A Certificate of Association" is made out. It contains among other things the names and residences of all the subscribing shareholders.

The amount of capital must be as follows:

$25,000 or more for a place having

50,000 or more for a place having

3,000 inhabitants or less;

6,000 inhabitants or less;

100,000 or more for a place having

50,000 inhabitants or less;

200,000 or more for a place having over 50,000 inhabitants.

One half the capital must be paid up in cash at the time of organization, the rest in installments of ten per cent a month. An oath is taken by the directors to " diligently and honestly administer the affairs "of the bank. A president and a cashier are elected, together with the other officers as they may be needed.

The bank must invest in United States government bonds one quarter of its capital, if the capital be $150,000 or less, and $50,000 at least, if the capital be greater. (Act July 12, 1882.)

At first, circulating notes could be taken out by the bank to the amount of 90 per cent of its bonds, but this amount was changed by the act of March 14, 1900, to equal the par value of the bonds.

A reserve amounting to 5 per cent of the circulation must be kept for the redemption of the notes in circulation. Should the bank desire to withdraw its circulation, it must make a deposit of lawful money with the United States Treasury to redeem the notes, and not more than the sum of $9,000,000 of notes can be withdrawn from circulation by national banks in one month. (See law of May 30, 1908.) While the notes are in circulation, the bank pays to the United States Treasury a yearly tax of one half of one per cent on notes secured by two per cent bonds, and one per cent on notes secured by bonds paying a higher rate of interest. All other banks are charged a ten per cent tax on their notes, a tax which is practically prohibitive.

When the stockholders have paid in the amount per share of their holdings, each one receives a "Certificate of Stock," and

these certificates are recorded in one of the books of the bank and are transferable only on the books of the bank. Thus the stockholders of the bank and the number of shares each one holds can be known at all times.

Officers are chosen and by-laws are made in accordance with the banking laws of the country.

The law requires that one tenth of the net earnings be put aside annually to form a fund in reserve. This is known as the Surplus and Undivided Profits Fund," and it must reach at least twenty per cent of the capital stock. The "Surplus " sometimes is far in excess of the capital. When the surplus is secured, dividends may be paid to the stockholders. These dividends are the earnings of the banking business.

Should the bank meet reverses, the stockholders may be called upon to supply the funds needed to carry on business. In this case, an assessment is levied on each stockholder, proportionate to the number of shares held by him.

Reserves in lawful money must be kept in the vaults of the bank to meet the deposits. This reserve must be, for ordinary banks, 15 per cent of their outstanding notes and deposits. Three fifths of this amount may be redeposited with other national banks in 46 (formerly 17) specified large cities, known as Reserve cities.

For reserve city banks, the reserve must be 25 per cent of their deposits and outstanding notes. One half of this amount can be redeposited in national banks in New York City, Chicago, and St. Louis, which are known as Central Reserve cities.

When the reserve falls below the sum fixed (15 per cent or 25 per cent), the bank can make no further loans and can pay no dividends. It is obliged to make good the deficit in thirty days, and if it fails to do so, it passes into the hands of a receiver.

When all the formalities required in the organization of a national bank are complied with, the Comptroller issues a certificate authorizing the corporation to begin business. Charters, which may be extended, are given for twenty years.

Certain restrictions are imposed on national banks to make the banking business safer. Thus,

No real estate may be held for longer than five years.

Only legal interest may be charged by the bank on its loans. The legal interest is the interest allowed by law in the state. Not more than one tenth of the capital may be loaned to one individual or one corporation.

A bank may not loan on its own shares, nor may it incur indebtedness in a sum exceeding the paid-in capital.

The bank must make five sworn reports yearly to the Comptroller, and special reports when demanded. Bank examiners may examine the affairs of the bank at any time.

If the bank goes into liquidation, voluntary or forced, the Comptroller appoints a receiver. The circulating notes of the bank have a prior lien on the assets. The depositors and other creditors are then paid, and last of all the stockholders. (2) State Banks. State banks are organized according to the laws of the state in which they are situated. These laws differ in the various states.

