Evening star., 1914-08-23
THE new BANKING LAW
XX;-Other Business Con-
siderations.
By Frederic ]. Haskin.

SluefdliOItSs MI
By Frederic ]. Haskiu. III
The federal reserve act increases the
scope of business which can be done by q
national bank. One Of the important pro-
visions of the new law Is that granting
the privilege to national banks of max
ing loans upon real estate mortgages.
The greater latitude in making loans and
Investments which the state banks have
heretofore possessed has been the reason
for their rapid increase in number and
growth in resources. Foremost among
their advantages over the national bank
ing institutions has been their power to
deal in real estate mortgages.
Especially Is this advantage apparent IN
rural districts. where the securities OF,
fered for loans are most commonly real
estate However. the power to loan upon
real estate mortgage Is Of tremendous
Significance the country over, as lapd
forms the basic asset In our sociai Or
ganization Hence the national institu-
tions were cut or under the national
bank act from an important source OK
banking business.
While the national bank act did not
forbid national banks to loan upon real
estate IN epe-
Provisions of the ciflc terms, II
National Bank Act. to hold rea,
property except under certain conditions.
Tt provided:
"a national banking association may
purchase, hold and convey real estate for
the following purposes. and for no other:
First Such as shall be necessary for
its immediate accommodation in the
transaction of its business.
Second Such as shall be mortgaged to
It in good faith by way Of security for
debts previously contracted.
Third Such as shall be conveyed to it
in satisfaction of debts previously con-
tracted in the course of its dealings.
Fourth. Such as 1t shall purchase at
sales under judgments, DEGREES or mort
cages held by the association, or shall
purchase to secure debts due to 1t.
But no such association shall hold the
possession of any real estate under mort
gage. or the title and possession of any,
real estate purchased to secure any
debts due to it. for longer period than
five years
"a
In the courts, the national bank act
has been construed as prohibiting ma
tional banking asso-
Law Construed Citations from lending
In o money on real es-
ny tAe OouI'0. tate mortgage. This
has been felt by many of the national
banks as severe handicap upon their
activities. In number Of cases. national
banking associations have found the re-
striction of enough importance to justify
the organization of state bank or trust
company in combination with their ma
tional bank for the purpose Of transact
ing that business not allowed under their
federal charter In such cases, the own
ers of the national bank have also been
the owners of the state bank or trust
company.
In many cases the officers Of the one In
stitution have served as the officers of the
tity has been maintained, and the books
and funds of the two organizations kept
segregated. This practice has grown up
most extensively in the south and west.
When the new law was under consid-
GRAFTON many national bankers COM
ity of provisions denying them the right
to make loans upon real estate mort
cages, and asked that such restriction
be removed by the new law.
-.
Congress disposed of the matter as
follows in secion "a of the reserve act:
Amy national bank
Disposed OF ing association not
a. situated in a central
make loans secured by improved and
unincumbered farm land. situated within
its federal reserve distroct. but no such
loan shall be made for a longer time
than five years. nor for an amount ex-
ceding 80 per centum Of tho actual
value of the property offered as security.
Any such bank may make such loans in
an agsregate sum equal to Is per centum
of its capital and surplus Of to one-third
of its time deposits. and such banks may
continue hereafter as heretofore to re-
ceive time deposits and to pay interest
on the same.
The federal reserve board shall have
power from time to time to add to the
list of cities in which national banks
shall not be permitted to mako loans
secured upon real esate in the manner
described in this section"
IN pracuCdliy denying Cue H18nt 70 u2s
tional banks to engage in the business Of
dealing in mortgages. the Congress
which passed the national bank act was
actuated by the fear that 1t would not
be in the interest of sound banking to
permit institutions concerned mainly In
the receipt Of demand deposits to tie
these deposits up in such slow asset
as a real estate mortgage. Some bank
ers maintained befor the committees
holding hearings on the federal reserve
act that real estate loans were not -un-
liquid assets.
Probably one Of the strongest consid-
.rations leading 30 the provision for
mortgage loans
Employs An Capital on s.rm lands
to Fullest Extent. n,x ~s' ,.v az ss..sns sns
the smp3oyment Of all capital % The
FULLEST extent possible IN H. home COM
munity. Tho new act will bring about
the redistribution Of the coanS1ys n-
nances Into the districts ol osis4n. and
4 was obvious that 70 bring about the
fullest employment oe . rural commun.
itys money at homo II would Be neces-
sary 70 allow the ioantng oe this money
uuon much n community most common