issue and regulation of a National currency secured by United States bonds; the chief officer of which Bureau shall be called the Comptroller of the Currency *** .” The second purpose of the appointment of a Comptroller is set out in various subsequent portions of the Bank Act designed to insure adequate capitalization. These later provisions of two classes, viz.: (1) Those designed to require adequate capitalization as a condition precedent to commencing business, and (2) those intended at all times to secure customers against loss on account of "impairment of capital."

That the "National Currency" which was to be issued through the agency of the banks might be kept as sound as the standard money (i. e., that all forms of money issues might have a common valuation) provision was made that the bonds purchased by the banks might be hypothecated with the Treasurer as collateral security for final payment and redemption of notes outstanding. According to the provisions of the Act the Government was made a trustee for the benefit of noteholders. For each $900 of notes turned over to the bank by the Government for issue, the Treasurer was to hold a non-interest bearing account with the bank secured by a $1,000 bond. The obligation of the bank to the Government was for the repayment of $900 in bank notes, or legal tender money at its own option. The Government as trustee was the legal owner of the bond. The beneficiaries were (1) the noteholders to the amount of notes held, and (2) the bank for the amount of the current income on the bond and for its equity of redemption. This made the bank the immediate agency of redemption of the new currency, and the Treasurer, as trustee, the agent of ultimate redemption. Such a plan of National currency having been adopted, when a bank issued a note the customer took it, not on the credit of the bank, but as a beneficiary in the trust security held by the Government. The noteholder never inquired as to the credit of the bank through which the note was issued, but relied entirely on his claim against the security held in trust by the Treasurer. Since both bonds and greenbacks were Government credit the National currency secured by Government bonds was taken by the public to be as good as a greenback. Later when both greenbacks and bonds were redeemed in gold, this National currency came to be considered as good as gold. As a means of control (to secure the soundness of the circula

tion or National currency so issued), therefore, the function of the newly created Bureau was to see that the trust account of the bank with the Treasurer was kept amply secured, and that the bonds held as collateral security were sufficient for this purpose. But all the data were at hand for determining this fact, and, the bonds themselves being in custody, the services of the Comptroller in his capacity as guardian of the currency became merely nominal and perfunctory. Moreover, for this service no report was necessary.

The Chief Functions of the Comptroller.

Not so, however, with the second function of control exercised by the Bureau-the protection of those who hold open accounts (or deposits) of the bank. The importance of this character of official guardianship has correspondingly increased-but not in its bearing on original capitalization. As at the beginning, the method of ascertaining whether the bank had the requisite capital resources to commence banking operations, has remained one of inspection and not one of financial report. The Comptroller must know that at least 50 per cent. of the amount of the authorized capital stock is actually in hand in money, and that the balance of the stock subscription is good, so that it may be realized in ro per cent. monthly installments.

The most difficult duty which the Comptroller has to perform and the one of increasing importance to the financial world, is that which pertains to the security of the public against the "impairment of apital resources" during the period that the bank continues in operation. Knowledge as to the feature of the work must come largely from the reports made by the banks themselves, as the number of examiners is grossly inadequate to report more than a check on some of the main items of account. It is from this duty that the subject assigned takes its chief bearing.

Protection of the Public Against Impairment of Capital Resources.

To state more specifically some of the questions that the Comptroller must have in mind in asking for reports with respect to capitalization, Section No. 5202 R. S. provides that "no Association at any

time shall be indebted, or in any way liable, to an amount exceeding the amount of its capital stock (capital resources) at such time actually paid in, and remaining undiminished by loss or otherwise, except on accounts of the nature following: (1) Notes of circulation; (2) Moneys deposited with or collected by the Association; (3) Bills of exchange or drafts drawn against money actually on deposit to the credit of the Association, or due thereto; (4) Liabilities to the stockholders of the Association for dividends and reserve profits." Section 5203 R. S. specifies that "no Association shall either directly or indirectly, pledge or hypothecate any of its notes of circulation for the purpose of procuring money to be paid in on its capital stock, or to be used in its banking operations or otherwise; nor shall any Association use its circulation notes or any part thercof in any manner or form to create or increase its capital stock (capital resources)." Section No. 5204 recites that "no Association or any member thereof, shall, during the period it shall continue its banking operation, withdraw or permit to be withdrawn, either in the form of dividends or otherwise, any portion of its capital (capital resources)." Again, in Section No. 5205 R. S. the law requires that "every Association which shall have failed to pay up its capital stock, as required by law, and every Association whose capital stock (capital resources) shall have become impaired by loss or otherwise, shall, within three months after receiving notice thereof from the Comptroller of the Currency, pay the deficiency in capital stock (capital resources) by assessment upon the stockholders pro rata for the amount of capital stock (capital liability) held by each."

