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stock actually paid in, exclusive of sums due on account of deposits nor shall there be due to said corporation at any one time, more than double the amount of its capital stock actually paid in. In case of excess of debts so due from said bank, the directors under whose administration it shall happen, shall be liable for the same in their private capacities, and an action of debt may in such case be brought against them, their, or any of their heirs, executors, or administrators, in any court proper to try the same, by any creditor or creditors of said corporation, and may be prosecuted to final judgment and execu tion, any condition, covenant, or agreement to the contrary notwithstanding but this shall not be construed to exempt said corporation, or the lands, tenements, goods, or chattels of the same, from being also liable for, and chargeable with said excess. Such of said directors who may have been absent when said excess was contracted or created, or who may have dissented from the resolution, or act, whereby the same was contracted or created, may respectively exonerate themselves from being so liable by forthwith giving notice of the fact, and of their absence or dissent, to the governor and council, and to the stockholders at any general meeting, which they shall have power to call for that purpose.
These sections present to us two restrictions which are not noticed by the committee. We may therefore enlarge our catalogue of legal imperfections by two more startling articles, thus:
The law does not impose any restriction upon the amount of notes issued by these companies, however small may be their paid-up capital." 26. potimil sd The law does not limit the amount of loans advanced by these companies, however small may be their funds for granting them.'
It is, however, worthy of inquiry, whether these companies" should incur liabilities beyond a certain proportion to their paid-up capital? Is there no impropriety in a bank with £50,000 capital incurring liabilities to the extent of £500,000? If a bank by notes or deposits owes £500,000, it is liable to sudden calls for considerable amounts; and hence it should have a proportionable paid-up capital, to be better able to meet these sudden demands. And besides, this £500,000 must be employed, and losses may thereby be incurred to a large amount, and hence there should be a proportionable paid-up capital that the bank may be able to sustain these losses without making farther calls upon the shareholders.
As the circumstances of different banks vary* very much, it would be difficult to fix upon any proportion that would not be liable to objections. The proportion allowed in the State of Massachusetts is rather liberal than otherwise: the notes may be 14 times the amount of the capital; and the total liabilities, exclusive of the deposits, may be twice the capital. Mr. Gallatin states that the average amount of notes issued by the State Banks taken together did not exceed forty-four per cent., nor the aggregate amount of their notes and deposits eighty-one per cent. of their capital; and he believes that a positive restriction on the issue of notes, so that they never should exceed two-thirds of the capital, would be highly beneficial. The total amount of notes issued by the joint stock banks are supposed to be about one half the amount of their paidup capital.
The limitation of debts due to the bank appears to be made with the view of limiting the issue of notes. The most certain way would have been to limit the issues. If the capital, and the notes, and the deposits are limited, the loans made by the banks will necessarily be limited by circumstances more forcible than any law that could be passed on the subject; that is, by the ability of the bank to make them. But the plan in America has been to limit the loans. Mr. Gallatin says, "We think that no bank should be permitted to extend its loans, including stocks of every description, and every species of debt, in whatever manner secured, beyond twice the amount of its capital. We find provisions to that effect in the laws of Massachusetts and Louisiana. The aggregate amount of the loans made and of the stocks held by the former bank of the United States never amounted to seventy per cent., nor that of the existing bank to fifty per cent. beyond the amount of their respective capitals."
The act which incorporates the state bank of Massachusetts is in conformity with the above regulation, but the charter of the North Bank in the same State
requires" that the amount of bills issued from said bank at any one time shall not exceed fifty per centum of the amount of the capital stock actually paid in." A writer, I have already quoted, remarks, that "these charters are founded upon that cautious policy which marks the character of the people of Massachusetts; a prudence, however, in the opinion of many, which has neither promoted the interest of their monied institutions, nor aided the enterprize of the community, and which happily for the prosperity of the State of New York has not been hitherto followed here."
"Sec. 6. Be it further enacted, That no banking corporation within and under the authority of this commonwealth, shall vest, use, or improve any of its monies, goods, chattels, or effects, in trade or commerce, but any corporation aforesaid may sell all kinds of personal pledges lodged with it by way of security, to an amount sufficient to reimburse the sum loaned, with interest and expenses. Every banking corporation as aforesaid, may hold real estate, lands, and tenements, requisite for the convenient transaction of its business, not exceeding twelve per centum on the amount of its capital stock, unless they have been, or shall be thereto specially authorised, exclusive of what it may hold on mortgage, receive on execution, or take as security for, or in payment of, any debt to said corporation, and no more."
Although the law in England does not place any limitation upon the amount of loans or advances made by joint stock banks, yet restrictions upon some descriptions of advance are imposed by most of our deeds of settlement. The committee state
"Advancing money on real security is in no instance forbidden. The deeds of three companies are silent on this subject, the rest expressly allow it.
