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limited liabilities on acceptances. In the balance sheet on page 9, acceptances against securities do not appear at all, and the total amount of bills payable is less than one million sterling. Even this amount is not very widely distributed. No portion of it pertains to the banks of New York; and of all the reserve cities, the only ones having these liabilities, are Boston, Cincinnati, Cleveland, and Philadelphia. The banks of Boston are liable for about one-third of the total amount, and the other named cities together for one-third of the remainder.

The provisions as to usury touch upon a point on which we, in this country, have long nade up our minds. In the United States the case is complicated by the varying laws of the several

States with respect to interest. The section states that interest (R.S. 5197.) may be taken at the rate allowed by the laws of the State or

Territory in which the bank is located, except, that where a different rate is allowed to banks organised under the State laws, national banks may charge the same; and where no rate is fixed by local laws, national banks may charge no more than seven per cent. But it has been judicially decided that a national bank is not bound by the laws limiting the rates to be taken by State banks, but may take as much as a natural person in the same State -so that in Missouri, where the highest rate allowed is 10 per cent. and State banks are limited to 8 per cent., it has been held that a national bank may take the highest rate. However, the rates, though so various as to create great inequalities in the powers of the banks, are generally high enough to allow an ample margin of profit. In nine States the highest rate is 6 per cent. ; in one, it is 7 per cent. ; in six, & per cent.; in nine, 10 per cent.; in four, 12; and in one, 18 per cent. In fourteen States or Territories there are no laws relating to usury, and here, of course, national banks are at a disadvantage. The penalties attaching to taking excessive interest are also different in the various states, but national banking associations are liable only under the provisions of the National Bank Acts. For them the penalty is the forfeiture of the whole interest due on the debt, or if it has been already paid, liability to damages in twice the amount. Under Section 5239, the Comptroller has power to bring a suit for forfeiture of the charter of any national bank taking usurious interest, but I believe that it has never been done. It is worthy of note, too, that the Supreme Court has decided that the plea of usury can only be raised as a counterclaim in a suit relating to an unpaid note or loan; and that penalties for excessive interest already paid, can only be enforced by action brought specially for that purpose by the party aggriered.

Two of the restrictions point directly to methods of business of which we have no experience.

It is forbidden to any association to "pledge or hypothecate any (R.S. 5203.) 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 circulating notes to create or increase its capital stock.” Associations are also forbidden to “offer or receive United States notes or national bank notes as security for any loan of money, or for a consideration agree to (R S. 5207.) withhold the same from use, or offer or receive the custody of such notes as security or consideration for any loan of money.” Although these may seem improbable operations, their prohibition was not enacted without some experience of its necessity. Many banks had formerly been established of which the only capital was that created by their own notes. The Special Commissioner of Revenue of the United States, in a report for 1868, quoted the following remarks of a bank commissioner of Massachusetts :-

For several years prior to 1857 the banks had pushed their discounts to a dangerous point for the sake of securing circulation. Loans were made in bank bills to distant customers, especially at the West, to railroad and other corporations, to contractors and to banks, with a distinct agreemont that the notes should be kept in circulation till the paper matured. The notes were marked, and as fast as they were returned to the bank they were returned at the borrower's expense. In other cases the agreement was that the potes should be locked up in the safe of a borrowing bank to constitute the reserve of castern exchange which was required by the laws of some of the western states.

So extensive had these practices become that the State of Massachusetts passed a law to prohibit them but a few years before the passing of the National Bank Acts.

Similar transactions appear to have been at least suspected in New York, for the Associated Banks there, in 1872, passed a resolution directing the suspension from the clearing of any bank that should be discovered to be withdrawing from use legal-tender notes.

Any association offending against the provisions of this section is liable to a fine of £200 and of a further sum equal to one-third of the money so loaned ; whilst the officers or officer making the loan are liable to a penalty equal to one-fourth of the money loaned ; the whole of the penalties being recoverable for the benefit of the party bringing suit.

In Section 5208 we havo another provision requiring somo explanation. “It shall be unlawful for any officer, clerk, or agent of any national banking association to certify any cheques drawn upon the association, unless the person drawing the cheque has, on deposit with the association at the time the cheque is certified, a sum equal to the amount of the cheque.”

This practice of certification of cheques is one so entirely outside

of our experience that we may be surprised to learn of the extent to which it obtains in the principal cities of the United States. It consists in stamping the name of the bank drawn upon, and the date of certification, across the face of the cheque, and adding the signature of the cashier of the bank. It is in fact an acceptance of the cheque, and is generally made at the request of the drawer, and before the cheque is paid away. I am afraid it points to a very great amount of distrust existing in the business community. I had thought that perhaps it arose from the practice of New York and most of the other cities of only clearing once a day, and that at an early hour; but I am assured that it is of far older date than the clearing system, and has been in general use for at least fifty years. It is very largely used in stock transactions, but by no means confined to them. The Comptroller, in his last report, says, that the cheques received by the clearing banks of New York City on the 30th of June, 1881, and which were cleared on the following day, amounted to 28 millions sterling. Of this amount, 23 millions were cleared by 23 banks, all of which have relations, to a greater or less extent, with brokers. Out of this latter amount, 16 millions sterling consisted of certified cheques, of which again it is estimated that at least 90 per cent., or upwards of 14 millions, represented stock transactions.

