THE LAW OF BANKS AND BANKING INTRODUCTION 1. The aim of the present title is the discussion of those principles of law which are especially applicable to banks and banking. Accordingly, our purpose will readily appear to be, not only to avoid repetition, but, conformably to the general plan of analytical treatment, to omit many themes, which, while appertaining to the subject, are more appropriately comprised in the articles devoted to the legal principles of commercial paper, corporations, bailments, and principal and agent, to which the student is referred.' DEFINITIONS 2. A bank is an institution, generally incorporated, authorized to receive deposits of money, to lend money, and to issue promissory notes, known as bank-notes, or to perform some one or more of these functions.' Banking is the operation or performance of the business of a bank; the business carried on by a bank. A banker is one who is engaged in banking. A banking house is the place where a bank or banker conducts the business of banking; the term bank is also used to designate such a place. Within the purview of the United States revenue laws, the terms bank and banker are thus defined: "Every For notice of copyright, see page immediately following the title page incorporated or other bank, and every person, firm, or company having a place of business where credits are opened by the deposit or collection of money or currency, subject to be paid or remitted upon draft, check, or order, or where money is advanced or loaned on stocks, bonds, bullion, bills of exchange, or promissory notes, or where stocks, bonds, bullion, bills of exchange, or promissory notes are received for discount or for sale, shall be regarded as a bank or as a banker.' A company which merely lends its own money, taking bonds and mortgages therefor, and selling these with a guaranty, is not a banker, within the scope of the statute just quoted. But one who has a place of business where stocks are received for sale, and who regularly uses capital in his business of buying and selling stocks for others, by the use of which interest is carried upon moneys advanced by him for his customers, is a banker within the United States revenue statutes.* Whether a person, natural or artificial, be a banker or not may usually be determined from the particular function. exercised. "If a person should open and keep an office for receiving deposits payable on demand, he would carry on a well-known branch of banking business, although he might use the deposits in speculation or other modes totally unconnected with banking. He would be a banker. So, if he were to keep an office for issuing his own circulating notes, or for dealing in exchange, or for discounting bills, and should actually carry on either of those operations without the others, he would exercise a banker's power, although confined to a single one." Borrowing money is the exercise of "an incidental and auxiliary power, not expressed, but implied from those which are expressed." 3. An individual banker, as regarded by the New York statutes, is one who, having complied with the statutory 3 Am. & Eng. Encyc. Law (2d Ed.). Vol. 3, p. 790, note, quoting U. S. R. S., Sec. 3,407. 4 Am. & Eng. Encyc. Law (2d Ed.), Vol. 3, p. 790, citing 94 U. S. 419 (1877); 132 U. S. 592 (1890). 5 15 N. Y. 56 (1857). requirements, has received from the banking department authority to engage in the business of banking, subject to its inspection, supervision, and to the burden imposed. A private banker is a person or firm engaged in the business of banking without any special privileges or authority by statute." CLASSIFICATION GENERAL DIVISION 4. Banks, in the commercial sense, are of three kinds, to wit: (1) of deposit; (2) of discount; (3) of circulation. All or any two of these functions may, and frequently are, exercised by the same association; but there are still banks of deposit without authority to make discounts or issue a circulating medium.' As to their general kinds, banks are national, state, savings, private banks or bankers, and loan and trust companies. "Strictly speaking, the term bank implies a place for the deposit of money, as that is the most obvious purpose of such an institution. Originally, the business of banking consisted only in receiving deposits, such as bullion, plate, and the like, for safe keeping until the depositor should see fit to draw it out for use, but the business, in the progress of events, was extended, and bankers assumed to discount bills and notes and to loan money upon mortgage, pawn, or other security, and, at a still later period, to issue notes of their own, intended as a circulating currency, and a medium of exchange instead of gold and silver. Modern bankers frequently exercise any two, or even all three, of those functions, but it is still true that an institution prohibited from exercising any more than one of those functions is a bank in the strictest commercial sense. Banks purely of issue or circulation, or purely of discount, do not exist. There are, however, many institutions that are banks of deposit 6116 N. Y. 441 (1889). 8 17 Wall. (U. S.) 118 (1872). 73 Wall. (U. S.) 512 (1865), citing Ang. & A. Corp., Sec. 55. and of discount, without being banks of issue or circulation. The powers of a bank are given to it by its charter at the time of its incorporation, and it cannot issue its own notes as a circulating medium without authority of statute law, state or national." "The national banks alone are banks of issue, but they are also banks of deposit and discount. State banks of issue no longer exist, but all commercial banks, corporate as well as private, are banks both of deposit and discount." CORPORATE BANKS 5. It is claimed by a recent authority that banks are susceptible of classification by reference to their mode of organization, their methods of doing business, as well as by reference to their functions, that is, as before stated, in a commercial sense. "Thus, with reference to their mode of organization, banks may be separated into those which have a corporate form and those which have not such a form, that is, corporate banks and private banks." To complete the classification, corporate banks are divided "into national banks, which are organized under the federal law, and state banks, which are organized under state laws. Private banks would require division into individual bankers, partnerships, and joint-stock companies. But such a division fulfils no useful purpose and is merely formal. With reference to their methods of doing business, banks may be divided into commercial banks and savings banks; but this division is not useful, because the term savings bank no longer defines a bank which has no capital stock but divides its profits among its depositors, for many savings banks are now merely commercial banks. Other banks have two departments-a savings counter and a commercial counter."'" NATIONAL BANKS 6. National banks are institutions authorized by congress by the national banking act, the object being to establish a system of national banking institutions in order to 942 Md. 581 (1875). 10 Zane B. & B., Sec. 1. 11 Ibid. |