Banking law

“ 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. ”

“ I said that the business of banking proper consisted in loaning money, discounting bills, facilitating exchanges of productions by the agency of commercial paper, and in receiving and disbursing the deposits of individuals. The issue of bank bills was an exclusive privilege conferred only on a few corporations. It was a privilege that an individual could not enjoy. No person could issue his bills in the form of paper money without a corporate franchise granted him and his associates, either by a general banking law, or by an act of incorporation. ”

“ Law cannot regulate credit. The present system of banks is "in too many of its features, a dark and disgraceful picture." Contraction is a policy by which banks save themselves and ruin the community after leading it into error. The great fault of the banks is that they are not founded on real capital. He proposed a system of free banking, the capital to be invested in stocks, etc.; the fundamental idea of the free banking law of 1838. In "A Peep into the Banks," the anonymous author criticized adversely a project which was then proposed for a Bank of the State. ”

“ 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. ”

“ The provision of law by which country notes might be redeemed at a discount of one-half of one per cent. led to a new device. The Comptroller, in his report of, mentioned a case of a bank organized under the free banking law in an out-of-the-way place in Orange county. Its nominal president lived in Connecticut and all its business was done in New York City. The arrangement was devised in order that it might make one-half of one per cent. on such of its notes as were presented for redemption in New York City. ”

“ The law neither helps nor hinders him; it simply requires that the bank shall satisfy the demands of depositors in accordance with the terms of the contract and that it shall redeem its notes on demand. The public by force of custom expects a bank to do a little more than the law requires, for its credit is bound to suffer if it take advantage of its legal privilege to delay payment upon time deposits. ”

“ The law is silent on several subjects that seem of great importance to most bankers in the United States. For instance, it does not require that the banks shall deposit with a government official, or in any way set aside any kind of security for the protection of the note holder. It does not even require that the banks shall carry a cash reserve against either notes or deposits, nor does the law make the notes a legal tender for any payment. A bank need not accept the notes of other banks. The Government does not guarantee the redemption of the notes. ”

“ This new form of banking, due to the scope permitted under the present law, has been able to deal in business and to make loans on collateral which, while valid, is forbidden a bank under the statutes. The Trust companies, able to deal in more profitable business and to pay good interest consequently on deposits, have developed so enormously as to threaten to overshadow the banks. ”

“ Thirty States require that the reports be published in the local newspapers; twenty give reports about banks in annual or biennial reports; six make no provision for publishing information about them. Fourteen States allow banks to issue circulation; nineteen prohibit circulation; several have no law on the subject. Twelve States have no provision for the examination of banks by State officers. Seven States have no restrictions on bank loans; nine prohibit loans to officers or employees; most of them prohibit loans on the bank's own stock; twenty-four have no requirement for a cash reserve. ”

“ The law does not require a single business man to change his account from the bank with which he has kept it or any business man or bank to suspend dealings with the bank or banks in the central reserve or reserve cities with which they have in the past been doing business. It does offer to banks freedom of choice. It says to the banker that he can follow his preferences, sentiments, or habit in selecting the source of his borrowing ”

“ It follows that the comparison must have regard to business and property which may be deemed to have, generally speaking, a similar character; and, in the present case, there is no basis for the contention that the statute unfairly discriminates against national banks unless it may be found in the method of dealing with deposits in banking institutions organized under the state law. The institutions thus brought to our attention are savings banks and trust companies. ”

“ No law might ever sanction the suspension of specie payments. The State should never be a stockholder in any bank after the expiration of the present State Bank, nor in any other corporation, nor lend its credit to anybody. ”

“ The appellees say that, upon the original enactment of the Bank Guaranty Law and the decision of this court sustaining it, the state banks could have done one of three things: (1) Liquidate and invest their capital in some other business; (2) undertake to organize as a national bank; or (3) apply to the state banking department for a certificate of authority to operate under the Bank Guaranty Law. That is, the state banks had to comply with the law in order to continue in business as state banks. ”

“ Nothing can arrest the Agricultural Bank in its ruinous course but the prompt interference of legislative power. It has existed in continual disregard of the law, as exemplified in its traffic in cotton, in its sale of postnotes, and in paying out Brandon Bank paper as money for notes discounted at its counter, when the said paper was at thirty-five per cent. discount. To terminate such gigantic frauds on the public, and to compel the bank to do equal justice to its debtors and creditors, it ought to be wound up and its charter abolished. ”

