( Originally Published 1918 )
Why So Called. In 1863 a national law was passed in accordance with which banks might be organized and conducted alike throughout the country. Banks formed under that and subsequent laws of Congress are called National Banks, for the reason that they are organized under national laws and their notes secured by national obligations.
How Organized. Any number of persons, not less than five, can enter into articles of association for the formation of a national bank. Such articles must specify in general terms the object for which the association is formed, and are signed by those associating and forwarded to the comptroller of the Currency.
Requisite Amount of Capital. The capital stock of a national banking association is divided into shares of $100 each, and in cities of 50,000 population or over, no association can be organized with a less capital than $200,000 8,000. In cities and towns of 6,000 population, a d up to 50,000, a capital of $100,000 is required; i towns of from 3,000 up to 6,000, $50,000; and i towns not exceeding 3,000, $25,000.
Shares of the Bank Stock. The capital stock is divided into shares of $100, and it is transferable on the books of the association.
Payment of Stock. At least 50 per cent of the capital stock must be paid in before business can be commenced, and the balance at the rate of at least 10 per cent a month.
Directors must not be less than five in number. Every director must own at least ten shares of the capital stock.
Deposit of Bonds. Every association before it can circulate notes, must transfer and deliver to the Treasurer of the United States any interest-bearing United States registered bonds, to an amount not less than $30,000, and not less than one-third of the capital stock paid in. These bonds are kept on deposit by the United States Treasurer.
Bank Offices and Employees. The stockholders of an incorporated bank elect a Board of Directors, who manage its affairs. These elect a President, one or more Vice presidents and a Cashier. The Cashier is the executive officer of the bank and its interior management. He is assisted by a number of employees. The principal ones are the Paying Teller and the Receiving Teller, who are at the head of the debit and credit departments ; the Note Teller, the Discount Clerk, the Collection Clerk, the Bookkeepers, each in charge of certain ledgers; Assistant Tellers, Assistant Bookkeepers, Check Clerks, and Messengers.
Safety of Currency and Deposits. Owing to the fact that a National Bank can issue notes only to an amount equal to the par value of Government bonds which the bank has deposited in the United States Treasury to secure their payment, it is impossible for the holder of national bank notes to suffer loss by reason of the bank's suspension or failure.
To insure a safety of deposits in National Banks, the law provides for a rigid system of periodic inspection by bank examiners appointed by the Comptroller of the Currency. But no perfect system has yet been devised that will effectually guard against the dishonesty of managing officers of the banks.
Sometimes several banks are presided over by the same individual, and when an examination of one of the banks is to be made, he may cause funds from the other banks of which he is president to be transferred to the bank which is under examination, in sufficient amount to cover up any existing deficiencies. In this way the fact that funds of the bank have been embezzled by the bank officers, or diverted into the channels of speculation, remains undetected. In most cases the opportunity for the embezzlement or diversion arises from the inefficiency or negligence of the bank directors, and in nearly every instance where loss to depositors has occurred it might have been prevented had the directors given ordinary attention to their duties.
Banking Business. The business of banking consists in dealing in money and credit. The following are some of the branches of this business : Collection, Discount, Deposits, Circulation, Ex-change, Loans, Remittance, Investment and Agency. Some of these branches have already been considered under the sub-heading Different Classes of Banks.
Collection is the opposite of remittance. Banks receive drafts or checks payable at distant points. These are presented at the places of payment. There are left with the banks, for collection previous to maturity, notes, time drafts, and bills of exchange.
Discount is paying to a person the proceeds of a note or other paper not yet due, deducting from it the interest till maturity. As the sum received is not the full amount of the paper, the borrower really pays more than the nominal rate of interest. (See "Bank Discount.") Loans. Bankers receive money not only for safe keeping, but they loan out the greater part of it at a higher interest than they pay their depositors. Loaning money is as much a part of their business as receiving deposits.
Investments.-With money not otherwise employed banks purchase various securities, both for the income to be derived from them and for the profit to be realized from their sale. The chief object of a savings bank is the collective investment of small sums.
Agency. Many banks act as financial agents for their customers, investing their money in various ways.
The magnitude of the business of exchanges makes it necessary in large cities, where there are many banks, to have an establishment known as the clearing house, to which each bank connected with it sends every day in order to have its business with the other banks adjusted. Each bank in its daily dealings receives many bills of other banks, and checks drawn on them, so that at the close of the day's business every bank has in its drawers various sums due to it by other banks. It is, in like manner, the debtor of other banks which have received its bills and checks. These sums due by and to the banks among themselves are at the clearing house set off against each other and the balances paid or received.