National banking association

“ By section 5136 of the Revised Statutes a national banking association is authorized 'to exercise by its board of directors, or duly authorized officers and agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking ”

“ Now, as the chief argument for the adoption of this scheme, its main promoters and sponsors have persistently declared that the country was now being dominated and controlled by certain great banking interests, and, therefore, that the people should liberate themselves from these sinister and dangerous banking powers by running into the warm and enticing embrace of the National Reserve Association. ”

“ 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. ”

“ 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. ”

“ The "chains" of country banks possess, for the most part, little vitality, and in the total banking business of the country they play an insignificant rôle. The great mass of state banks and trust companies are independent institutions. The most enduring affiliations at present existing among the banking institutions are those between a national bank and a trust company or a state bank and a trust company. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ The failure of any one bank, or of any one business house, increases the panicky feeling. Therefore, the Clearing House Association naturally and from very self-interest, must do its utmost to keep its members and their customers on their feet. In financial storms, the Association may adopt certain rules and regulations which may seem unreasonable to the public; but these methods are put in force for "the greatest good of the greatest number"; not only for the protection of the banks, but of their customers and depositors. It is a time for the public to be as reasonable as possible ”

“ They strengthen the chain of dependence throughout the Union, subject all parts more certainly to common disaster, and bind every bank more effectually in the first instance to those of our commercial cities, and in the end to a foreign power. In a word, I can not but believe that, with the full understanding of the operations of our banking system which experience has produced, public sentiment is not less opposed to the creation of a national bank for purposes connected with currency and commerce than for those connected with the fiscal operations of the Government. ”

“ 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? ”

“ 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. ”

“ 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. ”

“ 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. ”

“ In time of panic, the Association is a tower of strength, not only for the banks themselves, but for the whole community. The associated banks, at such times, have it in their power to make or break the business interests of their city. But their interests are identical with the interests of their patrons. Remember the banks are owned by the people, not by two or three private individuals. ”

“ The ancient hostility to a national bank, with its branches, in which is concentrated the privilege of doing a banking business and carrying on the financial transactions of the Government, has prevented the establishment of such a bank since it was abolished in the Jackson Administration. Our present national banking law has obviated objections growing out of the same cause by providing a free banking system in which any set of stockholders can establish a national bank if they comply with the conditions of law. ”

“ 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. ”

“ The provision for the incorporation of national banks with a capital of not less than $25,000 in places not exceeding three thousand inhabitants has resulted in the extension of banking facilities to many small communities hitherto unable to provide themselves with banking institutions under the national system. ”

“ The measure was by this time regarded favorably by all Republicans. It was considered to be a part of the Administration policy, and one that would contribute largely to strengthen the government in its struggle. Its success thus far had demonstrated that under a perfected law it would soon become the general and popular banking system of the country. It was daily growing in favor with business men, and there was no longer doubt that a large proportion of the surplus capital of the nation would be invested in United-States bonds and in the stock of National banks. ”

“ Probably the reason why the feeling against our present banking system has not yet taken shape in legislation is because no sound constructive measures have been proposed. Faulty as the system is, what is there better that can take its place? is asked, and to this no satisfactory reply has been given. Even though the notes of the national banks should be retired, and currency issued directly from the national treasury should take their place, we must have banking facilities of some kind. ”

“ It is a time for the public and the banks to come closer together. Rest assured the banks have no desire to see any firm or person fail in times of panic, or any other time. They make their largest dividends when business is brisk and everything is prosperous.
What every Clearing House Association does want to wipe out, however, is the dishonest and reckless banker. He is a menace and source of anxiety to every bank in the community. ”

“ Competition among banks exists at every level price, variety of credit arrangements, convenience of location, attractiveness of physical surroundings, credit information, investment advice, service charges, personal accommodations, advertising, miscellaneous special and extra services-and it is keen; on this appellees' own witnesses were emphatic. [45] There is no reason to think that concentration is less inimical to the free play of competition in banking than in other service industries. ”

“ The same money and the same power that filled the columns of the newspapers of the country with the unqualified praise of the Aldrich scheme for two years—the same power that rushed resolutions of one uniform stereotyped kind through twenty or thirty state bank associations, and steam rollered the same unconsidered declarations through two annual conventions of the American Bankers' Association, would have made this so-called altruistic, benevolent, coöperative association the most [Pg 490] powerful machine ever organized ”