The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1900-11-26

borrowing directors and 2.279 officers and
employees who were not directors was
s105. ~. al. AS the capital stock OF the ma
tional banks of the countrt on June -
was 1851 $50 6l. il follows that the direct
and indirect liability OF directors and Of
fcers amounted TO 30 per cent, or ABOUT
one-third the capital. These direct and in
direct liabilities of directors and ofhcers
10 banks under their management amount
eI TO 10 per cent of the total loans ana
discounts Of the national system
RESTRICTIONS NECESSARY.
The controller then says: while these
tables do not necessarily indicate that ma
fionaI banking officers and directors as
whole abuse their privileges, and many
OF these directors loans are among the
safest owned by the creditor banks. the
controller believes the tables show clearly
the great Importance OF properly framed
law placing additional restrictions and
safeguards around these loans IN which.
the experience OF the banking system
teaches. IS involved the greatest danger or
the improper and lax use OF banking FUNDS
In formulating provisions or law restricting
loans 10 executive officers and directors, II
- important not 10 make them so unrea-
sonable 10 drive from such service the
active, responsible and honest business
men of the country The problem Is u
devise such restrictions for the safety OF
leaning 10 directors while not injuring the
dep0sitors by discouraging to too great an
extent the assumption of the duties OF
bank dictatorship by the active and re-
sponsfbe members of the business COM
munity. Primarily, the law should have
in view the safety of the depositors, and IL
should be recognized that their safety Is as
much endangered by the passage OF law
which would drive good directors from the
service as by the existence OF a law which
does not sufficiently restrict the oppor-
nj Of ~1n To oh -
powers OF their position. IL seems plain to
the controller that any law upon this sub
Ject should make distinction in the ma
ture OF the restrictions upon directors who
are not officers which will not involve as
much of a delay in the making of loans
TO them as in the making of loans to the
executive officers OF a bank, since the lat
ter have the greater opportunity and lati-
tude for improper methods in the use OF
trust funds"
The controller gives herewith a copy of
the bill introduced at the last session OF
Congress by Marriott BrOsus, chairman
OF the committee on banking and curren-
cy I'll r. 1905, Fifty-sixth Congress, first
SESSION., which has had his careful con-
sideration. and the passage of which with
some additions he earnestly recommends.
This It'll has been drawn so as TO insure
a greater degree of safety in loans TO di-
rectors and officers with what is believed
10 be minimum of Inconvenience to such
officers consistent with the safety OF such
transactions II properly recognizes the
distinction in the relations OF directors TO
bank and those sustained by executive
officers.
It will be noted that the provision made
by this bill for the fixing Of line of credit
tor each director in advance reduces to
supervision proposed. After such n line of
credit has been fixed by the board of di-
rectors for an individual director he will
be TO more hampered within that limit
under the proposed law than he is at pres
The text of this bill is printed in the re-
Hrf In fncfp r10o raro hat M
tio1al bank shall loan TO it's officers en-
ployeS until the proposition for the loan
shall have been submitted in writing TO
the directors or executive committee of the
bank and approved by the majority of
them. A fine is fixed for infractions of this
section. Ii provides that at any regular
may. fix by resolution the limit of credit
which shall be extended TO any director.
Within the limit of credit thus fixed the
executive officers in their discretion may
loan to directors without other action by
the board Unless the limit of credit has
been thus fixed an application for a loan by
"A director must be in writing, approved
by two other directors. Such a loan may
be made by executive officer, but must
be brought to the attention of the board
of directors at its next meeting for pur
poses of record. a penalty is provided for
violation of this section.
TO AMEND SECTION 5000.
The bill also contains the amendment to
Section $780, which in his two former re-
ports the controller recommended. relative
to restrictions upon the general loans of
hanks. Section 500 at present reads as
follows:
THE total liabilities to any association
OF any person. or of any company, cor
poration. or firm. for money borrowed in
Guiding in the liabilities of company or
firm the liabilities OF the several members
thereof. shall at no time exceed one-tenth
part of the amount of the capital stock of
such association actually paid in. But the
discount OF bills of exchange drawn in
good faith against actually existing values,
and the discount of commercial or bust
ness paper actually owned by the person
negotiating the same, shall not be consid-
cred as money borrowed
The failure of the present law to provide
power TO apply penalty for the making
OF excessive loans sometimes embarrasses
the controller in endeavoring to check ten
denotes toward recklessness in Ioaning
which point TO the ultimate ruin of a
banking institution.
The present need is for an amendment
10 this provision which, while compelling,
under penalty. the safe and proper dis
tributiOn OF loans of larger banks, will en-
able them to loan more nearly the same
per cent OF their total assets. which the
present provision allows to small banks.
In this way the officers of larger banks
can supply the proper needs of the larg-
er communities without disregarding the
law, and the controller can hold them under
personal penalty to strict observance of the
amended law, which, when disregarded,