Louis Brandeis

“ The effect of a pledge is to withdraw for the benefit of one depositor part of the fund to which all look for protection. Thereby the legitimate expectations of a great body of the depositors are defeated and confidence in the fairness of the national banking laws and administration is impaired. ”

“ The modern deposit grew out of the older form of deposit in which the fund was held separate and intact, and the sole purpose of the deposit was safe-keeping. Safe-keeping is still a very important function of deposit banking; and from the point of view of most depositors the chief one. [15] Borrowing by a bank (as distinguished from a rediscount) is commonly regarded as evidence ofweakness. [16] Often the loan is made in the hope of averting insolvency. Loans made by one bank to another commonly involve a pledge of assets, since only upon such a condition is the transaction possible. ”

“ But even if the bank would have been estopped from asserting lack of power, its receiver would be free to challenge the validity of the pledge. The unauthorized pledge reduced the assets available to the general creditors. It is the duty of the receiver of an insolvent corporation to take steps to set aside transactions which fraudulently or illegally reduce the assets available for the general creditors, even though the corporation itself was not in a position to do so. ”

“ It is no answer to say that the other depositors are benefited by the increased resources which the pledge brings to the bank, or at least are not harmed, since the new funds take the place of the securities pledged and are available to meet liabilities. [8] The immediate safety of unsecured creditors depends on the bank remaining open and solvent; the pledge reduces the fund of quick assets available to meet unusual demands without any assurance that the deposit will be used to replenish this fund. ”

“ The effect of pledging quick assets for particular deposits is to reduce the fund available for meeting current demands of an unexpected nature. The funds received from the deposit are not necessarily an equivalent for the securities withdrawn from available resources. In the first place the deposit, in the process of clearing and collection, may serve merely to cancel liabilities against the bank. ”

“ When, in 1927, the average deposits had increased to about $50,000, an additional bond of $25,000 was given with the Maryland Casualty Company as surety. While these bonds were in full force and effect and the bank was solvent, it requested the railway to accept, in substitution for the surety bonds, the pledge of the $50,000 Liberty bonds, giving as its reason for the request that the premiums payable on the surety bonds were a burden from which it wished to be relieved. ”

“ Bank, 174 U.S. 125, 19 S.Ct. 628, 43 L.Ed. 920, and pledge its assets therefor, Wyman v. Wallace, 201 U.S. 230, 26 S.Ct. 495, 50 L.Ed. 738, it may likewise pledge assets to secure a private deposit. The fallacy of this contention has been many times exposed. [14] The difference between deposits and loans is fundamental and far-reaching. The amount of the deposits is commonly accepted as a measure of the bank's success; an increase of deposits as evidence of increased prosperity. The depositor does not think of himself as lending money to the bank. ”

“ A practice is not within the incidental powers of a corporation merely because it is convenient in the performance of an express power. Merrill v. Monticello, 138 U.S. 673, 692, 11 S.Ct. 441, 34 L.Ed. ”

“ National banks lack power to pledge their assets to secure a private deposit. The measure of their powers is the statutory grant; and powers not conferred by Congress are denied. [1] For the act [2] under which national banks are organized constitutes a complete system for their government. Cook County National Bank v. ”