Los Angeles herald., 1909-12-12

refuse this request, but will not,
in fact, do so.
A cry important provision is that
loans shall not be made on the
stock Of another bank unless such
other bank has been in existence
two years and has earned and paid
Il dividend on it's stock This, with
the provision against the purChas-
ing of stocks, prevents "chain Of
banks schemes by the use of d.
depositOrs' funds.
Officers. directors and employees Of
all banks are prohibited from over
drawing accounts, or from receiving
any commission or reward for Lean
ing the banks funds to others. The
latter is a form of petty grating
which is discouraged by felony
provision.
Trust funds must not be mingled
with the other accounts Of the hank,
and shall not BE- carried or Countel
as any part Of the lawful money
reserve. The California Safe De-
posit and Trust company failure
suggested this provision
Penalties Are Provided
Officers, directors and employees,
who knowingly violate or consent
to the violation of the foregoing
prohibitions and other prohibitions
of this act. not herein mentioned,
are in nearly all cases guilty either
of misdemeanOr ,r Of a felony.
Some objection has been made to
the tone of severity" which pre-
walls throughout the act. one state
ment was made that "the bankers
p1Iy fl Divided int
misdemeanors,' another that "the
act should be a part of the criminal
CODE
If a prohibition is necessary, its
violation should be penalized to
make the prohibition effective; If
unnecessary, it should not be a part
Of the law. Criticisms of this kind,
to be Of any value, should first dem
onstrate that the prohibition is use
less and that banks have not been
doing these prohibited things.
In this respect and in others the
act was devised to knock the pins
from under bank deposit guaranty
arguments, as well as to enable the
superintendent Of banks to enforce
his orders when questionable and
unsafe methods are discovered.
Investments in Bonds
On the important subject of in
Vestments in bonds the old law
was limited and very unsatisfac-
tory. 1t permitted the purchase
only of United States, state, city,
county, school district, railroad
and street railroad bonds of the
state Of California, by savings
banks having a paid in capital OF
100000 or less, and no restriction
of any kind was placed on insti-
tutiOns with a larger capital. They
could invest in any kind of a bond
without reference to amount, in
come, expenses, fixed charges or
time Of corporate existence. The
matter of taxation was the only
practical limitation on the pur-
chase of these securities. This
made bad banking legally possible,
especially with Indifferent super
vision.
The new act goes into the matter
more fully, specifies more particu-
larly and fixes some restrictions
and limitations. although not as
fully and definitely as it should. A
good beginning, however, is made,
and experience will suggest amend
ments and Improvements.
The notable feature OF the law
is Illdl tdSLtIH Sldlty CITY COUNTY
and railroad bonds can be pur-
chased, providing they meet certain
requirements. This privilege will
be of practical value should the
proposed tax amendment No. l,
fixing a certain reasonable tax on
the capital and reserve of banks,
become the law. The provision
prohibiting the purchase Of Cali
fornia public utility and industrial
bonds, unless the issuing corpora
tion has had an income for three
years sufficient to pay all expenses,
fixed charges and interest is par
ticularly to be commended. Say
ings banks cannot legally aid in
the floJation of new and untried
corporation securities.
Notes Must Be Secured
The old act (sec. 571 civil code)
permitted savings banks to loan
money on adequate security on real
estate and personal property, re-
stricting only in section 5S1 loans
on real estate to go per cent of the
market value, AMI prohibiting
loans on mining stock. Except the
word adequate" there was no
other prohibition against leaning
on any kind of personal property
and no fixed percentage.
1t was claimed by some that
loans could be made ON unsecured
notes as collateral. The new act
clearly states that no loans shall
be made on unsecured notes, and
provides specifically and reason
ably the per cent of the market
value that may be loaned on bonds,
and only on such bonds as may be
legally purchased, and 65 per cent
of the market value of personal
property. stocks of corporations
and banks, with the saving clause
that the corporation or bank must
have been in existence for two
years and earned and paid diVl-
dend.
Here, again, savings banks are
prohibited from assuming the risks
or encouraging the promotion and
flotation of new corporations.
These regulations as to investments
and loans, together with the pro
vision that no more than 8 per cent
of assets can be invested on or
loaned upon any bond issue, except
United States, state and municipal
bonds, constitute decided i'm
provement in the law and will do
much to promote sound banking If,
as before stated, strict supervision
and capable examinations prevail.
These changes and additional re-
strictions, and others too numerous
to mention here, are received with
favor by savings bankers who de-
sire to operate under a good law,
and for the credit Of savings bank
ing.
Provides State Supervision
The old bank commissioners act
provided for four commissioners
with equal authority. 1t required
unanimous consent TO take charge
of any unsound or unsafe bank. 1t