It provided for the organization of "national currency associations" made up of at least ten national banks with capital unimpaired and with a surplus of 20%. The combined capital of the banks in each such association was required to be not less than $5,000,000. The individual bank could not belong to more than a single association in a city. All the banks in the association, however, were required to be in contiguous territory. When properly formed the currency associations became bodies corporate.

It was the business of the national currency associations to supervise the issue of emergency currency. Any bank in the association having outstanding bond-secured notes to an amount equal to 40% of its capital, and desiring more notes, was authorized to deposit with the association securities therefor, including commercial paper. Through the Comptroller of the Currency application was then made to the Secretary of the Treasury who enjoyed discretionary authority in permitting the issue of additional circulation. While notes to an amount equal to 90% of the cash value of state, city, town, county, or municipal bonds could be issued on such securities, the maximum for other types was 75%. Moreover, no bank was permitted to issue notes based on paper in excess of 30% of its unimpaired capital and surplus. Provision was also made for the issue to a single national bank, not a member of a currency association, of emergency currency on the basis of bonds of a designated character although not on the basis of commercial paper. The total issue was limited to $500,000,000 and the total amount issued was to be apportioned over the country as a whole on the basis of capital. The 5% specie redemption fund was required for these notes as for the ordinary bank notes.

Aldrich-Vreeland emergency currency act

Issue of emergency currency

To stimulate redemption as soon as demand fell off there was the provision that this emergency currency should be taxed during the first month of issue at the rate of 5% per annum upon the average amount in circulation, while after the first month an additional tax of 1% per annum was to be added for each month until the total tax equaled 10% per annum. Monthly returns concerning the emergency circulation had to be sent in to the government, and these returns might be verified by examinations. The notes could be retired by the deposit of lawful money or of national bank notes. They were to be issued in denominations running from $5 to $10,000, and were made redeemable in "lawful money." The act was to expire by limitation on June 30, 1914, although it was subsequently extended for another year, and really rendered most useful service during the first year of the Great War.

State Banks and Trust Companies

State banks existed in this country before the adoption of the Constitution. They have continued to multiply ever since, and, at the time of the adoption of the Federal Reserve System, there were, in round numbers, eighteen thousand of them. The distinction between state banks on one side and national banks on the other is a distinction of legal organization and control rather than of economic function. Both types conduct a general banking business, although a 10% federal tax effectively prevents note issue by the state institutions.

Redemption

Character of state banks

Trust companies are also organized under state laws. They exhibit a peculiar evolution in this county, but in so far as they enter the banking field they are today practically like the banks strictly so called. Indeed, Professor George E. Barnett, in his treatise on "State Banks and Trust Companies," says that a trust company today may be fairly defined as a "bank which has power to act in the capacity of trustee, administrator, and guardian."1 Hence while there are certain differences in the regulation of trust companies as contrasted with that of the banks, these differences are not of sufficient importance for the purposes of this discussion to require separate consideration.

The state banking institutions are incorporated, for the most part, under general state banking laws. Incorporation generally, and more particularly of banks, was in the earlier years of the country's history a matter for special legislation. But owing to abuses of various sorts the development was from special and toward general incorporation laws.

The granting of charters to individuals seeking to establish banks is left in most of the states to specially designated officers. In some cases there is an individual officer, whose entire duties comprise the supervision of the state's banking institutions. In other cases, besides the banks, such officer is required also to supervise the business of insurance within the state. In still other cases, the supervising authority is vested in a board or commission. But, in any case, to acquire a charter for a new bank under state laws requires the approval of and action by the authority charged by law with the general supervision of banking.

Trust companies

Incorporation

Granting of charters

1 State Banks and Trust Companies, Publications of National Monetary Commission, p. 18. The summary here given is based on Professor Barnett's study.

As might be expected, considerable diversity is disclosed from state to state in the details of regulation. This is especially apparent in connection with capital requirements. In some cases no particular capital is specified. Where a minimum capital is specified it varies from $5,000 to $50,000, although in the majority of cases the minimum falls between $10,000 and $25,000. The capital requirements are in some cases uniform for all the banks, in other cases they are made to depend upon the population of the town where the bank is situated, or upon the amount of business done. In general, according to Professor Barnett, the minimum requirements for the smaller towns fall considerably below the levels established by the national banking law.