10. STATE BANKING SYSTEM. Banking, in the early history of the United States, was the prerogative of the privileged few. Charters were obtained by subterfuges of one kind or another, by favoritism or by bribery. Familiar examples of the devices em ployed to get banking authority under some other guise are the Chemical Bank of New York, chartered as a chemical company; the Manhattan Company Bank, also of New York, chartered as a water company; and the Wis consin Marine and Fire Insurance Company Bank, whose original business is indicated by the title, the word Thank') being an after thought.
But with the enactment of the Free Banking Law of New York in 1838, banking by special charter gradually disappeared, for the provi sion of the New York law conferring banking powers on all associations of persons comply ing with the terms of the act was generally copied in the banking legislation of other States, as it was later in the National Banking Act. From being a monopoly enjoyed by only a favored few, banking became so free as to encourage the rapid multiplication of banks until their number has grown to larger propor tions than in any other country. The absolute freedom which was long given to any body of persons complying with the laws in organizing banks has been somewhat restricted in recent years, and the Comptroller of the Currency, in the case of national banks, and the super vising officers of State banks, are generally showing a disposition to discourage the or ganization of banks where they will tend to cause undue competition, and to refuse alto gether applications for authority to organize banks by the professional bank promoter.
While in the early banking history of the country some of the States devised sound bank ing systems, a great many did not. There was, in many localities, a lack of banking capital or of capital of any kind. Attempts were made to remedy this lack of capital by starting banks for issuing notes, a favorite device being to decide on an extensive policy of public im provements, to issue bonds for this purpose., the bonds being purchased by the banks and notes emitted against them. These efforts all proved disastrous, but the States adhering to sound principles of banking and to correct methods of emitting notes had dif ferent experiences. (See BANK NOTE IssuEs, article 19). Indeed, when the national bank ing system came to be established it was based, in important respects, on the banking laws of New York, Massachusetts and other States whose legislation had been wisely planned. In
turn, the National Banking Act itself became the model for banldng legislation in many of the States, until to-day, with rare exceptions, the standards of banking as formulated by the banking acts of the various States are sub stantially identical with those of the national banking system. The State banks, in fact, found it advantageous to maintain a position of safety at least approximating that of the national banks, otherwise their growth would have been checked. They could, on the other hand, transact some kinds of business denied their Federal competitors, and this, perhaps, made them better adapted to the needs of rural communities. This difference in the functions of the two classes of banks was greatly modi fied by the Federal Reserve system (q.v.), in augurated in 1913. The State banks outnumber the national banks more than two to one— a fact due partly to the larger capital required of the latter (before 1900 it was fixed at a minimum of $50,000 and is now $25,000) and to other causes.
Massachusetts has no State banks of dis count and deposit; New York has such insti tutions; California and Texas and some other States, in their banking laws, authorize cor porations to transact discount and deposit banking, savings bank business and trust com pany business all under one charter. Substan tially this principle (department-store banlcing it is sometimes called) has been embodied in the Federal Reserve Act. Prior to the enact ment of the law referred to, relations between National and State banks were generally ami cable, their lines of business diverging con siderably. With the removal of these differ ences, at least to an extent, it becomes a question as to whether the State banks may not find it less easy than heretofore to com pete with the National institutions. ____ _ The distinguishing feature of the banking system of the United States, contrasted with that of nearly all other countries in the world, is that we have a very large number (between 20,000 and 30,000) of small independent banks, locally owned and managed. In the European countries, and in Australia and Canada, there are a f ew large banks with head offices and numerous branches. In the United States the permission to establish branches of either Na tional or State banks is limited in scope, nut it has shown a tendency to extension of late years