"The majority of the deeds are silent on the subject of the purchase of land. The Banking Company expressly allows it. The Banking Company and the Union Banking Company expressly forbid it.
"An advance of money on mining concerns is in no instance expressly allowed, in many it is expressly forbidden, in the majority it is passed over in silence.
Advances of money upon any public foreign government stock or the stock of any foreign chartered public "company" is directly sanctioned in the deeds of four banking companies. Investment in foreign government stock or funds is allowed by the deed of another bank. Such advances are expressly forbidden by many of the deeds, and are passed over in silence by many others."
In no case does it appear that any restriction is
placed upon loans granted upon individual security; that is, upon overdrawn accounts. In all our manufacturing towns it is the practice for the banks to make large permanent advances to the manufacturers. And as a remuneration they charge a commission of a quarter per cent. upon the account. Here the banks adopt the dangerous principle of running great risks for the sake of large profits. This practice has not been introduced by the joint stock banks. It has for many years been the practice of the private bankers, and has no doubt been exceedingly beneficial in stimulating our manufactures, and in giving worthy men of small means the opportunity of advancing themselves in the world. But now that our manufacturers are become wealthy, the same practice is not necessary. It is not the business of banks to supply their customers with capital to carry on their trade; it is a dangerous principle; because in the first place, there is a great risk upon individual security; and then, if the money is wanted, it cannot suddenly be called up. I think, therefore, that joint stock banks should limit their advances of this sort to a certain proportion of the amount of paid-up capital. And with regard to chartered banks, one condition of the charter should be that the bank admits of no overdrawn accounts.
"Sec. 7. Be it further enacted, That none but a member of the corporation for which he is chosen a director, being a citizen of, and resident in the commonwealth, shall be eligible to that office; and a majority of directors, in any bank, shall be residents within the county where the bank is located, and no person shall be a director in two banks at one and the same time; no bank shall have less than five, or more than twelve directors, to be determined by their bye-laws. The directors shall choose one of their own number to act as president; and in case of the absence of the president, a chairman may be appointed for the time being. A majority of the directors shall always be necessary to constitute a quorum for doing business. The directors may make the president such compensation as shall appear to them reasonable.
"Sec. 8. Be it further enacted, That the directors shall be chosen by ballot annually, at a meeting held on the first Monday in October, by the stockholders, at such time and place, within the city or town where said bank is established, as the president and directors for the time being may designate, by giving public notice thereof fourteen
days previous thereto, in some newspaper printed in the county; and if there be no newspaper printed in said county, then in some one in the city of Boston. The number of votes to which each stockholder shall be entitled, shall be according to the number of shares he shall hold, in the following proportion: That is to say-For one share, one vote; and every two shares above one shall give a right to one vote more, provided no one member shall have more than ten votes; and absent members may vote by proxy, such proxy being authorised in writing; vacancies occurring in the board of directors before the expiration of the term for which they were chosen, may be filled at any meeting of the stockholders called for that purpose, as hereinbefore provided. In like manner, the directors shall have power to call special meetings of the stockholders as often as they think the interest of the corporation may require it.
"Sec. 9. Be it further enacted, That the directors shall make halfyearly dividends of the profits of the bank. The directors shall have power to appoint a cashier, clerks, and such other officers, for carrying on the business of this bank, with such salaries as to them shall seem meet; and such cashier, clerks, and other officers, shall retain their places until removed therefrom, or others appointed in their place.
"Sec. 10. Be it further enacted, That the cashier, before he enters on the duties of his office, shall give bond, or bonds, with two or more sureties, to the satisfaction of the board of directors, conditioned for the faithful performance of the duties of his office: Provided, that in no case shall bonds be taken for a less sum than twenty thousand dollars, nor a greater than fifty thousand dollars. It shall be the duty of the cashier of any bank aforesaid, to call special meetings of the stockholders at any time hereafter, on the application, in writing, of the proprietors of twenty per centum of the capital stock thereof, by giving fourteen days public notice of such meeting, in the manner hereinbefore provided." wed exot
"These sections are very similar to clauses that are inserted in our deeds of settlement. They refer to several matters of detail which can be arranged by the banks much better than by the legislature. It is worthy of inquiry, however, whether the legislature might not fix the qualifications of a director. The only tangible qualification is property. It seems essentially necessary that a bank director should be a man of property. Neither talent, nor rank, nor influence should be taken as a substitute for property. Most of our deeds of settlement require that a director should hold a certain number of shares. But the amount of property thus invested is usually inconsiderable. And it is not desirable, on several accounts, that a director should hold a