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1st edition - September 14, 1936
2nd edition - March 8, 1937
3rd edition - August 23, 1937

Laurence E. Skees
Federal Reserve Examiner.










Licensing of bankers
Maximum and minimum number of directors
Residence and citizenship
Ownership of stock
Bonds and oaths
Services in other institutions or in other
(g) In general












1• Selection of Personnel


2. Education and Training
(a) Vfithin the bank
(b) Educational institutions
(c) Other





Table Showing Major Causes for Bank Failures for
Indiana Banks 1925-1931


Comments of State Bank Authorities and Others
With Respect to the Negligence and Incompetency of Bank Directors


Published Statements of Bankers, Writers, and
Others With Respect to Weaknesses in Bank
Management and the Effects Thereof


(A)l(a) Draft of A.B.A. Model Bill for Licensing of


(A)1(b) Published Views of Bankers and Others With Respect
to the Matter of Licensing of Bankers


(A)l(c) Published Statements With Respect to Legislation Relating to Qualifications of Bank
Directors and Officers





Published Statements With Respect to Removal
from Office of Directors and Officers, etc.


Excerpts from a Report of the Study Commission
for Indiana Financial Institutions (1932)
With Respect to Duties, Responsibilities and
Powers of Directors


Published Statements With Respect to Legislation
Relating to Restrictions on Financial Interests
of Directors and Officers in Bank Transactions


Views of Bankers and Others With Respect to
Legislation Relating to Deposit Insurance


Published Statements of Bankers and Others With
Respect to Cooperative Efforts of Bankers


Table A - Qualifications of Directors or Trustees


Table B - Officers and Directors Serving Other
Institutions or in Other Capacities


Table C - Loans to Officers and Directors


Table D - Restrictions on Financial Interests of
Directors and Officers in Bank Transactions


Table E - Removal of Officers and Directors



Adams, 0. W., Utah State Nat. Bank, Salt Lake City
Agnew, A* C., Counsel, Federal Reserve Bank of
San Francisco
A.B.A., Committee on State Licensing of Bankers (1929)
Amos, Ernest, former State*Comptroller, Florida
Andrew, L. A., former Supt. of Banks, Iowa
Await, F. G., former Deputy Comptroller of the
Bennett, F. P. Jr., Editor, U.S. Investor, Boston
Berger, .G.Fred, Norristown-Penn Trust Co.,
Norristown, Pa.
Berle, A. A., Jr., Columbia University
Birdzell, L. E., Federal Deposit Insurance Corp.
Blair, E. H., former Supt. of Banks, Ohio
Bramwell, Frank C., former Supt. of Banks, Oregon
Brooks, W. L., Northern National Bank, Bemidji, Minn.
Brown, W. G., Ex. Mgr., N.Y. State Bankers Assn.
Byerrum, 11. 0., University State Bank, Chicago
Cadman, Paul F., University of California
Cameron, Peter G., former Secretary of Banking, Pa.
Cantley, S. L., State Bank Commissioner, Missouri
Cartinhour, Gaines T., New York University
Chamber of Commerce of the United States
Colt, S. Sloan, Bankers Trust Company, New York
Diggs, Marshall R., Executive Assistant to
Comptroller of the Currency
Driscoll, J. J., Bank Analyst, Philadelphia




Fleming, Robert V., Riggs Nat. Bank, Washington,D.C.
Flynn, J. T., author
Forbes, B, C., Editor, Forbes Magazine
Fox, M. J., former Chief, Division of Research and
Statistics, F.D.I,C.
Frick, E. V., American Trust Co., San Francisco


Gephart, W. F., First National Bank, St. Louis
Goodbar, J. E., author
Haas, H. J., First National Bank, Philadelphia
Hanes,R.M.,,Wachovia Bank & Trust Co.,
Winston-Salem, N. C.
Hazlewood, Craig B., First National Bank of Chicago
Hecht, R. S., Hibernia Bank & Trust Co.,
New Orleans
Hennings, Thomas C., Mercantile-Commerce Bank &
Trust Co., St. Louis


Illinois Bankers Assn., Committee on licensing of
bankers, etc.
Indiana Financial Institutions, Study Commission,1932
Indiana Financial Institutions, Commission for, 1935


Jay, Pierre, Fiduciary Trust Company of New York


Kennedy, W. A., First National Bank of Pomona (Calif.)
Kinsey, Henry R., Williamsburg Savings Bank,
Brooklyn, N. Y.
Leinbach, C. T., Wachovia Bank & Trust Co.,
Winston-Salem, N. C.
Lipman, F. L., Wells Fargo Bank & Union Trust Co.,
San Francisco
Love, J. S., former Supt. of Banks, Mississippi
Mcintosh, J. W., former Comptroller of the
McQuade, E» J., Liberty National Bank,
Washington, D. C.
Marshall, P. D., former Chief, Bureau of Banking,
Meech, S. P., University of Chicago
Miller, John M., Jr., First & Merchants Nat. Bank,
Richmond, Va.
Minnejotc^ University oi,fiiiyjioyiiientResearch In8titute>

19 o4




Page, G. W., former Bank Commissioner, Maryland
Patterson, E. L.; Stewart, former Canadian banker
Payne, William K., National Bank of Auburn, (N.Y.)
Pearce, Ernest L., Michigan banker
Perkins, James H., National City Bank, New lork
Pole, J* W., former Comptroller of the Currency
Pomeroy, Horace F., New York
Rodkey, R. G., University of liickigari
Schram, former Supt. of Banks, Oregon
Schwenker, C. F., former Commissioner of Banking,
Shaw, James, former Commissioner of Banking, Texas
Shepherd, Fred Nt, Ex. Mgr., American Bankers Assn.
Sisson, F. H., Guaranty Trust Co., New York
Smith, R. G., Bank of America N.T.& S.A.,
San Francisco
Steagall, Hon. Henry B., member of Congress (Ala.)
Stonier, Dr. Harold, Educ. Dir., Am. Inst, of
Stout, C. L., Poudre Valley Nat. Bank, Fort
Collins, Colo.
Stronck, H. N., former Chicago Bank Analyst
Sullivan, J. F., Jr., Crocker First Nat. Bank,
San Francisco
Tamme, Lawrence^State bank examiner, New Mexico
Tebbutt, A. R., Ph.D. Thesis, Harvard University
Thomas, R. G., Purdue University
University of Minnesota, Employment Research
In stitute, 1934
Walsh, James L., former Guardian Detroit Union
Group, Inc.
Weidenhammer, Dr. Robert, University of Minnesota
Withers, O.K.,Commissioner of Banking and Insurance,
New Jersey
Wolfe, 0. Howard, Philadelphia Nat. Bank
Zimmerman, Henry M., Michigan banker


This study embraces a review of the principal provisions of Federal
and State laws which have been enacted and are in effect for the improvement of the management of banks and of writings, speeches, hearings and
reports, and other data, indicating the views of prominent public officials, economists, bankers, business men, and others (contained in
various periodicals* reports of hearings and commissions, etc.) with
respect to past management practices and policies, particularly with reference to their weaknesses and the effects thereof, as well as suggestions
which have been made for the improvement of bank management.



has been divided into two principal parts. Part I indicates some of the
outstanding defects or weaknesses in management and Part II treats of
the statutes and practices now in effoct and of suggestions which have
been made for the enactment of additional legislation and. for the establishment of certain other practices for the purpose of improving bank
Many of the statutes prohibit unwise investments, the improper declaration of dividends, the receipt of deposits after insolvency, and other
unsound practices, and were undoubtedly intended to insure sound bank
management. While such statutes may place restrictions upon the actions
;f directors and officers, they are aimed at the improper practices themselves and not at the qualifications of the managing directors and officers
and, therefore, are not included in thi£ study. As used in this study, the
term "bank management" is intended to refer tc5 those persons charged with
the management of a batik—directors, officers and employees—with particular reference to their qualification, fitness, and integrity.
"banker" or "bankers" is used synonymously.

The term

The principal weaknesses or defects in bank management which have beer,
noted are incompetency, lack of sense of responsibility and inattention to
duties, and dishonesty on the part of bank directors and officers. These
have been evidenced by the practices of bankers with respect to: violations of laws and regulations and sound principles relating to loons and
investments, slow assets, deposits, capital accounts, earnings and dividends, personnel, too rapid expansion or establishment of branches, establishment of and relationships with affiliated organizations, types of business and services rendered, parallel connections and services of bankers,
advances to bankers and their interests for speculative and promotional
ventures, other transactions in which the bankers have personal interests,
and the misapplication and embezzlement of funds.
A classification by apparent causes of failures of the 17.86 national
banks which suspended from 1865 through October SI, 1931, indicated that
incompetent management and dishonesty were involved in the case of 1052 of
these banks, as shown by the following summary:^
No. of banks
(A) Incompetent management
(B) Dishonesty
(A-B) Combination of incompetent management and dishonesty
(A-C) Combination of incompetent management and local financial depression
from unforeseen disaster
(B-C) Combination of dishonesty and local
financial depression from unforeseen disaster
(A-B-C) Combination of incompetent management, dishonesty, and local financial
depression from unforeseen disaster


(1) ''The Analysis of. National Bank Failures 1865-1952", Ph. D. thesis submitted by A. R. Tcbbutt at Harvard University in December, 1954, based
upon data taken from the annual report of the Comptroller of the
Currency, 1931. (Comptroller's reports do not indicate causes of
failures subsequent to October 31, 1951.)

