Private banks are organized in the same manner as ordinary partnerships. They may belong to an individual or a firm.
The business of private banks varies in different localities. In many cases they possess the principal functions of national banks; in other cases their attention is directed only to special features of banking such as the buying and selling of foreign exchange, stocks and bonds, etc.
Protection To Creditors
In a few states private banks are restricted in their operations by statute, in which case they are subject to the inspection of state officials, but usually their operations are regulated and restricted only by the common laws of business.
State banks are organized under the laws of the state in which they are located, the preliminary steps being much the same as those in organizing national banks.
Prior to July 1, 1866, state banks issued notes which circulated as money, but on that date the government imposed a tax of 10 per cent on the circulation of all state banks, which had the effect of withdrawing the circulation, as the rate was to high to allow any profit to the banks.
Difference Between State And National Banks
National banks are organized under the National Bank Act, are under the supervision of the general government and alone issue circulating notes, while state banks are organized under the laws of the various states, are subject to the state statutes, and do not issue circulating notes. The advantages claimed by state over national banks is that they are not restricted so closely in their business methods as national banks
A national bank is a bank organized under an act passed by Congress, entitled “The National Bank Act,” and in addition to doing a general banking business, it has authority to issue circulating notes against bonds deposited with the Treasurer of the United States. The government does not own nor control the bank, but only authorizes its creation and prescribes the mode of doing business. Every banking association doing business under this act is governed by the same principles, is subject to the same inspection, uses the same forms in making reports to the comptroller at Washington, and is liable to the same penalties for the violation of any requirement of the national banking law.
National banks have power to adopt and use a corporate seal to have succession for a period of twenty years; to make contracts; to sue and be sued; to elect directors, and by Its board of directors to elect officers; to make all needful by-laws not in consistent with the national bank act; to discount and negotiate notes, drafts, bills of exchange, etc.; to receive deposits, buy and sell exchange, coin and bullion; to loan money on personal security; and to issue and circulate its own notes.
The liability of each stockholder of a national bank is to the par value of stock owned, in addition to the amount invested in such stock.
National banks are prohibited from holding real estate other than the buildings in which they do business and land mortgaged to secure a loan which was made in good faith upon personal security
National banks are required to keep on hand at all times a lawful money reserve equaling 25 per cent of the deposits if in a large city, and 15 per cent of the deposits, if located in a small city.
National banks are prohibited under severe penalty from certifying a check in excess of a depositor’s account.
Each national bank shall accumulate a surplus by setting apart one-tenth of its net profits before declaring any dividend, until the surplus equals 20 per cent of the capital stock.
Reports To Comptroller
Banks must make at least five reports to the comptroller during the year.