These cheques are also largely used by brokers for the daily borrowing and repayment of their loans. They form, of course, a convenient mode of remittance, but are not much used for that purpose, being most generally presented in the clearing of the day following that on which they are certified. As to the certifying of cheques exceeding the drawer's balance, it certainly seems a most risky and unsound thing to do, and one for which some adequate consideration should be charged even under ordinary cir. cumstances, still more when it involves also the possible forfeiture of the bank's charter. But when certification is required in excess of the amount at credit it is customary in New York to make a temporary credit to the account covering the amount that may be needed, either by a demand note of the drawer of the cheque, or by his cheque on another bank where he may have an account; which temporary credit is cancelled at the close of business when the account has been made good. This arrangement has been adopted, I believe, under advice of counsel as being within the letter of the law. No commission is charged by the banks for this accommodation, as they find their profit in the larger balances which brokers leave to their credit. Although the larger proportion of certification is done for the accommodation of the business of the Stock Exchange, I am informed that the bankers of Neir York consider that their losses arising out of this branch of the business are not one-hundredth part of those incurred by them in discounting bills, and they justify the practice by its great con. venience to the community.

In the matter of reserves and surplus funds every precaution is taken to ensure, so far as can be done by legislative enactments, that the banks shall be in a position to meet their liabilities. Every (R.S. 5191.) bank is required at all times to hold, in lawful money, at least 15 Act 20 June, per cent. of its deposits. In this may be included the redemption 1874, Sec.2-3. deposit of 5 per cent. on the circulation, treasury certificates for . legal tender notes deposited, and clearing house certificates; also balances due from agents in the reserve-cities. Every national bank established in any of the reserve-cities must isold in the same manner 25 per cent. of its deposits. If at any time the reserve falls below the prescribed proportion, no new loans or discounts may be made, nor dividends paid, uutil the proportion has been restored. Prior to the Act of June, 1874, requiring the banks to redeem their notes at the Treasury, the reserve required was in the same proportion, but was to be calculated upon the aggregate amount of circulation and deposits.

The following table gives the reserve held and its proportion to the whole liabilities :

000 omitted; thus, £1,699 = £1,699,000.

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1863 1864 1865 1866 1867 1868 1869 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881

£ 1,699 24,433 100,182 112,923 108,159 116,188 102,280 100,281 120,113 122,658 124,537 133,813 132,915 130,277 123,280 124,047 113,917 176,707 214,199

£

289

9,052 34,264 56,051 58,778 59,154 58,719 58,359 63,104 66,699 67,816 66,645 63,670 58,308 58,375 60,377 62,757 63,470 64,010

8,960 £ 3,614 38,000 1,816

41,150 2,560 31,488 2,601 31,210 4,600 - 25,913 3,692 21,53 2,650 26,898 2,016 23,794 3,973 22,626 4,248 28,640 1,610 28,991 4,272 26,033 4,532 23,270 6,138

22,730 8,434 22,600 21,870 16,280 22,867 15,174

17.0 26.7 30.9 25.4 20.4 19.3 18.9 17.8 16:1 13.7 13.8 16. 15.6 16.1 15.3 15.6 16.3 10.8 13.8

Before declaring any dividend one-tenth of the net profits of the

half-year must be carried to the surplus fund until that shall (R.S. 599.) amount to 20 per cent of the capital. As will be seen, the required

proportion was reached so long ago as 1869.

Besides these surplus funds, however, the banks have accumu. lated very large amounts of undivided profits. These constitute their reserve against losses, as the surplus fund is not available for meeting general losses, but is contemplated as for the protection of depositors, and as an addition to the working capital of the bank.

Annexed is a table showing the progress of these accumulations and their proportion to the capital :--

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£

2.3

9.8

1.8 6.9 8.2 7.8 8-0 8.5 95 9.0 9.1

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402 7,743 10,672 13,339 15,599 17,233 18,812 20,222 22,051 24,063 25,791 26,871 26,440 24,55,5 23,380 22,957 24,104 25,630

12.8
15.8
18:5
20.2
21.8
2:2:0
23 0
21.5
26.1
26.6
26.4
25.6
23:0
25.2
20.3
27.6

£

26 1,196 6,470 6,519 6,750 7,219 8,137 7,722 8,402 9,325 10,903 10,297 10,593 9,289 8,914 8,187 8,260 9,228 11,274

11.1 10'4 10:5 93 9.3 8.7 9.1 10-1 12:1

(RS. 6201.)

No dividend may be declared greater than the amount of net profits on hand after deducting all bad debts; that is to say, debts on which the interest is past d!!e and unpaid for six months. This provision is held to include stocks and bonds upon which interest is past due for the same period. Of late years the bank examiners

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