At least 50 per cent of the capital must be paid in before the bank is authorized to open for business, and this must be in cash or its immediate equivalent, not by promissory notes. The balance may be paid in monthly instal ments during the next five months; but it is advisable to have all paid in before opening for business. No surplus is required by law to be paid in by the subscribers, but it has become the custom for new banks to start with a paid in surplus and by doing so the new bank re ceives the confidence of the public more quickly. Ten or 25 per cent of the capital should be sufficient, although 100 per cent is paid in on some occasions.
Each stockholder of a National bank is liable to an asseisment of 100 per cent of the par value of his stock for the liabilities of the bank. The law reads: °The shareholder of every national banking association shall be held individually responsible, equally and rat ably, and not one for another, for the contracts, debts, and engagements of such.association, to the extent of the amount of their stock therein, at the par value thereof, in addition to the amount invested in such shares.° The shares of certain State banks entering the National system are exempt from this liability.
State banks can be converted into National banIcs, and many banks now in the National sys tem were originally organized under State laws. To enter the National system the State bank must comply with practically the same require ments that are Unposed on a new organization. There are, however, certain advantages offered to the State banks, but not so many now as in the early days of the operation of the law. These are the advantages: if the bank has branches it may retain them; the stockholders of such a bank are exempt from the 100 per cent liability on their stock if the capital of the bank is not less than $5,000,000, actually paid in, and if the bank at the time of conver sion has a surplus of 20 per cent of the capital, but the 20 per cent surplus must be maintained.
State Banks.—These are organized under the laws of the States where they are to oper ate, and as the laws of each State differ in some respects it would be impossible in this article to give specific statements regarding the organization requirements of the various States. Forms for application to organize such banks and copies of the laws governing the banlcs can be obtained from the Banking De partment of any State, or from the Secretary of State, in such States where there is not a banlcing department.
In many States the laws have been modeled after the National Bank Law, and in some States the laws have been made more advan tageous to the bankers than the national law, and thus give the banks a greater scope in lines of business that rightfully belong to them. If a bank is restricted in the lines of business in which it can operate it is limited in its earn ing power as well as in its utility to the com murnty.
As the National banlcs were organized orig inally, to serve the Federal government and mercantile interests, so the State banks in many States have laws that were formed with the purpose of allowing the banks to serve the general public, and because of these laws they are better public utility institutions than the National banks. If a bank is not a public utility institution in its practice, it becornes narrow in its views and unaccommodating to its cus tomers, and so limits its usefulness.
Private Banks are usually organized by one man, but sometimes by several men as a firm. In many States laws have been passed pro hibiting any one donig the business of banking without the Federal or State authority. Such laws were enacted because of men who opened banking offices with the apparent purpose to defraud the public. Their success in their evi dent purpose led the authorities to try to pro tect the innocent public against such men. These laws, however, are a restriction against private business and prevent honest men from going into the banking business privately, as they can do in any other business. In this respect the laws are unjust. Some of the very best bank ing institutions in the country are pnvate banks, and some of them have for many years been conducting their business in a manner above reproach and criticism. See PRIVATE Bnicics, article 11.
The Management of Banks is divided into two main departments—supervisory and active. The supervisory is that of the governments, which consists mainly of periodic examina tions and requests for statements of condition with more or less explanation of the items in cluded in the statements.