, three. trust com panies and twelve private banks. The per cent of nominal assets to liabilities for the total of these fail ures was about sixty-four. On the whole the showing is rather unfavorable to state banks.
10. Relation to the Federal Reserve system.— State banks have been very slow and cautious about entering the Federal Reserve system—much slower than had been expected in certain quarters. Up to December 1, 1916, only thirty-eight state institutions had joined. Twenty-four of these were state banks and fourteen were savings banks and trust companies. Eleven of the thirty-eight were in the state of Texas. There were nearly twenty thousand banking institu tions operating under state control. Only one in five hundred, approximately, had entered the system—a small beginning indeed.
The state institutions are stronger in banking power than the banks. There are nearly three times as many of them, they have a somewhat larger capital and surplus, and their deposits are about twice as large. It is essential that a consider able part of this banking strength be brought into the Federal Reserve system if that system is to be as powerful for good in the country as it ought to be.
After the United States entered the war against the Central Powers, state banks and trust companies began to join the system in fair numbers. On De cember 1, 1917, one hundred and seventrsix had en tered, having a total capital and surplus of $428,249, 896 and total resources of $4,275,468,908.
The Federal Reserve Act invites state banks to come in but it does not compel them to enter, as it does the national banks. The invitation is qualified, however, by certain standards and requirements. It is because of these specific requirements, together with some uncertainties, that the state banks have hesitated.
11. Legal requirements of state banks.—The pro visions of the Act which apply to state banks are found in Sections 9, 19 and 21. The principal re quirements are as follows: "No applying bank shall be admitted to membership in a Federal Reserve Bank unless it possesses a paid-up, unimpaired cap ital sufficient to entitle it to become a national bank ing association in the place where it is situated, un der the provisions of the national-banking act." It was required by the original Act to comply with the rules that apply to national banks respecting "the limitation of liability which may be incurred by any person, firm or corporation," against buying or lend ing on its own stock, and impairment of capital.
The amendment of June 21, 1917, provides, how ever, that "subject to the provisions of this act and to the regulations of the Board made, pursuant thereto, any bank becoming a member of the Federal Reserve system shall retain its full charter and statutory rights as a state bank or trust company, and may con tinue to exercise all corporate powers granted it by the State in which it was created, and shall be entitled to all privileges of member banks." There is a pro vision, however, that no reserve bank shall rediscount for such bank paper of a single borrower who is liable to the bank in an amount greater than ten per cent of the bank's capital and surplus.