National City Bank

“ The largest of the State banks doing business in the city is the Bank of Commerce, (about being reorganized on the national plan,) with a capital of ten millions; and the smallest possess capital to the amount of two hundred thousand dollars.
Mr. Camp, now at the head of the New York Clearing-House, has been kind enough to furnish the following interesting statistics in regard to the total amount of business transactions managed by the New York banks in connection with the Clearing-House during the two years ending on the 30th of last September. ”

“ Is it not as clear as sunlight that for every $865 issued by a country bank, or every $675 issued by a city bank, $1120 had gone to New York before? Is it not clear that the amount of loanable money, instead of being increased, has been diminished 30 or 40 per cent. by the operation? It is true that by the establishment of national banks here and there some greater banking facilities may be offered. They take deposits, and they make discounts ”

“ Conceivably a bank could use an armored car as a place of business by stationing it at designated places during designated hours for opening accounts, receiving deposits, making loans, and the like. But no armored car was so used in these cases.
Federal law stated in the McFadden Act, 12 U.S.C. § 36 (f) , defines 'branch' as any facility 'at which deposits are received, or checks paid, or money lent.' And Congress provided that national banks may establish 'branches' whenever, wherever, and however state banks may do so. ”

“ This method is pursued as an accommodation to the business public, who prefer clean and crisp notes; and while a day's deposits of any large bank must include much currency perhaps just out of the Treasury, the whole bulk is often shipped off to avoid the labor of assorting. Besides, remittances for redeemed notes of national banks being made, if desired, in greenbacks, the agency furnishes a convenient means to city banks for keeping up their legal tender reserves. ”

“ What those cases established was that although a business was of a private nature and subject to state regulation, if it was of such a character as to cause it to be incidental to the successful discharge by a bank chartered by Congress of its public functions, it was competent for Congress to give the bank the power to exercise such private business in co-operation with or as part of its public authority. ”

“ For, so long as the ordinary New York banks are permitted to pay interest on bankers' balances, country banks will to a considerable extent keep their balances with these outside New York banks; and it seems not unlikely that the excessive monetary stock thus accumulating in New York City would, instead of getting into the hands of the New York reserve bank, largely remain in the hands of the outside banking institutions and be employed more or less as it has been in the past, that is, in financing doubtful enterprises and supporting excessive speculation. ”

“ The profit on circulation was so seriously reduced by the high price of the bonds, on which it is based, that a number of banks in New York city and elsewhere surrendered their charters as National Banks and organized under the law as State institutions. They were largely impelled to do this by a desire to escape the restrictions imposed by the National Banking laws and{468} the scrutiny of the Comptroller of the Currency and the officials of his department. ”

“ 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 long been settled that one of the public policies embodied in the national-bank act was to secure the public credit and encourage the issue of notes to circulate as currency, founded upon the security of the bonds of the United States,-a purpose which would be directly discouraged by exempting a national banking association which reduced its circulation below 5 per centum of its capital from the payment of a duty thereon, and yet enforcing the payment of such duty against a national bank which had not reduced its outstanding circulation to the limit stated. ”

“ The reason for the competitive disadvantage of most lending institutions vis-a-vis banks is that only banks obtain the bulk of their working capital without having to pay interest or comparable charges thereon, by virtue of their unique power to accept demand deposits. The critical area of short-term commercial credit, see pp. ”

“ One great cause of the concentration of banking and financial power into a few hands has been the consolidation of banking resources into a few great units and the friendly affiliations of these units. But these units have not grown big merely because their managers or owners willed it so. The banking and currency laws of the country have forced money into a few centres. The banks of New York City employ—mainly in financial or stock market loans—about $600,000,000 which belongs to banks in other parts of the country. ”

“ Commercially, it has little value, unless perhaps as a site for signs, and such use should above all others be guarded against. The whole bank should be owned or controlled by the City to prevent its defacement and to preserve a natural element of civic interest and beauty. ”

“ While there is a scarcity of money for the producing sections of the West and Northwest, the South and Southwest, “we find that individual banks in New York City are borrowing from the Reserve System, in a number of cases, more than $100,000,000 each; and sometimes as much as $145,000,000 is loaned there to a single bank—twice as much as some of the Reserve Banks have been lending recently to all the member banks in their districts.” ”

“ Deposit banking operations affect not only the volume of money and credit, but also the value of the dollar and the stability of the currency system. In this field, considerations other than simply the preservation of competition are relevant. ”

