State Banks

From the very beginning of our national history institutions enjoying,

among others, the privilege of commercial banking have been chartered

by our states. For several years after the adoption of our

constitution it remained an open question whether the incorporation of

such institutions was not their exclusive privilege, but in the case

of McCulloch v. Maryland, in 1819, the Supreme Court decided that the

federal government also had this right.

During the years 1791-1811, and 1816-1836, the state banks had as

competitors the first and second United States banks, and in 1863

so-called national banks entered the field, and, more recently still,

trust companies. Private banks have also existed from the beginning,

but their number and relative importance have declined in recent

years. At the present time the number of state banks exceeds that of

all other classes of banking institutions combined, but in capital and

resources they are inferior to both national banks and trust


Since each state has had a free hand in the matter of legislation

concerning the banks chartered under its auspices, uniformity in the

regulations imposed upon and in the kind and degree of supervision

exercised over this class of institutions, is lacking. In most cases,

however, as compared to national banks, the amount of capital required

is smaller; they have greater freedom in the making of loans,

especially upon real estate security; and they are not so carefully

examined and supervised by public officials. The most frequently

imposed legislative requirements are: the accumulation of a surplus

fund from earnings; double liability of stockholders; a minimum cash

reserve to be kept in the vaults, and an additional reserve on deposit

in other banks; the organization of a banking department for the

administration of the laws pertaining to them; regular reports and

examinations; and some limitation on real estate holdings and on the

amount of loans to be made on real estate security. On account of the

relatively low capital requirements imposed upon them, and the

liberality of the laws concerning them in other respects, state banks

have been able to prosper where national banks and trust companies

could not exist, and on this account in many parts of the South and

West they do most of the banking business in small towns and country

districts. They generally perform a wide range of banking functions,

including those of investment and savings as well as of commercial


Some Defects In Our Investment Banking Machinery State Banks And Trust Companies Since The Passage Of The National Bank Act facebooktwittergoogle_plusredditpinterestlinkedinmail