“ A special stress was laid upon the provision that every bank must be one of discount and deposit, and not simply of circulation. This law, however, was so modified in 1855 as to be in effect repealed, by converting all the free banks into joint-stock banks under a general law. The notes were to be surrendered and the securities taken up. Circulation was limited under the new law to one hundred and fifty per cent. of the capital. In case of failure, the note-holders "shall have a lien on all the estate of said corporation of every description." ”

“ No matter how a merchant's stock may change in character, it all belongs to his bank in case he fails to take up his paper or meet his engagements. In the same way a manufacturer's stock of goods, the raw material and the finished products, no matter how they change from day to day and month to month, will become the property of his bank if he fails to pay his note. The law practically makes every bank a silent partner in many wholesale and manufacturing businesses and gives it many rights which no ordinary silent partner can acquire. ”

“ There was at this time an appraisement law that the sheriff should, at the demand of the debtor, summon three householders to appraise property taken in execution, and that it should not be sold unless two-thirds of the valuation was bid.
The act for the regulation of banks was amended February 21, 1843. No one was allowed to be a director in two banks; not more than one member of a firm might be a director in the same bank; no loan might be made for more than six months; no dividend might be made when the capital was impaired ”

“ Each bank must also elect, and make known its choice, whether it would take the redemption of its neighbor's notes at the counter or at the redemption agent's. This law was complained of as giving banks days of grace. Its constitutionality was disputed, as it was signed more than ten days after the Legislature adjourned.
From 1844, the railroads were constantly in the market, borrowing. Money could hardly ever be had outside the banks for six per cent. ”

“ Six per cent. of the profits are to be paid semi-annually to the State as a tax, the interest on the bonds deposited not to count in the profits; no bank to circulate any notes which are not at par, nor any notes of any bank outside of the State for less than $5. Specified banks may come under this law and retire their old circulation. ”

“ 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. ”

“ The main point of contention between the supporters and opponents of the act lies in its want of elasticity in time of need. Under no circumstances can the bank increase its issue of notes against securities beyond the prescribed limit, without a breach of the law ”

“ Congress evidently intended, by leaving out of the law of 1864 the 36th section of the act of 1863, to relieve the holders of bank shares from the restrictions imposed by that section. The policy on the subject was changed, and the directors of banking associations were in effect notified that thereafter they must deal with their shareholders as they dealt with other people. ”

“ The people lacked all the utilities of money and suffered instead from a political and commercial curse. He would have said that if bills of credit bore interest, they would not circulate. Hence the prohibition did not touch State bonds, and that, if they were cash specie obligations for value promptly enforceable at law, all their evil features would disappear. He would have said that bank notes were of the latter character. The history of the following fifty years showed that the Constitution-makers placed too much confidence in this latter distinction. ”

“ There are in the United States nearly seven thousand national banks, besides twice as many state banks and trust companies. Each of these institutions acts for its individual interest alone, independently of the others, and the prevailing tendency of each at all times is to expand its credits to the limit permitted by law. ”

“ October 24th, the grand jury of Davidson County begged leave to present their opinion in condemnation of the action of the two old banks in opposing the new Bank of the State, which has a strong capital and all safeguards. "Those banks ought to recollect that they exist by legislative aid and permission. They are barely tolerated by the people whose breath can annihilate them in an instant. They surely forget on what a precipice they stand." [56]
In May, 1821, the Supreme Court of the State had occasion to pass upon the stay law. ”

“ 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. ”

“ Apart from questions which may arise under the national banking laws in the case of national banks, it is no longer open to doubt that a state, by a procedure satisfying constitutional requirements, may compel surrender to it of deposit balances, when there is substantial ground for belief that they have been abandoned or forgotten, Security Sav. Bank v. People of State of California, supra, certainly when the state acquires them subject to all lawful demands of the depositors. ”

“ He is not dependent on the whims or fortunes of any other bank. He need not shiver at the prospect of abundant crops for fear he may not have available the funds with which to meet demands for moving them. He will know that if he needs money to accommodate the bank's customers he can, as a matter of right, call on his federal reserve bank.
Among other benefits the new currency law, by its direct system of clearances, will release and make available for purposes of trade and commerce hundreds of millions of dollars which under the old system have been tied up in tedious processes of collection. ”

“ According to them, one privilege (?) the bank enjoys is the power to lend a certain per cent. of its depositors' money. But if it could not do this, what reason would the bank have for existing? That is its principal real source of profit.
Practically the only other privilege the National banks have, is the right to take out National Bank Notes, or currency. As has been shown in the remarks on "The Method of Issuing National Bank Notes," this privilege allows so little profit that the banks do not use it to the full extent of the law. ”