National Banking Act

“ Such by-laws shall require applying banks not organized under Federal law to comply with the reserve and capital requirements and to submit to the examination and regulations prescribed by the organization committee or by the Federal Reserve Board. No applying bank shall be admitted to membership in a Federal reserve bank unless it possesses a paid-up unimpaired capital sufficient to entitle it to become a national banking association in the place where it is situated, under the provisions of the national banking Act. ”

“ The integrity of Government monies was naturally considered an object of great national importance, the attainment of which properly belonged to those entrusted with their disposition.
It is against this background that the National Banking Act of 1864, 13 Stat. 99, must be projected, intended as it was to provide facilities for the deposit of Government funds. Congress was alive to the Treasury's experience with deposits, secured and unsecured, during the preceding decades, together with the policy which had evolved from that experience. ”

“ The act of Congress is an enabling statute, not a restraining one, except so far as it fixes a maximum rate in all cases where State banks of issue are not allowed a greater. There are three provisions in section thirty, each of them enabling. If no rate of interest is defined by State laws, 7 per cent. is allowed to be charged. If there is a rate of interest fixed by State laws for lenders generally, the banks are allowed to charge that rate, but no more, except that if State banks of issue are allowed to reserve more, the same privilege is allowed to National banking associations. ”

“ Now this Court is asked to change what legislative history and prior decisions have established is the precise meaning of an Act of Congress. This we cannot do. For, as we pointed out above, the banking field has traditionally been an area of particular congressional concern marked by legislation responsive to new problems. This can be illustrated by the history of § 548 alone. It was originally passed in 1864 because the 1863 Currency Act [4] contained no provision for state taxation of national banks or their shares. ”

“ In eighteen States no bank reserves are now required by law, and in many States there is no supervision whatever of State banking institutions by the State. Is it possible that the National Government has no power to act in the light of these facts when the banking business of the country is essentially not only one kind of a business, but, indeed, one single business, each one being a wheel in the great credit machine? ”

“ The national banking system established by Congress, in the year 1863, at the suggestion of Secretary Chase, of the Treasury Department, is the initiatory step toward a highly desirable reform in the paper currency of the country. Already over seventy national banks have been organized, under the act of Congress, with a combined capital of ten millions of dollars, whose circulation will have not only a uniform appearance, but a uniform value throughout the whole country. Numerous others are in process of organization. ”

“ When the economic depression of the 1930's brought on widespread bank failures, Congress responded by amending the McFadden Act with the passage of the Banking Act of 1933, which further strengthened the policy of competitive equality. Some Members argued that bank failures were due to the under-capitalization of small rural banks and sought to authorize national banks to engage in branch banking without regard to state law ”

“ The bank was chartered under the national banking act, and the by-laws were adopted in pursuance of Revised Statutes (section 5136) , which authorizes associations incorporated under the act to define the duties of the president and other officers, and to regulate the manner in which its general business shall be conducted. ”

“ National banks are empowered to sue and be sued, complain and defend, in any court of law and equity, as fully as natural persons. Rev. St. § 5136. The first national banking act-that of February 25, 1863, (12 St. c. 58, pp. 665, 681) -provided in section 59 that suits by and against banks organized thereunder might be brought in any 'circuit, district, or territorial court of the United States held within the district in which such association may be established;' and by the act of June 3, 1864, c. ”

“ No such association shall be organized in a city the population of which exceeds fifty thousand persons with a capital of less than $200,000, except that in the outlying districts of such a city where the State laws permit the organization of State banks with a capital of $100,000 or less, national banking associations now organized or hereafter organized may, with the approval of the Comptroller of the Currency, have a capital of not less than $100,000. ”

“ It is of course a great advantage to the national banks, that in the employment of these deposits they are subject to much less restriction than is imposed upon savings banks in many of the states.
Subject to the permission of the Federal Reserve Board, and when not in contravention of state laws, national banks may act as trustees, executors, administrators, and registrars of stocks and bonds. Many banks will find this a useful extension of their powers. If trust companies may properly engage in banking, there can be no good reason why banks should not undertake trust functions. ”

“ I wholly agree with the Court that federal law is to be applied in determining whether the activities of a national bank constitute branch banking under the exclusive definition contained in the National Bank Act, 12 U.S.C. § 36 (f) . Whether the activities here in question constitute branch banking under that standard seems to me an extremely close question. ”

“ It is argued that Congress meant that commercial banking is no longer to be considered as an area of effective competition and that the Act establishes in banking 'a market test measurable only by larger commercial realities.'↑ The Chairman of the Federal Reserve System testified in the hearings that preceded enactment of the Bank Merger Act of 1966 that 'a Federal court order cannot recreate the two banks that formerly existed * * * (N) o matter how one may feel about whether the merger should have taken place in the first instance, there is no turning back. ”