“ A National Bank is forbidden to lend more than ten per cent. of its combined capital and surplus to any one firm or individual. "But the discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, shall not be considered as money borrowed." Also no National Bank can lend on its own stock as security. ”

“ Just as the founders of the Penny Bank paved the way for the Post Office Savings Bank, so may some of those who study carefully the experiment of building up Garden City see how useful a bank might be, which, like the Penny Bank, aims not so much at gain for its founders as at the well-being of the community at large. Such a bank might arrange to pay the whole of its net profits or all its profits over a certain fixed rate, into the municipal exchequer, and give to the authorities of the town the option of taking it over should they be convinced of its utility and its general soundness. ”

“ The result was that all solid bankers found it for their interest to deposit with the Suffolk a redemption fund, as that insured the acceptance of their notes.
The New York safety-fund system, which is the cardinal principle of the present national banking plan, required each bank to deposit, with the banking department of the State, securities consisting of Federal or State stocks, or bonds and mortgages, which, in case of the failure of the bank, were sold, and the proceeds applied to the liquidation of its debts. ”

“ 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. ”

“ Goods are sold in one locality and paid for in the goods of another locality by means of drafts, bills of exchange, etc., meeting and canceling one another, so that very little money is transferred from point to point.
The function of discount and loan, as has been intimated, is in modern banking usually combined with that of deposit, as also that of circulation or issue. When the capital of a bank is paid in by the stockholders, and the officers elected, it is then ready for business under regulations imposed by its charter. There are two ways in which the public is accommodated. ”

“ 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. ”

“ Credit for capital investment is not available. There is practically no market for industrial bonds. Prevailing rates of interest charged by banks and private money lenders are still high, which fact is a drag upon economic enterprise and business prosperity. The National Economic Council is recommending a reform of our banking structure in order to remedy these evils. The Council proposes the creation of an investment bank for agriculture and industry, to which shall be transferred all the activities of the Philippine National Bank except those exclusively pertaining to commercial banking. ”

“ It would then be sufficient that the Bank should not receive the bills of any other bank, which issued notes of less than 10 or 20 dollars, or which received the bills of other banks, that issued notes less than the same minimum. In fine, a National Bank is an admirable instrument of exchange, and the most influential friends of the Administration are convinced of the necessity of an institution of the sort. ”

“ The act of February 25, 1863, with some subsequent amendments, was the beginning of the national bank system which has ever since prevailed and of which the London Times, not always a friendly critic of things American, said that "the genius of man has never invented a better system of finance." The creation of the national bank system was of great service to the government during the war inasmuch as it assured a certain market for the government bonds which were then issued. ”

“ Because of this necessary instability bankers watch most carefully the tendencies of the money market, and necessarily reduce their loans for safety when any anxious pressure begins. For the same reason legitimate banking is limited to short time loans—on demand, thirty, sixty, ninety days—the shorter being the safer. Laws sometimes prohibit a bank from dealing in any other business, where a stock of goods must tie up funds, or from speculation in real estate, which confines capital more certainly. ”

“ At any rate, I should confidently expect to see the existing national banks or others to be organized avail themselves of the proposed encouragements to issue circulation and promptly fill any vacuum and supply every currency need.
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. ”

“ They also greatly economize in the use of money by saving cost of counting and of transfer, and by securing against losses. If the system offered no more advantages than this safe and ready use of good money, the banks would be practically indispensable. But they have a still greater use in a safe extension of credit. The perfection of system in banking makes it possible for one who habitually fulfils his promises to purchase anywhere in the world on the shortest notice with the simple guaranty of credit in the bank where he does business. ”

“ An institution might have been established with large capital, and a monopoly of the right of note issue, authorized to act as government fiscal agent, and to deal with the general public. Such an institution would presumably in the course of time have become a central bank, the main reliance of other banks in emergencies. In order to avoid competition with existing banks, the act provides that the receipt of deposits by the Federal Reserve Banks, and their normal lending operations shall be confined to those banks which subscribe to the capital and maintain balances with them. ”

“ Add this sum to the aggregate banking capital above stated, and we have a total of $120,359,224. This vast sum merely represents New York's interest in the management of other people's money. The bank is employed as an engine for operating debt and credit. Its capital is the necessary fuel for running the machine; and that fuel ought certainly not to cost more than a fair interest on the products of the engine. The insurance companies guard the business-man's fortune from surprise, as the banks relieve him from drudgery ”