In this connection, the- following tabulation^ is of interest:
Ratio of number of occurrences of each cause to the total
occurrences of all causes (in approximate percentages)-*


Fraud and
All Internal
and DepreManagement
of law
ciation of
- 1 - 2 - 1 - and - 2 Assets

West of Mississippi
East of Mississippi
River, mainly in
agricultural South


















•* Computed from data given in the Annual Reports of the
Comptroller of the Currency. The data apply to all
national banks placed in the hands of a receiver.
-*•* The starred periods contain years of severe depression.
These period? show a sharp doclino in fraud and illegal
practices as causes of failure.
# Beginning 1925 the Comptroller's reports classify causes
of failure only as (a) incompetent management, (b) fraud,
and (c) depression. This results in a reduction of the
size of Group 2 by putting violation of banking laws, excessive loans, etc., into the category of poor management.

(l) "Bank Failures - Causes and Remedies", by R. G. Tho;;ias, Associate
Prof, of Ec., Purdue University, Journal of Business of the University
of Chicago, July 1955, p. 298.

_ 4 With respect to 210 state supervised institutions which failed In
Indiana from 1925 to 1931, a table (see Appendix 1(A)) prepared by the
Study Commission for Indiana Financial Institutions (1932) indicated that

of such failures were caused by improper loan policies, ineffi-

cient management and breach of trust; 8% by Inadequate state supervision;
and 29% by external causes, such as declining price levels and earnings of
borrowers, psychological attitude of the public, failure of other banks,
In summarizing the causes of failure of 163 State banks in Michigan
between January 1, 1930, and February 11, 1933, Professor R. G. Rodkey,
of the University of Michigan, stated:
"But, while indiscriminate censure of all those
bankers whose institutions failed to survive is clearly
unwarranted, an overwhelming percentage of our 163
failures must be ascribed to one fundamental cause plain incompetence. * * * *
"Two elements in our American banking system tend
to foster incompetence in the management of individual
institutions. The one is our system of independent
unit banks. # #
"The second element tending to breed incompetent
bank managements is closely related to the first. Reference is to our dual system of control. So long as
State banking departments and the Federal government
compete with each other for the privilege of granting
charters to promoters of new banks, the difficulty of
limiting such charters to competent persons is obvious.
# x *
"But incompetence in management cannot be eliminated by merely reserving to the Federal government the
right to grant bank charters. The problem extends even
to the managements of old, well established, and highly
respected institutions. To meet it, we must, in the
first place, find ways and means of keeping incompetent
individuals out of executive positions in banks; and, in
the second place, we must narrow the scope within which
incompetent management may operate."(1)
(1) "State Bank Failures in Michigan", Vol VII, University of Michigan
Business Studies for 1935. The author stated, "with one exception,
these banks were located outside Detroit and they therefore belonged
in the country bank classification. During this same period 411
other State banks remained open."

J. J. Driscoll, prominent Philadelphia bank analyst, in discussing
bank management, stated:
"After loans and investments the factor most frequently cited by receivers as an important cause of
failure was the quality of management. In many cases
the former officials were referred to as incompetent,
weak, yielding, and lacking in courage.
"It is a fair statement to say that 85 per cent
of the success of any bank is traceable to its management and not to its size or location. The unheaTit&y
loan and security situation already discussed, and
other pertinent points that have influenced these banks
largely reflect the viewpoint, ability and foresight of
the management.
"In some instances the size of the bank would
hardly permit the hiring of capable management because
of the lack of earnings to pay required salaries. However, in many of these cases high rates of interest
were paid on deposits. It would have been sounder to
curtail interest rates and apply a portion of the sum
saved to obtain more capable officers.
"Occasionally, the dominance of one man who spent
only part of his time in the bank was the chief factor
of weakness. His conclu sxon s and policies forced on
the bank, were influenced by politics, and by possible
effect on other business with which he was associated,

"Lack of definite policies and goals to be attained was very prevalent. Preconceived policies for
making loans and investments, and for their liquidation were missing. Predetermined standards of earnings to be attained were rarely asked of the management. If these things are not worked out in advance
then the final result is placed in the hands of luck
with everyone hoping for the best."(l)

(1) "Closed Banks - A Study of Causes", A.B.A. Journal, June 1953, p. 17;
based upon data furnished to Thomas B. Paten, then assistant general
counsel of the A.B.A., by Government officials in charge of liquidation. The number of banks or the period covered was not stated.

- 6Mr. Driscoll listed, in the order of relative importance, 24 causes
of failure, from which the following causes relative to management were

Frozen loans
Owned insufficient quantity of securities
Incompetent management
Loans to officers and directors
Activities of individuals connected with
the bank, detrimental to good will
16. Excessive competition
21. Loans to affiliated companies
23• Managed by persons with political
With- further reference to the matter, he stated:
"The greatest number of closings is traceable to
loan losses arising from the fact that the bank did
not insist on liquidation until it was too late, or
concentrated its loans in a few lines or suffered a
severe depreciation of collateral values. Incompetent
management was, of course, a factor of great importance in most failures entering into this analysis.
"Contrary to a widely accepted belief, securities
depreciation was not the cause of most failures. # #
"Failure to maintain a reasonable degree of liquidity was present in a great majority of instances. *
"The banks included in this study were located in
farm, industrial and resort communities and in a few
instances in medium sized cities.
"The range of population was from towns of 1,000
to cities of 50,000 or over. More than half the banks
in this analysis were in terns of 5,000 or less."(l)

(1) ibid. p. 14.

- 7


In a paper presented at a meeting of the Academy of Political Science
in January 1933, Pierre Jay, Chairman of the Fiduciary Trust Company of
New York, made the following statement with respect to the responsibility
of management for bank failures:
"From the best information obtainable concerning
the bank failures of this eleven-year period, two
general observations may be made:
"First, the vast majority of them were due to
mismanagement reflected principally in over-lending,
in exploitation by officers and directors and in some
disregard of legal restrictions. # * * *
"The second observation is that about 80% of the
failures were those of very small local banks
* *
They cannot pay for experienced management, even if it
were locally available. # * *
"If mismanagement was the principal cause of failures, It seems fair that the failure of bank supervision to correct it should also be assigned some secondary share in the responsibility for what has occurred.
* But in assigning a share of the responsibility
to supervision, it must be borne in mind that neither
banking laws nor bank supervision can ever perform the
positive function of assuring sound bank management.
Bank supervisors do not manage banks and, at best, they
can only perform the negative function of criticizing,
after the fact, the loans arid investments which bank
managers have made; and only by extreme measures, which
the laws seldom permit, can they make their criticisms
effective if bank officers and directors are not cooperative. * * * * "(1)
With respect to directors1 responsibility for bank failures, Lawrence
A. Tamine, State Bank Examiner, New Mexico, stated:
"I feel that indifferent and inexperienced directors were responsible to a large extent for the many
failures in this state during the five years preceding
1927. Inrayopinion, fully 60 per cent of the directors of the defunct banks in New Mexico were incapable
of analyzing a bank statement, and a large percentage
of the remainder were too absorbed in collateral undertakings to devote any time to the affairs of their institutions. "(2)
(1) "The Structure of the Banking System", Proceedings of the Academy of
Political Science, January 1933, Vol. XV, pp. 152-153.
(2) The Bank and Its Directors, Ronald Press (1929) p. 55.

- 8In writing on the subject of directors1 lack of a sense of responsibility and inattention to duties, Craig B, Hazlewood, Vice President of
the First National Bank of Chicago, stated:
"Directors often fail to be helpful because they
are inclined to take an impassive attitude rather than
active interest in managing and directing the affairs
of the bank. In other words, they fail to appreciate
the full significance of the office of trust in which
they are placed and which they must properly discharge
if they expect to make a proper accounting of stewardship to the stockholders whom they are representing.
They are not only under obligation to direct a bank!s
management, but they should have every confidence in
it themselves and do their business with it. There
are instances where the directors sit on the board of
one bank and keep their money in another, probably a
rival institution * A director should use every means
toward getting business for the bank .and be its active




"In Michigan, Commissioner R. E, R^ichert became
convinced that many directors were not cognizant of
the condition of their institutions or of their responsibility for that condition. It was discovered
that the prerogatives of the directors were sometimes
usurped by the executive officer and that in many cases
inaction was due to incompetence, lack of initiative,
or insufficient time. On more than one occasion it was
discovered that items which had been subjected to criticism in the correspondence following examination by the
State Banking Department, were omitted in the reading
of these letters before the board of directors and in
the written minutes of such meeting. Situations that
Y^ere serious and detrimental to the interests of the
executive officer were frequently omitted."


# # ->*-

"The chief causes of failure, in summary, have been
ignorance, or an intellectual and moral disregard of
established rules and margins of safetyj it is charitable to describe these causes under the double heading
of mismanagement and incompetence."(1)

(1) The Bank and Its Directors, Ronald Press (1929), pp. 35, 48 and 52.

