11. PRIVATE BANKS. For the ordi nary functions of deposit and discount the private banker in the United States is being rapidly superseded by institutions organized under State and Federal laws. The private banker might engage in business with little or no capital, and what he had he was at liberty to invest as he chose, and this freedom in the manner of investing his capital extended to the investment of deposits entrusted to his keeping; these he might employ either in his own business or embark them in any enter prise which appealed to his fancy. The incor porated bank, on the other hand, enjoys no such license. It must have a prescribed capi tal, which must be paid up in money, and this capital must be maintained unimpaired; and, in addition, the banking laws generally require that a definite surplus fund— so much in pro portion to capital— shall be accumulated and maintained. These banks, unlike the private banks, must submit to frequent official visita tion and examination and must make and pub lish detailed reports of condition one or more times a year. Some of the States have found it expedient to prohibit private banking altogether.
As against the objections to private banking as above set forth it may be stated that where the State and national bank stockholders are only liable in case of insolvency of the bank, for an additional amount equal to their shares, the private banker is liable for the debts of his bank without limitation. (The adoption of the principle of limited liability in England grew out of some disastrous bank failures where the stockholders were heavily assessed, losing in some instances their entire fortunes). Furthermore, the restrictions on the invest ments and operations of incorporated banks, while tending to greater safety, yet restrain the banks from opportunities of malting profits which may be taken advantage of by the shrewd private banker.
Now, as in the earliest days of banking in Europe, some of the greatest transactions of domestic and foreign finance are carried on by private bankers; but they are not, in the ordinary sense, doing a discount and deposit banking business. They are rather the skilled intermediates of governments and of great corporations, representing their interests among the banks and the investing public, and as Rich perform a highly useful service. In integrity they compare most favorably with the largest of the incorporated banks, while their operations are not infrequently greater than even the largest of such institutions taken singly. The private banker, in arranging loans for governments and corporations, does not use his own funds, but by his standing and skill is able to mass together the resources of various banks, often in numerous and widely separated localities. He has to do with for eign exchange, the handling of specie on in ternational account and provides the capital for the immense industrial and transportation en terprises which constitute such an important part of the country's business life.
The private banker of to-day is a financial expert without whose service the operations of trade and finance could hardly be carried on, but in performing this service he uses his reputation and skill rather than his own funds or even the funds of others accumulated in his own particular office. He selects, analyzes and classifies the various lines of sound invest ments and brings to their support, not his own funds alone nor yet those of individuals com mitted to his care, but the funds of many groups of investors and of banks that have confidence in his integrity and judgment.