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86. Organizing A National Bank

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The first official step in the organization of a national bank is an application to the Comptroller of the
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Currency, signed by at least five persons who expect to become stockholders. This application must
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state the residence, occupation and financial standing of each person signing, also the exact title of the
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proposed bank, its location and the amount of capital it is to have. The application should bear the
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indorsement of a United States Senator, Representative or other prominent public official. This formal
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request for permission to organize a bank does not imply that the Comptroller will sanction it. Because
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bank stock is generally a very desirable investment, many banks are proposed without due regard for
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their necessity or their prospects of success. Before passing upon the application, the Comptroller
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sends a copy of it to the national bank examiner, to the Congressman for the district where the bank is
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to be located, and to the state superintendent of banks with a request for information regarding the
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character and standing of the applicants, the need for a bank, and the probability of its success. Out of
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425 applications for authority to organize national banks in the year ending October 31, 1910, 315
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were approved and 74 rejected. The rejections were due to: ample banking facilities already existing in
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the place; population and business too limited to warrant success; character of the applicants and
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others interested.1

Upon receiving the approval of the Comptroller, the organizers next execute "articles of association,"
Discover stating the title and location of the bank, the number of directors, with their names if they have been
elected, the amount of capital stock, etc. The articles of association must be signed by at least five
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At the time of, or after the execution of, the articles of association, the same persons must execute an
"organization certificate," stating the title, location and amount of capital, and the names and
residences of all the subscribing stockholders. The minimum amount of capital required to start a
national bank varies with the size of the place.

1 Report of the Comptroller of the Currency, 1910, p. 23.

Population Capital
3,000 or less................................. $25,000
6,000 or less................................. 50,000
50,000 or less................................. 100,000
Over 50,000.................................. 200,000

Prior to 1900 the minimum capital of a national bank-was $50,000. The change to $25,000 was
followed by a rapid increase in the number of small banks, not only in the sparsely populated states
but also in the older states in the eastern part of the country. There is no legal limit to the maximum
amount of capital a national bank may have. One-half of the capital must be paid in cash at the time of
organization, and the rest in installments of not less than ten per cent a month, though all may be paid
in a shorter time.

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If the articles of association do not name the first board of directors, they should now be elected or
appointed. There must be at least five directors, each a citizen of the United States and owner of at
least ten shares of stock. If the capital of the bank does not exceed $25,000, the director need not
own more than five shares of stock. Three-fourths of the board must have lived at least a year in the
state or territory, and must continue to live there while serving as directors. Each director must take an
oath that he will diligently and honestly administer the affairs of the association and will not knowingly
violate the law or willingly permit its violation. Violation of this oath may occasion the dissolution of the
bank.

As soon as practicable after the directors have been chosen, they should elect the president,
vice-president and cashier, elect or appoint such other officers as may be required, and adopt by-laws
defining and regulating the duties of the officers, the holding of elections, and other matters affecting
the internal organization of the bank. The directors now call in the subscriptions to the capital stock. As
soon as the required 50 per cent is paid, a certificate of payment, signed and sworn to by the
president or cashier, is executed in duplicate, one copy going to the Comptroller, the other being kept
by the bank. At this time the directors should procure a bank seal, bearing the full corporate title of the
bank including the name of the city.

Previous to the passage of the banking law of 1913 all 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 authorize 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.

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administration, banking development, bank supervision, clearing house, credit, national banking system,
deposits, discounts, federal reserve system, foreign exchange, coinage, loans, medium of exchange,
money system, paper money, prices, savings banks, trust companies, value of money

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