National banking system

“ This vast business has grown up outside of the National banking system, simply because the National bank could not, but these other institutions could develop along natural lines of business progress. ”

“ The complaint is that the Eastern States have an undue amount of national-bank circulation, and therefore enjoy in a measure a monopoly. I admit this to be true. I will not discuss here the system of banking in all its aspects, but I will inquire how far the establishment of more national banks of issue in the West and South will remedy the real evil complained of—which evil consists in a lack of loanable capital there. If the remedy proposed is to serve any good purpose at all, then the establishment of new national banks of issue must increase the available amount of loanable money. ”

“ 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. ”

“ 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. ”

“ The unique powers of commercial banks to accept demand deposits, provide checking account services, and lend against fractional reserves permit the banking system as a whole to create a supply of 'money,' a function which is indispensable to the maintenance of the structure of our national economy. ”

“ 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. ”

“ 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. ”

“ That is, this system is capable of furnishing fifty-six times as many banks as the "National" system, having each the same capital, on an average, as the "National" banks.
Calling the number of the present "National" banks two thousand (2,000) , and the population of the country forty millions (40,000,000) , there is only one bank to 20,000 people, on an average; each bank being authorized to issue, on an average, a circulation of $177,000.
Under the proposed system, we could have one bank for every five hundred (500) persons; each bank being authorized to issue $200,000 ”

“ It provides for a system of twelve competing banking institutions which shall control the currency supply of this country, and over which there shall be no controlling body with power sufficient to compel them to regard the national welfare in the issue of currency and in the extension of their credit. It is taken for granted that the financial welfare of the people [Pg 756] will be safe provided that these competing regional banks are required to hold gold or lawful money reserves of 35 per cent. against deposits and 40 per cent. ”

“ Such a national system must be supported by every banking unit; by every individual bank carrying its part of the commercial burden, and providing its proper share of the insurance of commercial safety by contributing its proper proportion of the necessary reserves, both local and national. ”

“ The supervision of trust companies by the separate states provides an elastic system to supplement the rigidly guarded powers of the national banks, and can adapt itself to changing conditions and enlarging needs, leaving for solution according to the requirements of each section of the country such questions as proper functions, reserves, and the authority to establish branch offices. ”

“ 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? ”

“ I will admit, sir, that this is not the time or place to institute the general inquiry, whether banks are or are not beneficial to a nation? Because, whether the charter of the United States' Bank be renewed or not, the several States, who have the unquestioned authority to incorporate bank establishments, have already created many, which it is not in our power to control. I do not hesitate to declare, though many persons in the United States are decidedly opposed to a banking system, under every possible circumstance, I am not of this class. ”

“ 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. ”

“ 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. ”

“ 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. ”

“ Those interested in the State banks were at first exceedingly hostile to it. The proposition to tax their circulation two per cent. in addition to the three per cent. imposed upon incomes by the new law was considered harsh and unjust. The object was to compel the retirement of the State bank circulation. In no other way could a national system be at once generally instituted. The courts had repeatedly held the authority of the States to charter banks with power to issue and circulate notes as money, to be constitutional. Congress could not abridge this right in any way by direct legislation. ”

“ Whereas, it is now appropriate that the banking authority in each State and any place subject to the jurisdiction of the United States should have and exercise the sole responsibility for, and control over, banking institutions not members of the Federal Reserve System ”

“ 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. ”

“ Among the influences which will greatly modify the future of American politics, not the least is the lately enacted banking law. Hitherto we have been divided in our finances as no nation ever was before. Every individual State has had not only its own system of banking, but its own separate and distinct currency; a currency oftentimes based upon an insufficient security, and possessing only a local par value. ”

“ 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. ”