banks were not permitted to establish branches, but by an amendment to Section 25 of the Act of 1913 national banks with capital and surplus of $1,000,000 or more were permitted, subject to the will of the Reserve Board, to establish foreign branches, and to invest not more than 10 per cent of their capital and surplus in American banks or corporations engaged in foreign banking.

84. Powers. The national bank act gives national banks the following general powers: to receive deposits; to discount promissory notes, drafts, bills of exchange and other evidences of debt; to buy and sell exchange, coin and bullion; to loan credit on personal security; to issue circulating notes; and to exercise such incidental powers as shall be necessary to carry on the business of banking. With these powers go certain restrictions and limitations.

A national bank cannot become indebted to an amount exceeding its capital except for circulating notes, deposits, drafts against its own funds and unpaid dividends. The capital cannot be withdrawn in the form of dividends or otherwise. If the capital should become impaired by bad debts or otherwise, it must be restored within three months under penalty of being closed by the Comptroller. A national bank cannot lend, directly or indirectly, more than one-tenth of its capital and surplus to one person, firm or corporation. It cannot make loans on the security of its own shares, or buy or hold them unless they are taken as security for a debt previously contracted, in which case they must be sold within six months. A national bank may own only such real estate as is necessary for the conduct of its business and such as comes into its possession in the settlement of previously contracted debts. If it takes real estate in this way it must dispose of it within five years. Under the Federal Reserve Act and its amendments, however, a national bank not in a central reserve city may loan 25 per cent of its capital and surplus or one-third of its time deposits on improved and unincumbered farm land or real estate within a radius of 100 miles. Such loans are limited to 50 per cent of the actual value of the

property, and may not run for more than five years on farm land or one year on real estate.

85. Relation to the Treasury. The policy of separating the fiscal activities of the Government from banks and banking which was adopted with the establishment of the independent treasury system, was abandoned when the national banking system came into existence. Intimate relationship was established between the national banks and the Government through the requirement that every bank must buy government bonds, and become subject to the supervision of a government official, the Comptroller of the Currency. He supervises all the details involved in organizing and chartering the banks, the issue and redemption of circulating notes, and enforces the various provisions of the national bank act. Under his direction all the banks are examined periodically to see that they are conforming to the requirements of the law and are solvent, and once a year he makes a report to Congress showing in detail the condition of all banks in the system. Public revenues except customs receipts may be deposited in banks to be designated as public depositories by the Secretary of the Treasury, who must require the deposit of government bonds "and otherwise" as a security for their repayment. Provision was made also for using the banks as fiscal agents of the Government, and in this relation they have rendered valuable service in placing public loans and in refunding the public debt.

Until 1908 the banks were not required to pay interest on deposits of Government funds. In that year an act was passed requiring them to pay interest at the rate of at least 1 per cent on public deposits and on May 1, 1913, the rate was raised to 2 per cent. A few banks refused to pay the higher rate and their holdings of government deposits were apportioned to other banks. On the date mentioned there were 607 national banks acting as government depositories holding a total of about $53,000,000. The amount of government money held by the banks was never large until 1901 when for the first time the $100,000,000

level was reached. At the close of 1898 government deposits were only $38,748,000, but at the end of the year 1907 they amounted to nearly $250,000,000. In one month of that year the Treasury deposited in the banks nearly $80,000,000 to help check the panic. Banks are not required to keep a reserve against government deposits.1

86. Organizing a national bank.-The first official step in the organization of a national bank is an application to the Comptroller of the Currency, signed by at least five persons who expect to become stockholders. This application must state the residence, occupation and financial standing of each person signing, also the exact title of the proposed bank, its location and the amount of capital it is to have. The application should bear the indorsement of a United States Senator, Representative or other prominent public official. This formal request for permission to organize a bank does not imply that the Comptroller will sanction it. Because bank stock is generally a very desirable investment, many banks are proposed without due regard for their necessity or their prospects of success. Before passing upon the application, the Comptroller procures through the bank examiners, the state banking department, and other trustworthy sources all available information regarding the character and standing of the applicants, the need for a bank, and the probability of its success. Out of 425 applications for authority to organize national banks in the year ending October 31, 1910, 315 were approved and 74 rejected. The rejections were due to: ample banking facilities already existing in the place; population and business too limited to warrant success; character of the applicants and others interested.2

Upon receiving the approval of the Comptroller, the organizers next execute "articles of association," stating the title and location of the bank, the number of directors,

1 Under the Federal Reserve Act, the Secretary of the Treasury is authorized, at his discretion, to deposit Government funds in the Federal Reserve banks.

? Report of the Comptroller of the Currency, 1910, p. 23.

with their names if they have been elected, the amount of capital stock, etc. The articles of association must be signed by at least five persons, and certified by the president or cashier.

At the time of, or after the execution of, the articles of association, the same persons must execute an “organization certificate," stating the title, location and amount of capital, and the names and residences of all the subscribing stockholders. The minimum amount of capital. re

quired to start a national bank varies with the size of the place.

Prior to 1900 the minimum capital of a national bank was $50,000. The change to $25,000 was followed by a rapid increase in the number of small banks, not only in the sparsely populated states but also in the older states in the eastern part of the country. There is no legal limit to the maximum amount of capital a national bank may have. One-half of the capital must be paid in cash at the time of organization, and the rest in installments of not less than ten per cent a month, though all may be paid in a shorter time.

If the articles of association do not name the first board of directors, they should now be elected or appointed. There must be at least five directors, each a citizen of the United States and owner of at least ten shares of stock. If the capital of the bank does not exceed $25,000, the director need not own more than five shares of stock. Three-fourths of the board must have lived at least a year in the state or territory, and must continue to live there while serving as directors. Each director must take an oath that he will diligently and honestly administer the affairs of the association and will not knowingly violate

the law or willingly permit its violation. Violation of this oath may occasion the dissolution of the bank.

As soon as practicable after the directors have been chosen, they should elect the president, vice-president and cashier, elect or appoint such other officers as may be required, and adopt by-laws defining and regulating the duties of the officers, the holding of elections, and other matters affecting the internal organization of the bank. The directors now call in the subscriptions to the capital stock. As soon as the required 50 per cent is paid, a certificate of payment, signed and sworn to by the president or cashier, is executed in duplicate, one copy going to the Comptroller, the other being kept by the bank. At this time the directors should procure a bank seal, bearing the full corporate title of the bank, including the name of the city.

Previous to the passage of the banking law of 1913 all national banks were required to deposit registered government bonds with the Treasurer of the United States, which bonds or others afterwards substituted for them, were to remain on deposit with the Treasurer during the bank's existence. Banks having a capital of $150,000 or less were required to deposit bonds equal to at least one-fourth of their capital, and banks with a larger capital deposited at least $50,000 of bonds. Against the bonds thus deposited circulating notes could be taken out to the par value of the bonds, but not exceeding the capital stock of the bank. All national bank notes are supplied through the office of the Comptroller who has the plates engraved and the notes printed. The bank has to pay for engraving the plates, but no charge is made for printing the notes. National bank notes are usually in denominations of $5, $10, $20 and $50, but not more than one-third of the total issue may be in $5's. The new notes are sent by express to the issuing bank at the bank's expense. After being signed by the president or vice-president and the cashier, they are ready for circulation. Since the passage of the Federal Reserve Act all national banks are required to join