State banks are not obliged to invest any of their funds in United States bonds. They do not issue circulating notes. They could do so before 1865, but in that year a law was passed imposing a yearly tax of 10 per cent on the circulation of state banks, with the result that all such notes were withdrawn.

(3) Private Banks. - Private banks are organized by private men of means or private corporations. They are restricted by no special laws of state or nation, and carry on their business like any other business. Their personal credit must secure the confidence of the people. If banks organize under state or national laws, they are obliged to submit their undertakings to these laws, but, because the state or nation stands sponsor for them, they gain more extensive patronage.

(4) Savings Banks. A savings bank takes deposits not for its own use but for safekeeping. "The prime consideration is safety, not profit or income." (Fiske, The Modern Bank,

P. 244.)

The savings bank is in the charge of trustees, who serve gratuitously and should have no personal interest in the use of the funds. The officers are chosen by the trustees and are paid salaries.

The trustees decide on all investments, and they declare the interest to be paid on deposits. They hold frequent meetings to receive reports from the officers, and direct all business. The trustees are the Directors of the bank, and in them all final responsibility rests.

The funds belong to the depositors, and the revenue goes to the depositors. There may be a surplus fund, but there are no "Undivided Profits." The surplus is a safeguard against losses and emergencies.

"Savings banks are organized either as corporations or as mutual societies managed by a board of trustees acting for the depositors. The latter type is especially common in the Eastern states." (Ely, Outlines of Economics, p. 264.)

Sometimes savings banks are organized with capital stock. Such are the "Stock Savings Banks." When there are profits over and above the interest due the depositors, these profits are paid in dividends to the stockholders.

A vote of two thirds of the shares or two thirds of the trustees can discontinue the bank. A receiver is then appointed to liquidate the assets and pay off the depositors and stockholders.

In many states supervision and regulation of savings banks is carried on by state officials. In New York, no savings bank can be organized without the consent of the Superintendent of the Banking Department. Semiannual reports must be given to the Superintendent, and an examination of the affairs of the bank is made every two years. Special reports may be required and special examinations held at any time. The Superintendent has no immediate power over the officers of the bank, but he may report any defect to the Legislature and may apply to the Courts for a remedy.

(5) Loan and Trust Companies. - Loan and trust companies are organized under the laws of the several states. They may

be termed American institutions, dating from 1812. They are stock companies, the shares being held by stockholders who receive a profit in the shape of dividends, and are liable for losses proportionate to the holdings of each. The company is managed by a board of directors or trustees elected by the shareholders.

Reports are made twice a year to the State Banking Department. A receiver winds up the business in case of voluntary liquidation or failure, as happens with commercial banks.

Originally intended for the business of securing lives and granting annuities, the loan and trust companies later took up the business of holding trusts and procuring capital for various enterprises. These latter forms of business finally became the specialty of the loan and trust companies, life insurance and the granting of annuities becoming the special business of life insurance companies.

Functions and Business of Commercial Banks. In the wording of the National Bank Act, the national bank has power to exercise by its board of directors or duly authorized officers or agents, subject to law, all such incidental powers as shall be necessary to carry on the business of banking; by discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt; by receiving deposits; by buying and selling exchange, coin, and bullion; by loaning money on personal security; and by obtaining, issuing, and circulating notes."

The law applies to national banks, but most of the functions are the same in all commercial banks, whether national, state, or private banks. The business, therefore, of a commercial bank embraces the following items: discounting negotiable paper; receiving deposits; buying and selling exchange, coin, and bullion; making loans; giving bank credit to merchants; and, finally, in the case of national banks, issuing bank notes.

(1) Discounting Negotiable Paper. When a bank cashes any form of paper, it charges a certain rate of discount for that accommodation. A merchant, for example, may have promissory notes of his debtors. These he may indorse and have