- 9Mr. Hazlewood also set forth the comments of several state bank superintendents and examiners on the negligence and incompetency of many bank
directors. Some of these comments are included in Appendix 1(B).
With respect to the lack of sense of responsibility of directors,
i\ G* Await, while Deputy Comptroller of the Currency, stateds
"Lack of knowledge of their responsibilities by
directors still remains the cause of many bank failures. The duties of a bank director and the nature
of banking places functions upon the director not unlike those of a trustee.
"The law does not intend that a director shall be
a figurehead, but places specific responsibilities and
liabilities upon him. Directors are bound, to maintain
supervision over the affairs of the bank at all times
and to have a general knowledge of the character of
the business and the manner in which it is conducted.
They may delegate the operation of the business to duly
authorized officers, but this does not absolve them
from maintaining supervision over the affairs of the
bank at all times.
"Directors are liable under both statutory and
common law. They cannot escape liability to stockholders by maintaining they did not know of unfortunate transactions, were ignorant of the business of
the bank, or did not participate in the transactions.
They may be sued where lack of knowledge is the result
of negligent inattention."(1)

(l) Summary of remarks on an address, "The Duties and Responsibilities of
Bank Directors", Proceedings Second Central Atlantic States Bank
Management Conference, Washington, D. C,, February 26-27, 1951, p. 94.

- 10 The following decision of the Supreme Court indicates directors'
"The directors must exercise ordinary care and
prudence in the administration of the affairs of the
bank and this includes something more than officiating
as figureheads. They are entitled under the law to
commit the banking business, as defined, to their duly
authorized officers, but this does not absolve them
from the duty of reasonable supervision nor ought they
to be permitted to be shielded from liability because
of want of knowledge of wrongdoing if that ignorance
is the result of gross inattention."(1)
In commenting upon the causes of poor or weak banking, L. A. Andrew,
Superintendent of Banks of Iowa until May 1933, said:
"One of the main causes of poor banking has been
the use of the bank's investments by officers for their
own profit. This has had many devious complications,
as is well known. Another important cause of weak banking has been the mixture of commercial and investment
banking in the same institution, the bidding for business by the making of unsafe loans, the payment of too
high interest, and the combination of banks and their
affiliates of different kinds to cover up the results
of speculative banking."(2)
A report of the Study Commission for Indiana Financial Institutions
(1932) contained the following statement relative to causes of failure of
Indiana State banks from 1925 to 1931:
" * * Banks did not fail by reason of a lack
of ability to execute high and intricate financial
projects; they failed because they made obvious mistakes, the dangers of which are well known, and
easily recognizable by the ordinary successful bank
executive. Moreover # * * in 18 instances failure
was caused by dishonesty on the part of officials.
* x- * * "(5)

(1) Boworman v. Hamnor, 250 U. S. 504; 1918, quoted in Hazlewood1 s, The
Bank and Its Directors9 p. 226.
(2) "The Future of the Unit Bank", Proceedings of Missouri Bankers
Association, May 1934, p. 98.
(3) Report of Study Commission for Indiana Financial Institutions (1932),
pp. 75-76.

« 11 In this connection, the following statement by Marshall R. Diggs,
Executive Assistant to the Comptroller of the Currency, also is of
n # # j n the 19 banks that we have taken over
since deposit insurance went into effect, fifteen of
them have been brought about by either shortages or
dishonest practices which are sufficient for criminal
It is apparent that violations of the laws and of the principles of
sound banking have resulted in the loss, to a very great extent, of public
confidence in bankers and in the unprecedented number of bank failures in
the United States, particularly as compared with the small number of failures in Canada, England, and Scotland. Although many bankers, and in a
measure bankers in general, have been indicted in the press and in the
public forum by economists, business men, and others, it is obvious that
there are a large number of bankers who are not guilty of the faults and
practices of which they have been accused, particularly by certain types
of politicians who have seized upon the opportunity of maligning bankers
in general because of the popular appeal to the masses. In this connection, B. C. Forbes, editor of Forbes Magazine, stated:
"The Good-will Portfolio is the most vital of all.
"Confidence is the element most necessary to maintain intact that portfolio.
"What really brought about the collapse of our banks?
"It wasn't wholly the shrinkage in the market value
of bonds, of stocks, of mortgages, of real estate, terrific though that collapse was.
"It was, rather, the loss of confidence in banks by
depositors, by those who theretofore had faith in the
stability of the institutions to which they had entrusted

(1) "Deposit Insurance and Sound Banking", Ohio Banker, July 1935, p. 10.

- 12


their money. The Good-will Portfolio shrank and
shrivelled faster than all other portfolios combined.
"The innocent were made to suffer with the
guilty. Because a few - relatively few - of the
nation's bankers were found to be derelict, public
opinion, goaded by politicians, blindly applied the
tar-brush to all."(l)
W. F. Gephart, vice president of the First National Bank in St, Louis>
has stated (see Appendix 1(C)) that the three most important causes of
bank failure are : first, the inadequacy of bank capital; second, the
lack of qualifications of those organizing and operating banks, and third,
the unnecessarily large number of banks,
The published statements of several other bankers, writers, and
others with respect to weaknesses in bank management are included in
Appendix 1(C). It should be noted that some have attempted to place at
least part of the blame for the weaknesses or defects in bank management
upon the government officials and supervisory authorities.

In doing so,

it has been contended that the authorities have permitted banks to be
organized with small or insufficient capital and by persons with little or
no banking or business experience to qualify them to conduct a banking
business; also, that banks have been permitted to be organized in communities already having adequate banking facilities or where there was not
sufficient business to support a properly conducted bank.
Leniency by bank examiners and supervisory authorities with respect
to violations and unsound practices have caused bankers to continue bad
practices, and even develop worse ones, assuming such practices were
sound or would not be objected to by the supervisory authorities in view
4jf the failure of such authorities to exercise promptly or vigorously
their supervisory authority and responsibility. Bad or unsound practices,
when permitted to grow, have brought about the unsound financial condition of a bank, as well as degenerated its management.
(1) "American Banking's National Program", Banking, February 1936 (Sec. 2)


( a ) Licensing of bankers. Fron a review of economic and financia

periodicals, proceedings of bankers associations, etc., it appears tha
various suggestions for the enactment of laws regulating bankers by
means of licenses have been made from time to time by speakers and
writers. However, it appears that only the State of Nebraska has
enacted such a law. The Nebraska statute, enacted in 1921, no?/ reads


-x- * * Executive officers of banks shall be
persons of good moral character, known integrity,
business experience and responsibility, and be
capable of conducting the affairs of the bank on
sound banking principles. No person shall act as
an active executive officer of any bank until such
bank shall apply for and obtain from the department,
a license for such person to so act. If the department, upon investigation shall be satisfied that
any active executive officer of a bank is conducting
its business in an unsafe or unauthorized manner, or
is endangering the interests of the stockholders or
depositors, the department shall have authority to
revoke said license. Any person who shall act or
attempt to act as an active executive officer of any
bank except under a license from the department, or
any one who shall permit or assist such person to act
or attempt to act as such, shall be guilty of a
felony and upon conviction, shall be fined not more
than five thousand dollars, or be imprisoned not more
than ten years. The Department of Banking may make
and enforce reasonable regulations and prescribe forms
to be used to c a r r y out the intent of this section.
Each executive officer acting as such when this act
takes effect shall be deemed to have a license for
three months thereafter subject to revocation by the
department." (Comp. Stats, of 1929, as amended,
Sec. 8-166)


- 14 In Pennsylvania, the Department of Banking* before approving the
articles of incorporation of a proposed banking institution, is required
to conduct such investigation as it may deem necessary to ascertain,
among bther things, "whether the responsibility, character, and general
fitness for the business of the incorporators, directors, and officers
named in the articles are such as to warrant the belief that the busine-c\.
of the proposed incorporated institution will be honestly and efficiently conducted.

This provision, however, relates only to the fitness

of the original directors and officers of a bank; and there is no provision for the approval by the Department of Banking of the subsequent
officers and directors or for the issuance of licenses to Individual
officers and directors as in the case of the Nebraska statute.
The Federal statutes contain no provision for the licensing of
bankers, nor do they specify any qualifications relative to integrity,
education, or general experience and ability which should be possessed
by either directors or officers of banks.

It is the general practice

of Federal bank authorities to consider the general qualifications of
the proposed directors and officers in acting upon applications for
charters, establishment of branches, trust powers, etc. However, the
licensing of banks should not be regarded as the licensing of bankers.
It does not necessarily follow that the officers and directors of a
bank on the opening day will always manage it, especially since under
laws and practices heretofore existing the controlling stockholders,
whoever and however unscrupulous they may become, have the sole right of
determining who shall manage the bank for them. Under any practical

(1) Penna. Banking Code of 1953, Sec. 306, as amended.