All of these, and other assignments of duty with respect to the protection of customers against impairment of capital, make necessary an official inquiry into the relation of capital resources to capital liabilities. They require a specific inquiry as to the capital resources at hand. For the purpose of determining whether or not the capital equipment of the bank has become impaired through "loss" on account of banking operations or "otherwise" a keenly analytical report is necessary. To properly execute this function of control it is necessary to distinguish the capital resources and liabilities, from the other assets and obligations of business.

The Present Value of the Report to the Comptroller as a Means of Control.

In taking up the "form" of report made by the banks to the Comptroller, attention will be confined to the inquiry as to whether or not it is well designed to give the information necessary to the exercise of sound official discretion. Is the form of report such as to enable one to determine whether the capital resources have become impaired? An examination of financial statements, as at present made, will disclose the fact that no attempt is made to distinguish "capital" resources and liabilities from the assets and obligations current to the business.

For the purpose of determining financial condition of a going concern, it has become an established principle of analysis that capital resources are all those properties and assets which are intended for permanent or continuous use in the business. Two principles of administration are well settled: (1) To prosecute an enterprise successfully, it is necessary to provide the management with equipment adapted to its purposes; and (2) whatever property, equipment, and stock, is permanently or constantly needed, should be provided out of capital investment. This is the purpose for which capital is needed. Proper equipment is necessary to success. As a matter both of financial advantage and of financial safety, this equipment should be provided out of capital. To attempt to provide permanent equipment out of temporary loans, or floating debt, is to hold the enterprise in constant jeopardy. This is as true of a bank as it is of a railroad or of a mine, and this is the underlying thought of the Law.

The current assets of an enterprise are those which are acquired, not for equipment use in the business, but those which are acquired in its current transactions-i. e., in the course of current operation for profit. It is to fund the current needs-to meet the current expenses-to provide funds to carry these current assets and transactions that current liabilities or floating debt is incurred. If the principles of financial analysis commonly employed in accounting are applied to the assets and liabilities of national banks, conclusions may be reached as to whether or not the capital resources have been impaired as well as whether or not the permanent equipment is

adequate to support its operations with safety to those who may be in business contact with the institutions under examination.

What are the Capital Resources of National Banks?

The reports, as at present made to the Comptroller, are not based on such a system of analysis, and, therefore, any attempt at rearrangement to this end must be in a measure unreliable. But taking the various items of resource exhibited as a basis for present discussion, a fair approximation may be reached: (1) "Banking houses and fixtures" are unquestionably capital resources. (2) "Real estate," in contemplation of law and from every point of business reasoning, should be charged against capital. (3) The bank invests its capital in bonds to secure circulation, and receives on the collaterals deposited notes which may be used in the businessthe "margin" of capital invested in these collaterals should be considered a capital charge; the same is true of the "margins" invested in the collaterals deposited to secure Government deposits. (4) The "money reserve" is essentially a capital reserve; it is the principal equipment necessary to support the current credit accounts (deposits) outstanding-the floating debt of the business. There can be no doubt that the "cash" held by a bank should be a direct charge against capitalization, and is made so by legal enactmentthe only question with reference to this class of items pertains to the interpretation to be given as to what properly constitutes "money reserves." (5) The accounts which it is necessary for a bank to maintain to provide for an "exchange" are likewise an asset permanently needed and in continuous use; they should, therefore, be counted as a part of the necessary banking equipment. (6) Finally the "unencumbered securities" and "other direct investments of capital" owned and held by a bank as a means of strengthening its money reserve should be regarded as capital resource. These must be so considered for the reason that the direct application of capital to the purchase of "securities," or for that matter even the purchase of commercial paper, is not banking. There can be one purpose only for making such purchases, viz.: to keep the capital which is needed to support credit transactions invested in incomeproducing assets when not needed in the form of "cash." "Securi