T SUCCESSION OF A STATE BANK BY A NATIONAL BANK HERE are two ways in which a state bank may enter the national banking system: Re-organization. 1. Re-organization-When it is deemed advisable by the directors and stockholders to transform their bank into a national association by re-organization, the dominant motive is normally the desire to effect a re-distribution of stock, and sometimes to provide for a more satisfactory investment of loanable funds. In re-organization proceedings, the method of incorporation is precisely the same as that followed in organizing a new bank, outlined step by step in the preceding chapter. After it has received its authority from the Comptroller to begin business, the re-organized bank is privileged to enter into a contract to purchase the assets of the liquidating state bank, and to assume its liabilities to depositors and other creditors, providing that all assets so acquired are of a satisfactory value, and conform to the requirements of the National Bank and the Federal Reserve Acts. A copy of this contract, properly signed and executed, is forwarded to the Comptroller's office, together with an agreement signed by the directors of the re-organized bank, to the effect that the assets to be acquired from the state bank will not include real estate, except banking premises; stocks; loans secured by real estate, except those permitted by Sec. 24 of the Federal Reserve Act; nor any loans in excess of 10% of the capital stock of the national bank actually paid-in and unimpaired, and 10% of unimpaired surplus fund, except as authorized by the amendments of October 22, 1919, to Section 5200 U. S. R. S. (See Loans, page 61.) The law does not provide for the conversion of private banks into national banks. If it is desired to effect a re-organization, as in the case of a state bank liquidated for that purpose, an organization from the beginning must be undertaken as provided in the previous chapter. 2. Conversion-In converting a state bank into a national bank, there is not a dissolution of the state institution, but merely a change of title and whatever re-arrangements in the converting bank's affairs are necessary to make its banking practices conform to the National Bank and Federal Reserve Laws. The national bank is liable for all contracts of the former state institution, and may enforce all previous contracts. The preliminary conditions necessary to the initial move where a state bank wishes to convert into a national bank are: (a) That the laws of the state in which the bank is located shall not forbid conversion of a state into a national banking association. (b) That the bank's unimpaired capital shall be sufficient to entitle it to become a national banking association (see "Capital," page 23). Where it is necessary to increase the capital stock of a state bank to make it eligible as a national bank, or change the par value of shares, the change must be legally effected under the laws of the state, and a certificate to this effect must be obtained from the proper state authority. (c) That shareholders owning at least 51% of the state bank's stock shall have voted in favor of the proposed conversion. These conditions obtaining, the bank notifies the Comptroller of its purpose to enter the national banking system, asks for a reservation of title for 60 days, and agrees that any assets which cannot be legally held by a national bank will be disposed of before authorization to begin business as a national bank is given (see "Loans," pages 61-65). Form for this application is furnished by the Comptroller. Accompanying the application to convert should be a draft for an amount necessary (ordinarily $100), (see "Organization Application," pages 23-25) to cover the expenses of examination. When the Comptroller has approved the application, he will so notify the bank, and a meeting of its shareholders should be called, at which a resolution should be adopted by a vote representing at least 51% of the capital stock of the bank, authorizing the directors to convert the bank into a national association, as provided for in Sec. 5154, United States Revised Statutes, and acts amendatory thereof. The directors, or a majority of them, must be authorized also to execute Articles of Association, Organization Certificate, all other necessary papers, and to perform all the necessary acts required in the process of conversion. Forms for the Articles of Association, the Organization Certificate, and the Certificate of Payment of Capital, are furnished by the Comptroller, and the procedure is the same as that outlined under these heads in the preceding chapter (see pages 25, 26, 27, 29). Since the directors of every national bank must number at least five, if the board of a converting state bank is composed of less than that number, an increase must be effected under the laws of the state, prior to the execution of any conversion papers other than the application. Duly qualified directors of a state bank may continue as directors of a national bank, regardless of the number of shares owned by each, until the first annual election is held. Then, to be eligible for re-election, each must own the number of shares required by the National Bank Act (see "Directors," page 27). Oaths as directors of a national bank must be taken. It has been held by the Solicitor of the Treasury that a trust company organized under state laws may convert into a national bank, providing it complies with all conditions of the law, divesting itself of all trust business except such as the Federal Reserve Board may authorize it to retain under the Federal Reserve Act. F CIRCULATION OR nearly half a century it was obligatory upon every national bank to keep a certain amount of government bonds on deposit with the Treasurer of the United States, regardless of whether or not the bank desired to issue circulation. But with the passage of the Federal Reserve Act, this requirement-hitherto an outstanding feature of the national banking system-was eliminated, except where a bank desired to issue circulating notes. Although the Federal Reserve Act provides for the issuance of currency by the Federal Reserve Banks (secured by either government bonds or by other collateral), there is nothing in the Act as it now stands which would abrogate the right of the national banks to issue currency secured by government bonds. It appears that the purpose of those who drafted the Federal Reserve Act was that the Federal Reserve Banks should ultimately share with the Government the sole right of currency issue, but up to the present there has been only one official step to bring about this situation. Under Section 18 of the Federal Reserve Act, the volume of 2% gold bonds eligible for national bank circulation has been reduced by $57,789,000. Bonds to this amount have been acquired by the Federal Reserve Banks, and converted into 3% bonds and 3% one year notes, without the circulation privilege. Every national bank is entitled to issue circulating notes to the amount of its paid in capital. These notes are secured by United States interest bearing bonds which are deposited with the Treasurer of the United States. Circulation is issued not on the basis of the market value of these bonds, but on the basis of their par value. There are at the present time three classes of government bonds which are acceptable as security for national bank circulation, viz.: 2% consols of 1930. 2% Panama Canal bonds. 4% bonds of 1925. These bonds cannot be procured from the Treasury Department, but may be purchased in the open market through dealers in securi ties, such as The National City Company and others. For a number of months past none of the Panama Canal bonds have been available in the open market, practically all of them being deposited in Washington to secure existing bank circulation. The 2% consols in recent months have been selling at about 103 and interest, and the 4%'s have been selling at from 1032 to 104 and interest. Where a bank determines to issue currency, it purchases in the open market bonds having a par value equivalent to the amount of circulation to be issued, and sends these to the Comptroller of the Currency for deposit with the Treasurer of the United States. Only registered bonds are eligible as security for circulation, but where coupon bonds of either of the eligible issues are presented, they will be exchanged by the Comptroller for the registered bonds. The Comptroller authorizes payment of interest on the bonds of the bank depositing them, and the Treasurer of the United States will pay the interest, by check, to the order of the depositing bank. All details in connection with the issuance of bank circulation are cared for by the Comptroller's office. This includes the engraving of plates, printing, etc. Ordinarily a period of about 30 days. is required to engrave the plates and print bank notes, but at present (1923) about two months is required. No' order for circulation is acted upon until bonds have been deposited to secure the proposed circulation and advanced payment of the cost of engraving ($130 per plate) has been made. National bank notes are issued in denominations of $5, $10, $20, $50, and $100. Up until late in 1917 banks were prohibited from circulating notes of less denomination than $5, but the only limitation upon the denomination of bank notes as the law now stands is that no bank may have in circulation at any one time more than $25,000 in $1 and $2 notes. However, up to the present time, no plate designs for notes of $1 and $2 denominations have been approved, consequently no national bank notes of these denominations have thus far been printed. The Comptroller of the Currency will supply detailed information as to forms that should be observed in ordering circulation and as to the mechanical details of which it is necessary to take cognizance in this connection. The profit which a bank makes upon its circulation is determined |