- 15
system of licensing present and future bankers it would be impracticable
to expect all licensees to forever remain satisfactory bankers. Therefore, insofar as the public supervisory bodies are concerned, the real
remedy for the management problem seems to lie not merely in considering the qualifications of the management at the time of chartering
banks, nor in the licensing of bankers, but in the exercise of the power
of continuous, positive supervision, including the right to veto or
remove for cause any unsatisfactory element in the management at any
The Federal laws relating to certification for Federal deposit insurance, membership in the Federal Reserve System, and the granting of
voting permits to holding company affiliates require that "the general
character of its management" be considered, without any further details
or explanations as to minimum requirements or standards to be followed.
The Federal and several State laws contain more or less superficial
requirements relating to the qualifications of directors, as indicated
in the following sections of this memorandum.
It is apparent that the subject of licensing bankers has been
receiving more and more attention, but that very little has been
accomplished with respect to the formulation of definite plans for
putting the idea into effect.
A report of the Committee on State Licensing of Bankers, State
Secretaries Section of the American. Bankers Association, presented at
the annual meeting in October .1929, was construed as being unfavorable
to a licensing requirement.
Committee's reports

The following excerpts are from one


- 16 « * -x- The Committee was instructed to
include in its scope of investigation the following?
1. What States, if any have or are considering the licensing of men 'and women to
engage In banking?
2. How far should the licensing of bankers
3. If adopted as a policy of the State, how
should the State proceed to license bankers?
4. In what way may State Bankers' Associations
properly co-operate with the State In the administration of such a system?
5. How much of sentiment exists among the people
of the States and among the bankers themselves,
favorable to a system of licensing bankers?
6. Could the work of the American Institute of
Banking and the co-operation of State Bankers1
Associations, with State universities, be
related effectively to the administration of
a State licensing system?
« -x- -x- Mr The Committee finds that there are no
States in the Union having or considering the
licensing of bankers, save only that which obtains
in a limited way in the State of Nebraska, where it
appears bank executives, charged with the responsibility of making loans, are required to secure from
the State a license. It is difficult to see how such
a system measures up to any proper conception of the
licensing of bankers. If a system of licensing of
bankers is to be established at all, it should fairly
compass the entire scope of the bank; for incompetency,
inferiority, infidelity and all else that contributes to
the Infirmity, and finally to the insolvency of banks,
have origin quite as frequently in the accounting department, at the receiving teller's station, In safety
deposit administration, as in the discount portfolio.11
* -x-

* #

* -x-

"No sensible person will doubt the wisdom of
raising the standards of qualifications of all those
who now or may in the future hold official positions
In banks. He who gives a moment to the serious


- 17 consideration of this far reaching movement will not
fail to be impressed with the magnitude of the problem.
It cannot be accomplished by legal fiat, nor by rituals
prescribed by an administrative board. The most that
can be done by either is to merely permit men to engage
in the banking business, it cannot qualify them. It
must be clear to every thinking person that the law can
do little or nothing to qualify men to be good bankers.
All the law can do is to create a system of banks, provide for their Government, impose limitations of capital,
prescribe the number of directors, establish a department of supervision, clothe official boards with authority
to grant or refuse charters, impose stockholders liabilities, clothe the Banking Department with a large measure
of authority in all cases of infractions of the law, and
with poWer in case of insolvency to take charge of the
institutions and close out its affairs* The law has to
do with bank organization and with supervision over bank
management, but it cannot qualify the bank manager.
Boards of directors, chosen by the body of the shareholders, make deliberate choice of those whom they will
call to manage the bank's affairs.
"The immediate question now presents itself: shall
there be established in every State a board of examiners,
before whom each applicant aspiring to engage in the
banking business must first present himself and pass
examination before being permitted to engage in the business of banking? If so, and if left to the initiative of
the individual States, there would be 48 varieties of
standards and possibly in some States no standards at all.
Moreover, it could not apply to the 26,000 banks now
existing in which there are probably 200,000 officers and
employees, who for years to come will be continuing in the
service of their institutions—unlicensed, unhonored and
unsung. From the beginning this agitation for the
licensing of bankers has pointed for justification to the
fact that licenses are required of physicians and of .
lawyers. 1 Why not license bankers like we license
doctors?" is the cry. The answer is fAmen, and Amen,
and Amen.1"
* # ->f *

* # *

"Furthermore, Federal and State laws do not contain
ample authority for the control of banking and do not empower Bank Commissioners and Banking Boards with authority


- 18 for looking into the qualifications of bank officers,
and of removing them, for dishonesty, incompetency or
insubordination to lawful authority."
* -x-

-X- -x- * -X- -x-

"The weakness of this proposal is that it assays
to do great things and accomplished nothing. It
promises what it cannot perform. It is a specious thing
and easily invites applause when every thinking banker
knows that it is a mere formula, a mere ceremony, and adds
nothing to the integrity, intelligence and ability of the
bank officer."
* tt -x- -X- -X-

-x- *

" * * * if degrees of proficiency are to be demanded
in financial economies, let the student understand that
he can win the prize only through years of patient toil.
Sound, profound judgment, so essential to good banking,
becomes seasoned only through continuing years of
experience, while integrity, that other matchless prerequisite to good banking, without which the mightiest
financial structure will fall, is a gift coming down only
from above. Bankers are made, like the oak, from long
years of experience and endurance.
"Bankers should not wait to be prompted by public
opinion. They should, by their own resolution, elevate the
standard of banking. Associations of bankers can and
should hold aloft the highest standards of banking and
beckon all who would win to follow its lead * * * * * It
would be unfortunate if the law of the State would require
that none could be bankers but graduates of schools of
finance. Banking must ever remain to be a matter largely
of integrity and good judgment. Technical knowledge of
practical banking is simple and easy to obtain, in fact
every day banking is the best school in banking.
"Then too, any rigid system of licensing bankers
Tfould clash with the native propensities of men. Good
men differ. The best of two men, perhaps the best among
ten men, and the best qualified by far, it may be, to
successfully manage a bank in all that by which good
qualities for bank management are measured, might and often
would fare ill in an academic examination, compared with a
bright youngster, accustomed to the atmosphere of the class

- .19 "Finally, the impracticability of the proposed
scheme to license bankers must be apparent. While
there are common standards for honesty and sound judgment, it would manifestly be impractical, If not impossible, to establish uniform standards of qualification in all classes and sizes of banking institutions.
All these adaptations can be much more satisfactorily
and efficiently taken care of within and among the banks
themselves than by the fiat of the legislature; nor is
any public board so capable of determining who are
qualified to hold positions in country banks as the
individual banks themselves. The appointment of a public
examining board with the requirement that all who enter
banking shall appear before them, and pay a license fee,
is but an added piece of useless machinery, adding nothing to efficiency. Good bankers become better bankers,
not by being branded by some public board, but when
diligently and patiently they have received training in
banking and when by higher tokens the grace of God rules
in their hearts, and the fear of the Lord is ever before
their eyes."(l)
In 1929, counsel for the American Bankers Association prepared a
draft of a model bill for licensing of bankers (see Appendix II(A) 1(a)).
Under its provisions, there would be created in each State a nonpartisan State banking board, the five members of which would be bankers
in good standing appointed by the president of the State bankers association subject to the approval of the executive committee of such association. The board would be an adjunct of the State banking department and
its necessary expenses of operation would be paid out of the appropriations of the State banking department (license fees would be paid, to the
Treasurer of the State and added to the appropriation for the State
banking department).

It would be the function of such board to deter-

mine the qualification and fitness of applicants for licenses according

to its required standards of education, ability, experience and

(1) "Report on Committee of State Licensing of Bankers", CosnmerQial &
Financial Chronicle, A. B. Convention Section, October 19, 1929,
pp. 136-137.


- 20 character, and make such investigations and provide for such examinations as it deemed necessary.
It is noted that the bill would provide that a license be required
only of any person thereafter appointed or elected an executive officer
of a bank and that an applicant for a license be required to submit
proof that he was over 21 years of age and of good moral characterj
also, that licenses would be issued by the State bank commissioner upon
the certification of qualification by the banking board, and that they
may be suspended for cause by the bank commissioner with the approval of
two members of the banking board, and may be revoked by the board after
Another feature of the model bill is that bank charters would be
granted by the State bank commissioner only upon approval and certification by the banking board after it had investigated the need for a new
bank in the community, the character and capacity of its organizers,
adequacy of capital, etc., and had otherwise determined whether the
granting of a charter would be wise and desirable.
In June 1954, the "Committee on Grievances and Making of Banking a
Legalized Profession" of the Illinois Bankers Association submitted a
report prepared by Professor James Washington Bell of the Northwestern
University, in cooperation with the Committee, In which it recommended
that banking be made a j>rofession and legally recognized as such, by
means of a simple licensing system. In this connection, the report
reads as follows:


