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.

All the requirements of the law having been observed and the necessary papers duly filed, the Comptroller issues a certificate authorizing the bank to begin business. This certificate or charter, gives the bank the right to carry on business for twenty years. At the end of that time the charter may be extended for another twenty years, and re-extended for a like period. Since the passage of the national bank act Congress has twice provided for the extension of charters, first in 1882 and again in 1902. Application for extension of the charter must be made to the Comptroller, accompanied by the required amendment to the articles of association. This amendment must be signed by the holders of at least two-thirds of the stock. The Comptroller has a special examination made of the condition of the bank. If the report of the examiner is favorable, the Comptroller issues a certificate of extension.

State banks may be converted into national banks (1) by having the owners of two-thirds of the capital stock au

thorize a majority of the directors to execute an organization certificate; or (2) by going into voluntary liquidation and reorganizing according to the formalities described above. The method of organizing Federal reserve banks is explained in the last chapter of this book.

READING REFERENCES

Cleveland: The Banks and the Treasury.

Davis: The Origin of the National Banking System (Nat. Mon. Comm.)

Dunbar: Economic Essays, Chs. XIV, XIX.

Fiske: The Modern Bank, Chs. IV, XLI.

Knox: History of Banking in the United States, Pt. 1, Chs. VII-XVI.

Pratt's Digest.

White: Money and Banking, Bk. III, Ch. XIV.

CHAPTER XII

ADMINISTRATION

87. Stockholders.-Great care should be exercised in selecting the stockholders of a bank for they are the source of all ultimate authority. The national bank act provides that stockholders must be "natural persons," that is, individuals who can legally hold property in their individual right, not corporations or firms. Stockholders receive from the banks certificates of stock, signed by the president and cashier certifying to the number of shares of stock to which they are entitled. The par value of national bank shares is $100. Every bank keeps a stock book containing blank certificates with stubs attached. When a certificate is issued to a stockholder, it is numbered, and the same number is put on the stub, together with the date of issue, the number of shares and the name of the holder. In this way the stub is a copy of the essential parts of the certificate. Stock certificates are usually transferable only on the books of the bank upon surrender of the certificates. Transfers must be made in person or by authenticated power of attorney. When transfers are made a new certificate is issued to the new holder, and the surrendered certificate is cancelled and pasted in the stock book opposite its stub. If a stockholder transfers only a part of his shares, the old certificate is surrendered and two new ones are issued, one to the new holder for the number of his shares, and another to the old owner for the number of shares still retained. Most banks keep a stock ledger con

taining a record of stockholders' accounts and each transaction in the stock.

Stockholders of national banks, and of some state banks, are liable in case of failure of the bank for an amount equal to their holdings. Suppose, for example, that through bad management or fraud a bank having a capital of $2,000,000 and deposits of $5,000,000 fails; in such a case the stockholders not only lose their investment, but they are liable for $2,000,000 more which will be used to pay the depositors as far as it will go. In the past there has been much evasion of this liability and efforts have been made to fix more firmly the liability of stockholders for the debts of failed banks. This has at last been brought about by the Federal Reserve Act, a section of which provides as follows: "The stockholders of every national banking association shall be held individually responsible for all contracts, debts and engagements of such association, each to the amount of his stock therein, at the par value thereof in addition to the amount invested in such stock. The stockholders in any national banking association who shall have transferred their shares or registered the transfer thereof within sixty days next before the date of the failure of such association to meet its obligations, or with knowledge of such impending failure, shall be liable to the same extent as if they had made no such transfer, to the extent that the subsequent transferee fails to meet such liability."

88. Directors. The national bank act requires that every national bank shall have at least five directors. There is no legal limit to the maximum number and some of the large city banks have boards of fifteen, twenty-five, or more directors. Every director must be a citizen of the United States and at least three-fourths of them must be residents of the state or territory where the bank is located during their continuance in office, and must have resided there for at least a year before their election. Each di rector must own at least ten shares (five shares where the capital is $25,000) of the capital stock of the bank, which

must not be hypothecated or pledged for any loan or debt. The board of directors are responsible in a general way for the entire policy and administration of the bank, and the measure of its success will depend upon their ability and integrity. They choose from their own number the president of the bank who is usually the president of the board also, and the cashier who acts as secretary of their meetings. They appoint all the employees either directly or by approval of those selected by the officers. They are responsible for the employment of the bank's funds in loans and investments, and they determine the disposition of its earnings. In short, though the details of conducting the bank's everyday business must be left to the officers and clerks, the board of directors are responsible ultimately for everything done or projected by the bank. Furthermore, each director takes an oath that he will, as far as the duty devolves upon him, diligently and honestly administer the affairs of his bank, and will not knowingly violate, or willingly permit to be violated, the banking law. In case of such violation every director who participates in or assents to it is liable for damages which may have been sustained in consequence of it.

In earlier years these very important duties and responsibilities were often lightly assumed and just as lightly performed, but more and more public opinion is demanding of bank directors closer attention to the affairs of the bank. It is not customary to pay salaries to directors, yet the conscientious director has to give a good deal of his valuable time and thought to the bank's affairs. In some of the larger city banks directors receive a fee for each meeting they attend, but this does not compensate for the time they must take from their own business. Occasionally an influential business man will permit his name to be proposed for director though he realizes that he cannot give the position proper time and attention. He may feel flattered by the honor of so dignified a position, or he may think that it will give him added business prestige. No one, however, should accept the position of director who