Conversion Of National Banks Into State Banks PDF Download

An excerpt from the Introduction: The Federal Reserve Act AFTER a full discussion, Congress enacted a law entitled "An act to provide for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of rediscounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes." This law was approved on December 23, 1913. This statute is one of the greatest constructive laws ever approved by the Federal legislature; it may be said to change the financial map. It is no secret that before the law was adopted, not a few banks had been quietly decreasing their loans and increasing their reserves. This action increased the feeling of distrust. The adoption of the new statute gave assurance of the policy to be pursued as to cashing commercial paper and supplying a currency to meet the demands of trade. At once confidence in the ability of the banks to meet depositors' demands was restored but whatever may be the result claimed by the enthusiastic advocates of the measure, its machinery cannot be operated without competent financial engineers. The statute known as the National Bank Act (based on the laws of New York of 1838 ch. 260) gave the nation a safe form of money, which, although not legal tender, is taken everywhere. It is almost wholly preserved under the Federal Reserve Act. Certain amendments to the Revised Statutes of the United States to be found in that act, are of very material importance. The statute as to the conversion of State banks to the national banking system is modified to a slight extent. Heretofore, authority for conversion was acquired from shareholders representing two-thirds of the stock, and by implication either by vote or written consent. The amendment to section 5154, U. S. R. S., requires the vote of shareholders rep- resenting but fifty-one per cent, of the stock. Conversion, however, is only permissible when not in violation of State statutes (section 8, post). The courts have heretofore held that no authority from a State was necessary to enable a State bank to become a national banking association. Such banks are eligible to membership in the Federal reserve banks provided they possess unimpaired capital sufficient to entitle them to become national banking associations under the National Bank Act. Such member banks must submit to the regulations prescribed by the Organization Committee of the Federal Reserve Board. Section 9 provides that a State bank that may make application for the right to subscribe to the stock of the Federal reserve bank that may be organized or is to be organized in the Federal reserve district where the applicant is located, shall conform to certain sections of the Revised Statutes of the United States, One is the provision imposed upon national banks in connection with the limitation of loans (section 5200); other provisions are the purchases of or loans upon the security of its own shares (section 5201); withdrawal of capital or payment of unearned dividends (section 5204); impairment of capital (section 5205); false certification of checks (section 5208); embezzlement, false entries, etc. (section 5209); reports of conditions (section 5211); earnings of dividends (section 5212); failure to make the required reports (section 5213); and the law as to usury (section 5198)....