- 21 -x- -x- Means should be provided to cover the situation not only of new bank incorporations, but (a) meeting the problem of selecting and accrediting bank officials
during the life of the bank and (b) for eliminating tindesirable and unfit bankers in the business.
"In the judgment of the Committee the most effective
means of attaining these ends is to incorporate in our
bill # #
provisions for licensing bank officers (either
the model A.B.A. bill or the simple Nebraska provision,
Statutes 1929, chapter VIII, 166). This function would be
administered by a state banking board, a superintendent of
banking, and bank examiners. The provisions contemplate a
judicial and nonpolitical board in order to avoid the
exercise of power to grant and revoke licenses for political
reasons. And the superintendent and examiners should be removed from political appointment and influence to avoid the
pressure that might be brought by bankers interested and
affected to nullify and thwart the action of these officials
in the exercise of their duties.
"Licensing would affect only bank officers, present
and future. Present officers should be presented with
licenses (on the theory that a general housecleaning of unfit bankers has taken place) so that any violation of law
or sound and ethical practice may be made the occasion of
suspension or revoking of the license.
"The limited experience which we have had so far
seems to point toward licensing as a salutary restraining
influence upon unsound banking. The Nebraska law, extremely simple in form, does not attempt over-much .and has not
been arbitrarily administered, but has been instrumental
in ridding state banks of those who willfully break banking
laws and who are otherwise unfit. The law has been administered chiefly in cases involving the revoking of
licenses. Licensing examinations are provided for but
these are not pro forma academic tests of knowledge of
banking operations and are not designed to furnish new
evidence of the 'licensees fitness for banking, but
the examinations are rather a means of providing the authorities with an opportunity to gather and weigh the past
evidence of the * licensee's1 experience and qualifications
to continue in business.
"The success of any licensing law obviously depends
upon its administration. The state banking board would have
to evolve certain standards by which to judge the qualifiea-


- 22 -

tions of candidates applying for license and for bankers
whose worthiness to hold office is questioned. Employees
or outsiders applying for a license would present their
case to the board to prove by evidence of their knowledge,
experience, and other qualifications of fitness that they
are or are not entitled to the privilege of joining the
fraternity of bank officials. Offenders, guilty of some
mal-practice or otherwise unfit for office, would be
brought before the board by the examiner and superintendent of banking for a hearing to show cause why they
should not be removed. The board would have the power on
the basis of this evidence to suspend or revoke the
"The above is a description of the most elemental
form of licensing scheme. More elaborate provisions
might Contemplate: (1) periodic examinations at which
time the applicants could submit the record of their background, experience, and other qualifications (examinations
of the civil service type are not recommended); (2) establishment of qualification levels such as Class A for
staff officers or bank executives, managers and administrators (the committee does not recommend including directors
in this category for reasons given below), Class B for
junior officers, subordinates and other employees;
(3) specification of defaults, such as repeated failure to
conform to the requirements or recommendations of supervisory authorities (definition and specification would
eliminate a certain amount of discretion and hence the
possibility of abuse of power on the part of administrative officers); (4) specified penalties applying to
specified defaults.
"Standards once determined could conceivably be
raised and strengthened with resulting improvement in the
caliber of our bankers. Even with very rough standards
young men coining up in the business would have a more
definite objective to guide them in their education, training and conduct. These standards would, to be sure, be
merely external ones -applying to all banks in the jurisdiction .and individual banks might well require more
stringent qualifications but could not adopt less stringent
"It does not seem desirable to formulate specific
standards for incorporation into law because we are not
sure enough what provisions should be included. Until we


- 23 have further experience to work out definite standards
these had better remain general to allow for administrative discretion. It would be understood that the
administrative body would take into consideration such
factors as (1) education, (2) training, (3) experience,
(4) intellectual and moral qualities of the applicants
and licensees»"(1)
With respect to licensing of directors, the Committee in its report
"Some observers * * * have advocated the licensing
of directors themselves. They feel that there is need
of an outside influence to control and even to remove
directors as well as officers. Such direct control may
not be necessary if officers are made answerable to
administrative regulation and the Committee believes that
the desired ends can be obtained without the more vigorous
measure which would make it much harder than it is to enlist competent men to serve on boards of directors."(2)
In May 1935, the Illinois Bankers Association's committee reported
as follows:
» ¥r * * * proposed state bank legislation and in
particular national banking legislation which is dealing with bank and monetary structures has not made it
desirable to press the thought of making banking
a legalized profession. The subject can well wait for
studied consideration until these new structures have
been agreed upon. But the objective should not be
"Believing in the unit bank system and local bank
autonomy for the United States, bankers recognize that
laws can be adopted for the sound organization of banks.
But the chartered bank, can be only a part of banking.
The management of banks lies in part in technical skill
but in larger part in a personal professional relationship and trusteeship to the bank1s customers. Indeed it
is this personal relationship with its possibilities of
sound direction which constitutes the chief merit of the
unit system. Therefore we believe that bankers must be
developed for the continuation of that system, and that
the system should be in the future built as much around
a body of professional bankers as around the idea of a
soundly chartered bank.

(1) Making Banking a Legalized Profession, Committee report of
Illinois Bankers Association, June 1954, pp. 4-5.
(2) ibid, p. 11.


- 24 -

"Starting largely by the licensing of those executives now in charge of the banks we: believe that a
license system should be adopted by the public for
those men who hold themselves out as able to manage
banks. Other professions were so "started". We
believe that the running of a bank requires a body of
knowledge and a technique justifying the public to set
it up as a profession. We believe that the public has
as much right to know the qualifications of its bankers
as it has to know the nature of the assets of the banks.
"We believe that the public when it has had a hand
in qualifying bankers will look to such a body of professional men for the financial policies of Government
as well as in persona.1 and corporate finance. We
believe such a situation desirable for America.
"The Committee takes satisfaction in the knowledge that the minds of bankers are beginning to focus
on the idea which it Is advancing. This is evidenced
in the recent action of the American Bankers Association
setting up a Graduate School of Banking to hold its
first session this coming June at Rutgers College in
New Brunswick, New Jersey.
"We recommend that the Illinois Bankers Association adopt a steady, consistent program advancing
these ideas to the point of their being adopted into
The following views on the matter appear to be worthy of note:
S. P. Meech (educator) and R. 0. Byerrum (banker):
"There is clearly as much need to regulate the
entrance and exit of bank administrative officers to
and from their profession as of doctors, lawyers, nurses,
and'accountants to and from theirs. Further, the licensing of bankers should not be the more or less nominal
process of certifying of life insurance underwriters,
which is not legally prescribed or enforced. Law and
government must play a part in licensing and unlicensing
bank officers. Why license banks and not bank officers?
Is there not as much need for the latter as for the former? The high failure rate of recent years, the fact
that large and small unit and multiple banks failed,
points to bank administration as a vital factor in providing us with a safe banking system."

(1) Illinois Bankers Association Bulletin, May 1935, p. 78.


- 25 -)$•







"The writers advocate licensing of bank
executive officers because of the 'public utility
nature1 of banking; to keep out inexperienced and
dishonest bankers; to improve control of the quality
of bank credit; to facilitate and co-ordinate business and credit planning as one means of avoiding the
extremes of the business cycle.11 (1)
C. L. Stout, Executive Vice President, Poudre Valley National Bark.,
Fort Collins, Colorado:
"We seem to believe it is all right to allow the
ex-junk dealer, the merchants, the farmer or what have
you, to acquire control of a bank through purchase of
stock. He may immediately thereafter install himself as
executive manager. It appears that because a man has
been successful in another profession, that is the only
qualification needed to insure against malpractice in
"Banking is a profession. One which can never be
completely mastered. Therefore every executive should
pass the most rigid requirements. It is not fair to
allow unskilled and insufficiently trained individuals
to enter this profession as executive managers. Unethical and unsound practices in the management of
institutions can be corrected by more rigid requirements.
We seem to believe it is all right for these individuals
to wield the financial knife just so they leave a little
meat here and there on the community skeleton. Remember
that while everyone carries fire insurance, it does not
prevent conflagrations, neither does life insurance prevent epidemics. The Federal Deposit Insurance Corporation
will not protect us from banking diseases in the future.
There is no protection from the quack banker except to
disbar him from the privilege of serving the public as
a banker."(2)

(1) "The Certified Public Banker (C.P.B.)", Journal of Business of the
University of Chicago, October 1935, pp. 323; 335. Mr. Meech is
Associate Professor of Finance in the School of Business of the
University of Chicago; Mr, Byerrum is vice president of the
University State BanK, Chicago.
(2) Which Road Are You Going to Travel?", Northwestern Banker,
July 1936, p. 9.


- 26

A. C. Agnew, Counsel for the Federal Reserve Bank of San Francisco,
in .an address before the California Bankers Association in May 1955,
* it has always been a mystery to me Y*hy
we should require a certificate of qualification
from our doctor, our lawyer, our minister, yes, even
our undertaker, but entrust our worldly goods to the
care of one whose immediate prior occupation may have
been that of shearing sheep and whose only qualification consists in an ability, with' other^, to raise
the small capital required to buy a bank charter.
What I have said leads to the suggestion that the law
should provide that no bank charter be granted until
the examining authority, after careful and personal
investigation, is satisfied that the proposed management Is thoroughly experienced in the business of banking, of good and successful past record and unimpeachable integrity."(1)
H. J. Haas, Vice President, First National Bank, Philadelphia:
"From time to time we hear much about the
licensing of bank officers upon their passing examinations conducted by governmental agencies. The
prevention of such a program ever being forced on us
by legislative action plainly depends on the American
Bankers Association pursuing a policy that will raise
the standards of bank management not only in its
technical operation but in its social, economic and
ethical phases as well, to such levels as to make
government paternalism in this respect plainly uncalled
The outstanding views of a few others are Included in
Appendix II(A)l(b).

(1) "Some Thoughts on the Future of American Banking",
California Banker, June 1935, p. 197.
(2) "Annual Address of the President", Commercial & Financial
Chronicle, A. B. Convention Section, October 1932, p. 29.

