In all other cities or towns the National Banks must have a reserve of fifteen per cent. of their deposits, but nine per cent. of their reserve can be kept in National Banks located in any of the thirteen "Reserve Cities"; or in National Banks in the three Central Reserve Cities.
"Approved Reserve Agents" are the banks of the larger cities, selected by the banks of smaller cities or towns, in which to carry part of their reserve. These selections must be approved by the Comptroller of the Currency, the executive head of the National Banking System.
A National Bank is forbidden to lend more than ten per cent. of its combined capital and surplus to any one firm or individual. "But the discount of bills of exchange drawn in good faith against actually existing values, and the discount of commercial or business paper actually owned by the person negotiating the same, shall not be considered as money borrowed." Also no National Bank can lend on its own stock as security.
The Comptroller of the Currency can have an examination made, as often as he may deem proper, of the condition of any National Bank. The visits of the National Bank Examiners are never announced in advance. They come suddenly and without warning. Their duties are not only to balance the books and count the cash, but also critically to examine each loan and its security; and to give especial attention to loans to any director or officer, and to any concerns in which they may be financially interested.
If the bank is overloaned, that is, has loaned more than the law allows, the examiner immediately reports it, and the Comptroller of the Currency orders that bank to cease lending, and to require payment of enough of its loans to make good the reserve required by law. And if the bank does not court disaster and the closing of its doors, it hastens to obey orders and to "get in line."
The supervision of the National Banks is not perfunctory or careless. It is very strict.
The inquisitorial powers of the National Bank Examiners are practically unlimited. They have a legal right to put any bank officer on oath in questioning the affairs of the bank. They look into every department in the most searching way, and any disobedience of the law is reported promptly to the Comptroller. These Examiners are appointed by the United States Government; and if they want to hold their positions, they must be strictly impartial in their reports to the authorities.
The provisions of the National Bank Act have been so rigidly enforced, that in forty-four years, or since the Act was passed by Congress, the average annual loss to depositors in National Banks, has been only thirty-seven one thousandths part of one per cent. of their deposits. Practically no loss at all.
Isn't that a tribute to the wisdom of that law; to the strict supervision of the Government; and to the honesty and integrity of the officers of National Banks; past and present? It has happened, of course, that some spoilers have occasionally obtained control of a National Bank, and have dishonestly used the depositors' money in risky ventures for their own profit. But the officials of the Treasury Department have soon sized them up, and such men shortly find the banking business not to their liking, especially with "Uncle Sam" as a supervisor.