RESERVE. The National Bank Act di rects that all national banks in the sixteen largest cities shall at all times have on hand, in lawful money of the United States, an amount equal to at least twenty-five per cent. of the aggregate amount of its notes in cir culation and deposits. Fifteen per cent. is required of all other national banks.
When three-fourths of the national banks in any city of 25,000 inhabitants apply to the comptroller to be added to the reserve cities, he may grant their request and thereafter the banks in such city shall maintain the twenty-five per cent. reserve. Act of March 3, 1903.
When the reserve falls below the proper limit, the bank must not increase "its liabili ties by making any new loans or discounts," otherwise than by discounting or purchasing bills of exchange payable at sight, nor make any dividend, till the limit is reached. On a failure to make good the reserve for thirty days after notice by the comptroller of the currency, the latter may, with the concur rence of the secretary of the treasury, ap point 4 receiver to wind up the bank. R. S. § 5191. See NATIONAL BANKS.
In Insurance Law. That part of the premi ums on a policy, with the interest thereon, which is required to be reserved or set aside as a fund for the payment of the policy when it becomes due. Richards, Ins. L. 20.
An insurance company is deemed to be sol vent when its reserved funds, invested at a specified rate of interest, will suffice to meet the payments on its policies as they shall mature. As a factor of safety, the rate of interest is usually fixed very low.
Under the statutes of many states insur ance companies are required to deposit in each state where they do business securities approved by some state officer, usually an in surance commissioner, to an amount specified which is termed the reserve fund ; Biddle, Ins. § 66. They are held not to apply to re lief associations where the assessments are purely voluntary ; 11 Ins. L. J. 859. The se curities which compose a reserve fund are in the nature of a trust fund for the policy holders, and not a security for the genera] creditors; Faikenbach v. Patterson, 43 Ohio St. 359, 1 N. E. 757; Relfe v. Life Ins. Co., 76 Mo. 594; Moles v. Mut. Life Ins. Co., 12 R. I. 259; and a receiver appointed in case of the insolvency of a company is not entitled to control it, but securities are held in trust for distribution by the trustee ; Cooke v. Warner, 56 Conn. 234, 14 Atl. 798. After the policy holders are satisfied, the securities, if the property of the company, may be applied for the benefit of general creditors; Moles v. Mut. Life Ins. Co., 12 R. I. 259.
In many states such fund is required as a prerequisite to permission to a foreign in surance company to do business in the state, and ordinarily the deposits required by such laws are for the benefit of domestic policy holders; In re Life Ass'n of America, 91 Mo.
177, 3 S. W. 833 ; Bockover v. Life Ass'n, 77 Va. 85 ; State v. Benton, 25 Neb. 834, 41 N. W. 793 ; 17 U. C. Ch. 160.
Another use of the term is its application to a fund sometimes called the safety fund and sometimes a reserve fund in policies is sued by companies which provide for an as sessment to meet the losses. Such fund is intended for the protection of living members by the use of the income for the payment of dues and assessments; 2 Joyce, Ins. § 1287. Where a reserve fund and the mortuary and benefit fund were to be raised by assess ments, the latter being for the payment of death claims only and the former for the exclusive use of members, except that it might be used in payment of death claims when they exceed the experience table of mortality, it was held, upon dissolution, that the reserve fund was to be distributed ex clusively among the holders of certificates in force, and that death claims had no right to share in it ; In re Equitable Reserve F. L. Ass'n, 131 N. Y. 354, 30 N. E. 114.
In a policy on the Tontine system (see IN SURANCE, subtitle, Tontine), where, in addi tion to the provision for the payment of death claims, is was provided that in case the pol icy holder survived the specified period and the policy remained in force, there should be a payment in cash or annuity bonds from a fund created by a certain class of policy holders consisting of those effecting insur ance on the same plan and in the same year, the surplus and profits to be equitably appor tioned among survivors of that class, it was held that the policy did not require a sep arate investment of these funds and that the consent of the assured to placing the dividends in a reserve fund did not extend its obligations In that respect ; Bogardus v. Life Ins. Co., 101 N. Y. 328, 4 N. E. 522.
The term reserve in life insurance is also applied to the fund accumulated out of pre miums after the payment of expenses and other charges properly apportioned to each policy, and where a life policy provides that, in case of lapse for non-payment of premi um, the net reserve, less indebtedness, shall be applied to the purchase of extended insur ance, or, if the assured shall so elect within three months, to the purchase of a paid-up policy, and also that said indebtedness may be paid in cash, and the entire net reserve so applied, such indebtedness must be paid within the three months ; Omaha Nat. Bank v. Life Ins. Co., 81 Fed. 935.
Paying to the insured the reserve on his life policy, taking no promise to repay it, but with an agreement that it will be extin guished automatically by a charge against his reserve, is a payment, not a loan ; Par ish Orleans v. Life Ins. Co., 216 U. S. 517, 30 Sup. Ct. 385, 54 L. Ed. 597.