- 27 In the consideration of the practicability of licensing bankers
numerous questions are presented, among which are those relating to the
following matters:
(a) The type and functions of the licensing
(b) Standards of qualifications - education^
experience, ability, integrity, judgment,
(c) Examinations of bankers - scope and character,
re-examination, etc.;
(d) Persons required to obtain licenses;
(e) Types of licenses issued and functions
(f) The effects of failure of present bankers
to pass examinations or to meet high
standards or rigid requirements;
(g) The effects, if any, which the licensing of
bankers would have upon banking ethics and
(h) Suspension or revocation of licenses - procedure and effects thereof.
Types and functions of licensing authorities.

Two broad types of

boards for the licensing of bankers have been suggested—the local or
state type and the Federal Reserve district or national type.
Some have suggested that as a practical matter it might be more
desirable to let the individual states take the initial step by the
enactment of a licensing law such as the Nebraska law or the A.B.A.
model bill (see Appendix II(A)1(a)) with the hope that the various
states would join in the movement until a uniform law is In force in all
states. It has also been suggested that a Federal licensing law

- 28 similar to the suggested uniform state law might be enacted. As
previously explained, the A.B.A. model bill provides for the creation
of a state banking board of five members, appointed by the state bankers

Such board would be fin adjunct of the state banking depart-

ment and would be empowered to determine the qualifications and fitness
of applicants, standards of education, ability, etc., conduct examinations, and grant and revoke licenses.
Another plan suggested^1) is that uniform laws, either state or
Federal, or both, be enacted to provide for a tripartite board in each
state, empowered to grant and revoke licenses, one member of which would
be chosen by the executive council of the state bankers association, one
appointed by the board of directors of the Federal Reserve Bank for the
district, and the third to be selected from academic circles by the
first two members.
One of the principal disadvantages or defects of the local or state
plan, it appears, is that if the matter is left solely to the initiative
of the individual states it is entirely possible that there might be 48
varieties of standards or that in some states there would be no standards.
Also, it is considered important that any licensing board function as a
part of or in close harmony with the bank supervisory agency, especially
in view of the importance of management and the responsibility placed
upon the supervisory agency for the removal of officers.

State boards,

therefore, might not properly solve the problem unless supervision is
to be left largely to the 48 states.

(1) Meech and Byerrum, "The Certified Public Banker (C.P.B.)", Journal
of Business of the University of Chicago, October 1935, pp. 335-336.

- 29 Various suggestions have been made with respect to national or
Federal Reserve district licensing boards. Meech and Byerrum have
suggested a national board with one member chosen by the executive
council of the A.B.A., one appointed by the Board of Governors of the
Federal Reserve System, and the third selected from academic circles by
the first two, the term of office of the members to be for life or
during good behavior.

It has been suggested further that in addition to

the licensing body there might be an administrative body or "audit"
committee, composed of persons selected, one each, by the executive
councils of the A.B.A., the American Economic Association, the Association of Collegiate Schools of Business, and the Board of Governors of the
Federal Reserve System, which could make an annual audit of the curriculum required, the nature and extent of the examination, and the methods
applied in the various sections of the country. This plan would also
provide that examinations would be administered periodically through
A.I.B. chapters; papers would be graded tentatively by local examining
committees; and final grades would be determined by the national board.
One suggested advantage of such a plan is that it would be a means of
minimizing politics and of maintaining uniform and high standards of

It might be regarded as defective inasmuch as it is some-

what removed from active bank management and bank supervision, and
would be slow in operation.
There have been some suggestions that the Board of Governors of the
Federal Reserve System either act as a national licensing board or be
empowered to designate a licensing board.

It was further suggested that

- 50
the actual administrative machinery of such board might be decentralized
into 12 districts-or zones and that the actual work of conducting examinations, issuing and revoking licenses, etc., might be administered by
the local commissions or committees, in accordance with the broad or
fundamental policies laid down by the national board.
A somewhat similar plan would be to empower the Board of Governors
to formulate licensing policies and to have the directors of the Federal
Reserve banks, or committees thereof, or officers of the Federal Reserve
banks, actually handle the administrative details in connection with the
licensing of bankers.
It has also been suggested that the U.S. Civil Service Commission
might be a logical agency for the licensing of bankers because of its
long years of experience in conducting examinations and in the classification of personnel through examinations, special investigations, etc.
It is pointed out that standards and policies of the Civil Service Commission are largely determined by the central organization in Washington
and the administrative features of conducting examinations, special
investigations, etc., are handled in the districts, and that with possibly only small additions these facilities could be made available in
connection with the licensing of bankers. The power and responsibility
for the revocation of licenses should, of course, go with the power to
grant licenses and in order that the Civil Service Commission might be
able to exercise its power of revocation efficiently, it would seem
necessary that it keep in close touch with bankers through examinations
or by close cooperation with the supervisory authorities in that repect.

- 51 Revocations might be based upon hearings and under a procedure somewhat
similar to that in connection with the removal of officers under section
30 of the Banking Act of 1935. One of the objections which has been
offered to this plan is the political element which frequently enters Into a body of this type and the great number of objections voiced against
examinations of the Civil Service type, especially if technical banking
laws and problems are to be covered. Another important disadvantage of
such plan is that the commission is too far removed from day to day
bank management practices and requirements.
One of the principal advantages of any form of Federal licensing of
bankers is that the element of local political pressure is reduced. An
objection occasionally voiced is that the examination procedure and
requirements involved would not be sufficiently flexible to meet varying
conditions in the different districts or states.
One important advantage of having bank licenses issued by an
existing bank supervisory agency or by a newly created board consisting
of bankers or bank supervisors—whether such board be a state, Federal
Reserve district, or national board—lies in the fact that its members
would be in constant touch with banking developments and problems .and
would therefore be In a better position to understand and formulate
desirable standards, particularly those appropriate in the licensing of
Many have indicated, that one disadvantage of the issuance of
licenses by state banking boards lies in the possibility and probability
of local political pressure being unduly exerted and yielded to. As


a means of eliminating or reducing such pressure, it has been suggested
that licenses be issued by a board consisting of Federal Reserve bank
directors or Federal Reserve bank officers, or by a committee consisting
of some of these and additional appointees named by bankers associations,
etc. One important advantage of having a licensing board consisting of
Federal Reserve bank directors or officers, or committees thereof,
functioning in accordance with the general policies laid down by the
Board of Governors, would lie in the probable closer coordination of
bank management problems with the credit and supervisory functions and
responsibilities of the Board. Another advantage is that Reserve bank
officials are in close touch with operating and management problems of
many of the banks and their experience with bankers through operating
contacts and examinations and supervision shed considerable light upon
the character and ability of bankers. This feature should be doubly
important if consideration should be given to the annual or triennial
licensing of bankers.
One of the principal objections which has been offered to the
licensing of bankers under any type of board is the general belief that
the licensing board or commission would not be able to formulate a type
of examination which would insure the selection of capably trained and
experienced bankers, especially with respect to integrity, general
ability, and judgment. This defect may be more pronounced if the examinations and the standards should be formulated by a body or commission

consisting of persons who are not engaged in banking or bank supervision.
Another possible licensing organization would be the American

- 33 Bankers Association. This organization might formulate licensing
policies, prepare the examination questions from time to time, and determine the methods of conducting the examinations and the minimum
standards of training, experience, ethics, and general ability of licensees. It is probable that satisfactory machinery for conducting the
examinations and tentatively rating applicants could be set up through or
in conjunction with the state bankers associations, where the appli^
cations for licenses and the results of the examinations could be tentatively graded and passed on to the A.B.A. for final grading and the
issuance of licenses. To be of greatest effect, it would be necessary
for the association to be recognized by Federal law, particularly with
respect to the matter of education, training, and licensing of bankers.
It might not be necessary that the law require a banker to be licensed
but at least it would be necessary that it require all banks to display
in their banking rooms a list of the officers who possess A.B.A. licenses
and of those who do not. Also, it might be required of banks to show in
their published statements the total number of officers and employees and
the number thereof holding licenses.

In this way the public would have

an opportunity to know which bankers had demonstrated their qualifications by meeting the requirement of the A.B.A. and could decide which
banks or which bankers they might prefer to deal with. It would be
necessary, also, that the A.B.A. have power to revoke licenses for cause.
To complete this type of licensing system, it would be desirable to
provide in the law that the A.B.A. be required to formulate a set of
minimum standards and requirements with respect to the education, train-


- 34 -

ing, judgment, ethics, and ether qualifications which a licensee must
possess and the nature of the examinations required.

It should be pro-

vided further that these standards must be satisfactory to the consolidated (or designated) supervisory agency, which should also have the
power to revoke for cause any license issued by the A.B.A* and not
revoked by it. Any revocation of licenses by the A.B.A. might be made
subject to appeal to the consolidated (or designated) supervisory
Some of the advantages of this method of licensing are: The
A.B.A. has developed educational facilities for bankers and is striving
for further development and this plan would give a tremendous impetus
to bank education, particularly among country bankers. It is a plan
for self-advancement, and would be much less objectionable than other
plans and would develop further interest in education and training,
which is the base for future bank management.

