BANKS, NATIONAL

Prior to the Civil War period, American banks then existed, all of them State and private enterprises, lacked regulation by a national law. The national banking system created by Congre through the exigencies of the war definitely placed banking on an organized basis and continued to function until radically changed by the Federal Reserve System (q.v.) established in 1913. The financial emergencies of the war impre ed on Congre the imperative need of a homogeneous system that would be safe and national in character, operating alike everywhere in the United States. The new system was an outgrowth of the nation’s fiscal plights and of commercial requirements. It preserved all the virtues of the chaotic, heterogeneous system it displaced, and augmented it with others. The national banking system was sanctioned by law in 1863 and modified the following year, but it was so tardy in establishing itself that in 1865 the government provided a tax on the notes of State banks which did not subject their conduct to national supervision. Thereafter the banks’ reorganization proceeded rapidly, so that by October, 1866, the number of national banks totaled 1644. Under the law all national banks were empowered to i ue notes on the basis of bonds purchased by them and desited with the Treasury. Banks with e than $100,000 could not be organized fn cities of more than 6,000 inhabitants; fn places under that population they could conduct busine on a capital of $50,000. Half the bank’s capital was to be paid in before it could operate, and ‘the remainder subscribed in five months afterwards by monthly installments. Not le than 30% of its capital was required to be invested in United States bonds and transferred to the Treasurer, whereupon he was empowered to i ue notes to the banks equal to 90% of the par value, but not to exceed the market value of the bonds deposited. The entire amount of currency the b could i ue under the supervision of the Comptroller of the Currency was limited to $300,000,000. Country banks had to maintain reserves equal to 15% of their outstanding notes and deposits and reserve city banks 25% half of which could be redeposited national banks in New York City. The latter became a central reserve city, as Chicago and St. Louis did later. Congre amended the national banking law from time to time without departing from its fundamental features. Notable changes were the extension of the national banking system to small communities of le than 3,000 population, where banks could be established with a capital as low as $25,000, and the placing of note i ues on a more liberal basis. The national banks were invaluable in sustaining the public credit for a long period following the Civil War, when the government was heavily in debt and specie payments remained suspended. The system that consolidated them was not without its defects, chiefly due to its inelasticity during periods of panic and financial stringency. But its currency was an undoubted improvement upon much of the State bank circulation it displaced. The system stimulated 2 remarkable development in banking, and as discount and deposit banks the institutions it brought together completely won the public confidence. As vital factors in local industrial and commercial development as well as in the growth of national wealth the national banks have long occupied an outstanding place in American financial history. Where the system erred through changing conditions the fault must be laid to the tardine of Congre in amending the law under which it operated. The Federal Reserve Act of 1913 (See Banxs, FrppRAL RESERVE) was a decided legislative achievement, however, for which Congre deserves credit in that it did much to meet present-day banking conditions. In 1922 the banks numbered 8,429, had a capital of $1,307,216,000, deposits of $16,320,564,000, total resources of $20,706,010,000 and reported net earnings (the first six months) of $188,670,000, which indicated 2 profit for the year of about $367,000,000.