The Washington herald., 1911-01-29
GROWTH OF STATE BANKS
ANDOF TRUST COMPANIES

private banks to become incorporated
if they desire to do so.
The causes which have led to the in
crease of State banks may, therefore.
be divided into two categories according
as they have been influential in giving
the State bank an advantage over the
private or over the national bank.
Private banks, in the American banking
system, fulfill two distinct functions:
First as an adjunct to the brokerage
business in the large cities and second
as a means Of furnishing credit in small
communities, chiefly in agricultural sec
tions. 1t is in the latter Of these capa-
cities that the small State banks COM
pete with the private banks.
Brokers' Banks.
The number of private banks increased
very rapidly from 1877. the earliest date
for which complete data are accessible,
to 1855 In 1877 there were 2.342 private
banks in the United States and by 1855
the number had increased to 1864 Since
1883 the increase in the number of pri-
vate banks has been very small. In 1909
only 4.407 such banks were reported by
the bankers directories. This check to
the increase in the number Of private
banks has come about despite the con-
slant increase in the number Of brokers'
banks. If the number OF private banks
in the States Of New York, Massachu-
Setts, Pennsylvania and Illinois. in which
the great mass of private banks are
brokers' banks, is deducted from the
total number OF private banks the re
naming number Is less in 1909 that it
was in 1855
During the same period the number OF
small State banks has increased with
great rapidity. In 1855 the number of
State banks with less than $4,000 capital
was IA, while in 1909 the number Of State
banks with capital of less than $50, 600
was $3.50 and the number of State banks
with a capital of less than $1,000 was
ISIS. approximately one-half Of the
State banks in operation in 1909 had
smaller capital than that required for
the organization of bank under the
national bank act.
This rapid increase in the number of
small State banks is to be explained
partly by the fact that depositors prefer
to deal with Incorporated banks. The
development of the State bank banking
laws since 1855 has given the State bank
| in most of the States superior credit
to that possessed by the private banks.
In few States the lowering of the
amount of capital required for the incor-
poration of State banks has been re-
sponsible for the greater relative growth
of small State banks.
Provisions Vary Widely.
Another fact of Importance in the dis
placement of the private bank by the
small State bank has been the increas-
ing number of laws regulating in one way
or another the conduct Of business by
private banks. These provisions vary
widely in the different States. In some
private banks are forbidden to use
corporate name. In others they are re-
Guired to use on their signs and adver-
tiSing matter the words private" or
''unincorporated-" In still other States
the private banks may not use the word
bank on their signs or advertisements.
In number of States the attempt was
made to subject the private bank to the
same supervision as the State bank. on
the whole this has not met with great
success. The essential feature in the
regulation of banks. both under the ma
tional banking act and under the State
laws is the requirement that banks shall
have a specified minimum capital. This
capital is regarded as a buffer between
the losses which the bank may suffer and
the deposits of the bank. In a number
Of States private banks are required at
present to have capital stock, but this
provision does not yield satisfactory re-
suits. since the banker may engage in
other enterprises. and may thus incur
an Indebtedness which may fall upon the
assets of the bank.
In a few States an attempt has been
made to meet this difficulty by providing
that the dcpositors of the bank shall
have a first lien on the assets in case OF
the insolvency of the owner. half
dozen States have gone further and have
prohibited individuals from carrying on
the business of banking. The result Of
these provisions, taken as whole has
been to induce or compel many persons
about TO engage in the business of bank
ing to incorporate under the State bank
ing laws.