It would remove from the

supervisory agency or public licensing authority an enormous amount of
administrative detail in the matter of preparing examination rules and
questions, preparing and handling applications for licenses, conducting
examinations, issuing and recording the different classes of licenses,
etc. Bankers themselves would be given an incentive to raise the
standards of bank management. The plan would probably receive from
bankers and the public in general much less criticism than many of the
other plans suggested, especially during the first few years.
The A.B.A. Is probably in closer contact with banking problems and
with a large number of bankers through its various divisions and


committees than any other organizations except bank supervisory authorities. Many prominent bankers are devoting considerable of their time to
participating in the formulation and development of educational programs
and the general raising of the level of standards of bank management
through the A.B.A. The Association, therefore, is in a position to
formulate, with a minimum amount of additional preparation and work,
courses of study preparatory to the types of examinations which may be
required in connection with the issuance of licenses.
Some of the objections to this plan are: The failure of the A.B.A.
In the past to harmonize various banking interests and to cause their
members to put into practice various standards of education, ethics, and
principles of sound bank management. This may have been largely due to
the fact that it has had no legal recognition and no power to compel
bankers either to join the Association or to carry out its precepts aftci
they become members. On many occasions various groups of bankers, such t
the State Cankers Division of the American Bankers Association, Reserve
City Bankers, etc., have objcc tod to actions and policies on other natter
proposed by other divisions of the association, resulting in delays In
putting them into effect or the ultimate abandonment thereof.

It is

easily conceivable that country bankers would not readily agree upon the
typo of educational and licensing program or standards which might be
favored by Reserve City bankers. Another disadvantage of this plan lies
in the fact that the Association is not constantly in touch with the
banks and bankers through bank examinations, conferences with officers on
various problems, rediscounts, and many other day to day transactions,

- 36
as are the officers of the Federal Reserve banks.
Standards of qualifications.

The matter of establishing standards

of qualifications relative to education, experience, ability, integrity.,
judgment, etc., has been indicated by many bankers and writers as one of
the principal difficulties incident to the licensing of bankers. Many
have indicated that while there are common standards of honesty and
judgment, it would be manifestly impractical, if not Impossible, to
establish uniform standards of qualifications for bankers in all classes
and sizes of banks and that banking must remain a matter largely of
integrity and good judgment rather than of a technical knowledge of
banking. This Is particularly true of bankers in rural sections where
opportunities for technical training are not so great as in Reserve
cities. Obviously, a great many injustices might result from the
requirement of an academic examination or a requirement that only graduates of schools of finance or persons who had pursued certain types of
training could be licensed bankers. Then, too, there may be instances
in which a person well qualified to successfully manage a bank might and
often would fare ill in an academic examination, compared with a student
accustomed to the technique of the class room. Others have said that
while educational training is important there is no substitute for
sound judgment based upon practical experience and consideration must
also be given to character, reputation for business leadership, etc.
These and many other questions presented in this matter are illustrative
of the problems encountered in attempting to sot up standards of qualifications for the examination of bankers. Many who have advocated the

licensing of bankers have suggested that the determination of standards
of qualifications should be left to the licensing or examining body and
in this connection it is noted that the A.B.A. model bill provides that
the state banking board "shall fix its own standards of education, ability, experience and character".
Examinations of bankers. Numerous questions have been raised as b^
the type, scope and details of examinations for licenses.

Some of these

are; Should examinations be written or oral, or both, and should such
examinations cover both educational training and experience?

Can a set

of examination questions and requirements be designed to definitely and
adequately test all of a banker's qualifications—as to technical and
general education, integrity, and judgment—without being unduly burdensome in general .and unfair to many capable applicants?

Should the task

of formulating examinations be left to an examining body, or to educators, or to others? Once a banker is licensed should he be required to
be re-examined, say, annually or every three or five years, to make sure
he has kept up to date on banking and other related matters?

In view of

the developments in the many matters relating to banking which do not
always come to the bankers' attention as a part of the day's work*, it
has been suggested that re-examinations would provide a stimulus for
keeping up with changes. Should each banker be required to file some
form of application for a license or for an examination or re-examination?

Should forms for such applications be drawn up in such manner as

to furnish useful data in considering whether a banker is eligible for
the examination or the license sought?

Most advocates of the licensing

~ 38 plan have suggested that the type, scope, and details of examinations
should be determined by the examining or licensing agency.
Persons required to obtain licenses. Some of the questions raised
with respect to the different classes of banters who should be required
to obtain licenses are: Should the requirement be limited to the executive officers of a bank (as provided in the A.B.A. model bill), or extended to include directors and all bank employees?

Should licensing

include all present officers or only those persons who are appointed to
officerships in the future (A.B.A. bill)?

The 1934 report of the

Illinois Bankers Association's Committee favored the adoption of the
A.B.A. model bill but stated that "present officers should be presented
with licenses (on the theory that a general house-cleaning of unfit
bankers has taken place)".

If licenses are presented to all present

bankers, is it not possible that many unfit bankers would be licensed?
What would be done about licensing the many competent bankers who have
been forced out in the past due to circumstances beyond their control
and who are not now in banking service?
The Nebraska licensing lav/ now in effect and the A.B.A. draft of a
model bill for licensing bankers provide for the licensing only of
executive officers.

It should be noted, however, that the A.B.A. Com-

mittee on State Licensing of Bankers (1929) stated that incompetency,
infidelity, etc., frequently have their origin at the receiving teller's
station, and in other departments of the bank, and that if a system of
licensing of bankers is to be established it should cover the entire
scope of the bank.


- 39 Type of licenses issued and functions covered.
tions presented with respect to these matters are:

Some of the quesShould different

types of licenses be issued to bankers In different classes and sizes of
banks, different communities, etc.?

Should licenses be issued to cover

a specified function, such as credit, investment, trust, personnel,
audit, foreign, general, etc., or would a licensed officer be permitted
to handle any and all types of transactions in a bank?

Or would licen-

ses be general in nature and apply to all bankers alike, as in the case
of lawyers, accountants, etc.?

Would unlicensed officers be prohibited

from participating in certain types of transactions?
Effects of failure of bankers to pass examinations, etc. The
effects of tlie failure of the present bankers to pass examinations or to
meet high standards or rigid requirements appear worthy of much consideration.

Some of the questions in this connection are: Would bankers be

given a reasonable length of time within which to prepare themselves for
examination and would adequate facilities be provided for such preparation?

Would bankers unable to pass the academic phases of the examina-

tions be permitted to prove their fitness on grounds of experience,
character and judgment?

Would it be more desirable to begin with

reasonably lax standards and raise them as time goes on?

Is it to be

expected that the really competent bankers, particularly many of those
in rural communities without educational advantages, who may be unable
to meet even comparatively simple standards with respect to education,
shall be forced out of banks and the banks operated by them be forced to
close, with considerable loss or injury to the bankers and the people in


- 40 the community?
Effects upon bonking ethics and practices.

The opinion has been

expressed that licensing of bankers will not eliminate all banking or
bank management defects and difficulties.

If properly administered,

however, any satisfactory system of licensing of bankers should contribute to a further improvement of banking practices and ethics, since
standards of qualifications would be increased find many of the present
undesirable types of bankers would be eliminated in the future. This
may be particularly true if the licensing process were closely coordinated with effective bank supervision.

It appears doubtful that a system

of licensing bankers could be inaugurated under present circumstances
which would eliminate the unethical types of bankers who have in the
past developed and maintained large or powerful influence in their communities or spheres. A license hanging on the wall in the lobby of a
bank can not long remain a substitute for integrity and sound judgment
behind the counters.
Suspension or revocation of licenses. Effective powers .and procedure for the suspension or revocation of licenses would seem essential
to the successful operation of a licensing plan. The A.E.A. model bill
provides that the state banking commissioner, with the approval of two
members of the state banking board, may suspend any licensee for violations of the state law or for the performance of his duties in an unsafe, unauthorized, negligent or dishonest manner, etc., and that the
banking board, after a hearing, may revoke licenses.

The suggestion has

been made that licensed bankers might be re-examined periodically and


- 41 their licenses revoked if they fail to pass the renewal examination;
also, that the reports of bank examiners (assuming a state or Federal
licensing agency) might be used as a basis for notice of revocation
The A.B.A. model bill provides that during the period of suspension
the licensee may not be employed by any bank and that the state bank
commissioner, upon approval by the banking board, may reissue a license
which has been revoked after one year from the time of such revocation
upon reasons deemed satisfactory and sufficient.
It is obvious that the principal questions concerning the suspension or revocation of licenses are: What should be the grounds and the
procedure for the suspension or revocation of licenses?

Should a person

whose license has been revoked be forever disbarred from serving as a
banker, or may he again be licensed at some later date?
By way of summary, there are indicated below some of the principal
advantages and disadvantages and difficulties of licensing bankers:
(a) The minimum of effort required by supervisory
agencies and minimum of injury to banks and
bankers resulting from the exclusion by examinations of prospective unqualified bankers, as compared with removal proceedings.
(b) The improvement in bank management which should
result from the power of the licensing authority
to decline to renew licenses periodically and to
suspend or revoke licenses for cause.
(c) The impetus which would be given to the education
and training of bankers—both general and specialized.
(d) The ultimate improvement in the calibre of bankers
and in banking ethics and practices through the establishment of morfc rigid standards of qualifications.


