15. BANK ORGANIZATION AND MANAGEMENT. There are three classes of banks in the United States—National, State and private. The National banks were organized to be strictly commercial banks, but some of them acquired large lines of savings deposits, even though the law did not authorize them to do so. The act of December 1913, however, confirmed their action. By the same act the banks may obtain permission to conduct a trust department. The State banks include four kinds of banks — commercial, savings, trust companies, and the three functions combined in one institution. Private banks, in some of the States where they are allowed to operate, con duct their business apart from legal restriction and protection.
By the average person the National banks are considered the safest and most important. The State banks, as a class, are by many not considered so safe nor so important. The private banks are frequently considered as questionable. Such conclusions, however, are not in accordance with the facts. Whether a bank be a National, a State or private bank is not the vital point; but the character and quality of its management is vital.
National The national banking system was organized under the Act of Con gress of 25 Feb. 1863, since which time there have been many amendments to the original act.
A National bank (legally known as a na tional banking association) may be organized by five or more persons. Application must be made to the Comptroller of the Currency for permission and charter, and the application must state specifically concerning these five points: (1) The name of the association. (2) The place where it is to conduct the banking business, giving names of State, county and city (or town or village). (3) The amount of the capital and the number of shares. (4) The names and residences of the stockholders, and the number of shares for which each has sub scribed. (5) That application is being made to enable the bank to operate under the National Banking Law with its privileges and ad vantages.
The National Banking Law was originally enacted to make a market for the bonds of the United States government, and though appar ently selfish its provisions accomplished a great benefit for the business public by placing the bank notes on a safe basis, and by driving from the market the ((wild cat* notes. The Act of 30 June 1864 first imposed taxes on circulating notes of State and private banks; and the laws were changed at various times until 3 March 1865, when the tax was made 10 per cent and it is still the same.
The law could not properly prohibit the issue of circulating notes by State and private banks, because note-issue is an absolute function of a banlc, but it could make the issue prohibitive by high taxation — and it did that.
Bank notes are now issued only by National banks, and as security for these the banks must deposit United States government bonds with the Secretary of the Treasury at Washington, D. C., and a cash deposit of 5 per cent of the outstanding notes to provide for their redemp tion. The Federal Reserve notes are issued by the Federal Reserve banks.
National banks are frequently organized hy men who make a business of f6rming such organizations. For this service they charge the stock purchasers, or the organization, a commis sion or percentage. This is equivalent to pay ing a premium on the stock. The organization can, however, be perfected without the aid of a professional organizer, but can seldom be ac complished without involving some legal or organization expenses.
The capital required depends on the size of the place where the bank is to operate, and ranges from $25,000 to $200,000 or more. If the population of the town is less than 3,000 the capital must be $25,000; if between 3,000 and 6,000 then $50,000 capital will be required; if more than 6,000 and less than 50,000 the capital must be $100,000 and in every place with a population above 50,000 the banles capital is to be $200,000 or more.