“ It is not the purpose of this section to discriminate, in any manner, against State nonmember, and in favor of, national or member banks; but the purpose is to provide all banks with the same opportunity to obtain and enjoy the benefits of this section. No bank shall be discriminated against because its capital stock is less than the amount required for eligibility for admission into the Federal Reserve System. ”

“ Whenever the Federal Reserve Board shall have revoked any such voting permit, no national bank whose stock is controlled by the holding company affiliate whose permit is so revoked shall receive deposits of public moneys of the United States, nor shall any such national bank pay any further dividend to such holding company affiliate upon any shares of such bank controlled by such holding company affiliate. ”

“ But among them the creation of additional money and credit, the management of the checking-account system, and the furnishing of short-term business loans would appear to be the most important. For the proper discharge of these functions is indispensable to a healthy national economy, as the role of bank failures in depression periods attests. It is therefore not surprising that commercial banking in the United States is subject to a variety of governmental controls, state and federal. Federal regulation is the more extensive, and our focus will be upon it. ”

“ The privilege of becoming a national banking association is given by section 5154 of the Revised Statutes to 'any bank incorporated by special law, or any banking institution organized under a general law of any state.' These words, it is argued, do not embrace savings banks organized in the District of Columbia, and only refer to banks or banking institutions created under the authority of some state, either by a special or general law. ”

“ Commercial banks are unique among financial institutions in that they alone are permitted by law to accept demand deposits. This distinctive power gives commercial banking a key role in the national economy. For banks do not merely deal in but are actually a source of, money and credit; when a bank makes a loan by crediting the borrower's demand deposit account, it augments the Nation's credit supply. ”

“ It has always seemed to me that the provisions of law regarding the capital of national banks, which operate as a limitation to their location, fail to make proper compensation for the suppression of State banks, which came near to the people in all sections of the country and readily furnished them with banking accommodations and facilities. ”

“ Under these circumstances, to amend the banking law so as to deprive the banks of the privilege of securing their notes by the most valuable bonds issued by the government will, it is believed, in a large part of the country, be a practical prohibition of the organization of new banks, and prevent the existing banks from enlarging their capital. The national banking system, if continued at all, will be a monopoly in the hands of those already engaged in it, who may purchase government bonds bearing a more favorable rate of interest than the three per cent. ”

“ Moreover, charges for other banking services, such as service charges for checking privileges, are free of governmental regulation, state or federal.
Entry, branching, and acquisitions are covered by a network of state and federal statutes. A charter for a new bank, state or national, will not be granted unless the invested capital and management of the applicant, and its prospects for doing sufficient business to operate at a reasonable profit, give adequate protection against undue competition and possible failure. ”

“ From this it must also follow that even although a business be of such a character that it is not inherently considered susceptible of being included by Congress in the powers conferred on national banks, that rule would cease to apply if, by state law, state banking corporations, trust companies, or others which, by reason of their business, are rivals or quasi rivals of national banks, are permitted to carry on such business. ”

“ Because of pertinent congressional legislation in the banking field, we find it unnecessary to reach the constitutional question of whether today national banks should be considered nontaxable as federal instrumentalities.
As will be seen, Congress has been far from reluctant to pass legislation in the banking field. There are important committees on banking and currency in both Houses which continually monitor banking affairs and propose new legislation when changes are felt to be needed. ”

“ If that alone were enough, then it would seem that state banks which elect to join the Federal Reserve System should also be tax-immune federal instrumentalities. [7]
In any event, there is little difference today between a national bank and its state-chartered competitor: the ownership, control and capital source of each is private; each exists for private profit. More importantly, neither may issue legal tender:
'With the passing of the national bank notes, the United States lost much of the difference between the national banking system and the state banking systems. ”

“ Bank of United States, and recognizing that it had been settled beyond dispute that Congress had power to organize banks and endow them with functions both of a public and private character, and in the assumed further light of the rule that every reasonable intendment must be indulged in in favor of the constitutionality of a legislative power exercised, it was yet decided that Congress had no authority to confer the powers embraced in the section of the act under consideration, and hence that the section was void. ”

“ Since there is no banking law banks, incorporated or private, are formed under the general corporation law, which limits the liability of the stockholders. Due to this condition, the national banks, being the more secure institutions, have preference over the State banks in popular confidence. ”

“ Congress has ample power, as was pointed out fully the other night, and should put a tax of 10 per cent, or even 20 per cent if necessary, upon all deposits a bank [Pg 398] may have against which it does not hold the reserves prescribed by the National laws.
Congress has other methods it can adopt growing out of its constitutional powers by which every institution in the United States doing a banking business may be compelled to conduct its affairs upon sound principles. ”