- 42 Disadvantages and Difficulties
(a) The difficulties which would be encountered in
connection with the selection and establishment
of a satisfactory licensing authority.
(b) The difficulty of setting up standards of
qualifications for bankers in all classes and
sizes of banks and in various communities.
(c) The various administrative details arising in
connection with the formulation and holding of
examinations, re-examinations, etc.
(d) The problem of licensing those persons now engaged in the banking business and the probable
effects of rigid requirements in this connection.
(e) The inability of the licensing authority to
determine by any reasonable examination an
applicants soundness of judgment and ethical
principles—what they are at the time of
examination or what they might be in the
future—as compared with the position of the
controlling shareholders in these matters.
(f) The fear and danger of placing a premium upon
clerical and routine phases of banking and the
ultimate operation of banks by governmental
agencies or strictly in accordance with formulae
determined by them.
(g) The probable ill effects upon the attitude and
initiative of bankers.
From the foregoing, it is apparent that the possible advantages are
relatively unimportant when compared with the many disadvantages and
difficulties which would be involved in any plan for the licensing of
bankers. Neither does it appear that the licensing of bankers could
accomplish much of good which could not be accomplished as readily and
more effectively by the sound administration of adequate supervisory
authority. Furthermore, licensing of bankers would not relieve the


- 43 necessity for continuation of the authority to remove bankers for cause.
Apparently no standardized set of requirements has been developed
which would warrant setting up formal examinations for bankers such as
exist for doctors, pharmacists, lawyers, accountants, and other professional men. As a matter of fact bankers are already subject to much
more regulation than most professional men. Doctors, pharmacists> and
lawyers usually are required to pass only one examination covering
largely theory or technical subjects. Their licenses are subject to
revocation for reported and proved serious malpractices and on very few
other grounds, if any. In most such cases, the matters with which they
deal or the efficiency with which they handle such matters are not
easily susceptible of inspection or examination.

In spite of this and

the fact that the interests of the public(which^ispractically helpless on
its own accord) are involved to a very great extent, once such a professional man is licensed, largely upon the basis of a technical examination, with but little emphasis upon ethics, general intelligence, and
sound judgment, additional examinations are only infrequently required,
if at all.
Bankers, however, are subject to rigorous and frequent examinations
in that their actions and the results of their judgment and their reputation with the public are closely scrutinized by bank examiners. Banks
are licensed at the time charters are issued and this, in effect, is
equivalent to the licensing of the management at that time. The character ana ability of bankers is continually being observed by examiners
and the public through the condition of assets, earnings, and the growth

- 44 of their institutions; whereas, there are no such definite means of
measuring either the character or ability of doctors, lawyers, etc.,
who are in a position to jeopardize liberties and health and thus prey
upon the public to a far more dangerous extent than bankers, who handle
only property.
It would be in the public interest to disbar ail quacks—whether
bankers, doctors, or lawyers. However, it appears that pressure from
enlightened customers and the public has been more effective than
licenses in eliminating quacks from the professions.

Since successful

banking is based largely upon sound business judgment and only to a
small extent upon technical or theoretical training, it vyould be far
more difficult or impossible in the banking business than in the professions to determine in advance by examinations prerequisite to the
issuance of licenses which persons might later turn out to be quacks.
The Government has a responsibility to the public for the supervision of banks and bankers within broad limitations.

It is not

responsible for the direction of operations or the determination of the
individual problems or practices of banks. Licensing of bankers by a
Governmental agency would in effect constitute its approval of the
management of a given bank and the responsibility for the success of the
bank would be regarded by many as falling on the Government to a far

greater extent than if the Government limited its functions to the
supervisory power of vetoing or removing untrained and unethical bankers.
Much has been accomplished in the past few years by the supervisory
authorities and the bankers, themselves, by way of improving bank


- 45 management.

It would seem that if additional legislation in this con-

nection is regarded as necessary the most practical and effective
methods, under present conditions, would be to enact laws which would
require directors and officers (or "executive officers") of a bank to
possess minimum requirements with respect to education, ability, experience, integrity, etc., (to be specified either in the law or in regulations by a Federal supervisory agency) and which would place in one
designated Federal authority adequate power to remove directors and
officers from office, or to impose other penalties, for violations of
the law or for unsafe and unsound practices. This vould
not require that bankers be licensed but would involve a strengthening
of the powers of the Federal supervisory authority with respect to
requiring corrections of unsound practices and the removal of bankers.
It is to be expected, of course, that all bankers with the required
minimum qualifications will not forever possess and exercise the necessary sound judgment and integrity, and that it would be necessary for
the supervisory authority to criticise and cause to be eliminated unsatisfactory bankers in much the same manner that it will be required to
cause the elimination of the unsatisfactory assets of a bank. Discretion and judgment must be exercised by the supervisory authority whether
licenses are required or not, and it would therefore seem practical to
give such authority adequate power to determine by observation in any
given case whether bankers are qualified and are actually conducting


- 46
their banks along safe and sound lines. This method should not arouse
the maximum of objection from bankers because of their knowledge and
more or less tacit approval of section 30 of the Banking Act of 1933.
Under such a plan, bank examiners should be required to analyze and
classify bankers as carefully as they would analyze and classify the
bank's assets and to such extent that the supervisory authority may be
able to determine from their reports whether such bankers are qualified—whether good, doubtful, or losses—and should be retained or
As between a plan of licensing bankers under reasonably rigid
standards end a plan of continuing and strengthening the present laws
with respect to unifications and renoval of bankers, a voluntary
licensing plan, which ::dght have wsrit under existing circwnstances,
ia&y be considered. Such a plan aight contemplate the enactment of
laws which would provide for the necossary licensing .system and standards and procedures the suspension or revocation of licenses; and the
requirement that all banks publish, in connection with the publication
of their reports of condition under existing laws, the extent to which
their directors and/or officers are licensed. This would give the
depositors of banks and the general public an opportunity to determine
whether they regard it necessary that bankers be licensed. Of course,
It would not be expected that the depositors or the public would be as
well informed of the Licensed status of the bankers as the licensing
authority might be, inasmuch as the depositors and the public would not
have close contact with or interest in many of the details pertaining
to the banks.


This might be a step toward the ultimate requirement that all
bankers be licensed. As in the case ox some of the other licensing
plans suggested, it is very probable, of course, that a great many injustices might result from the inability of many competent bankers to
obtain licenses because of their failure to meet rigid requirements.
Undoubtedly, there would be many cases in which none of the officers of
a bank Could meet the licensing requirements.

It might not seem

practicable to remove all such officers or to close the banks, especially in those cases where the banks have been well operated. Thus the
necessity for licensing bankers might be conspicuous by its absence.

- 48 -

(b) Maximun and rainionir/: number of directors.

Statutes limiting

the number of directors which a bank may have (see Table A, Appendix II)
are obviously intended to guard against mismanagement by reason of the
existence of too few or too many directors.

A bank with only two or

three directors may easily fall under the domination of one or a few
persons and thereby become what has often been criticized as a
"one-mnn bank" and. bad practices may be the result. On the other hand,
where a bank has too many directors, mismanagement may result from the
division of responsibility or from the existence of "dummy'1' directors
who may in many cases be persons of high standing and of considerable
appeal to the public but without the inclination or abi.li.t3r to direct
•the affairs of the bank, with the result that unscrupulous directors
and officers less known to the public actually direct the operations
of the bank, often for their personal benefit arid the. ultimate
detriment of the well known directors, the shareholders, and the
Under the provisions of Section SI of the bonking Act of lo33,
the board of directors or other oovernino body of every bank or trust
company vhieh is a neaber of the federal Reserve Syateo. nust ccnrirt
of not loss than five or more than tv;enty-:five o'ferooere.

All of tiio states except seven have statutes limiting the
minimum number of directors or trustees vdiich State brinks, trust
companies and savings banks may have. However, a maximum number is
prescribed in only t^onty-cnc states and in some of those states only
with respect to certain typos of banking institutions.
(c) Residence end citizenship.

Section 5146 of the United States

Revised Statutes requires that every director of a national bank must
during his term of service be a citizen of the United States and that
at least three-fourths of the directors must have resided in the state
territory, or district in which the bank is located, or within fifty
miles of the location of the bank's office for at least one year
immediately preceding their election and must continue to meet this
requirement during their continuance in office.
With respect to this statute, the Supreme Court of the United
States in 1888 stated;
"One of -the evident purposes of this enactment is to confine the management of each bank
to persons who live in the neighborhood, and who
may, for that reason, be supposed to know the
trustworthiness of those who arc to be appointed
officers of the bank, and the character and
financial ability of those #10 may seek to borrow
this money." (Concord First National Bank v.
Hawkins, 174 U. S. 564, 568.)
No provision is made by Federal law with respect to the residence
or citizenship of directors of State member banks.

Trio provisions of

State laws with respect to the residence and citizenship of directors
vary widely, as indicated in Table A of Appendix II.
Only nine States require directors of banks to be citizens of the
United States; 'and in one of these, New York, it is provided that one
director of a trust company need not bo a citizen of the United States
The requirements as to residence of directors are identical with those
prescribed by the Federal law in only one state—Indiana.

- 50 -

(d) Ownership of stock. It appears to have been considered
important that a director of a banking institution own a certain amount
of shares of stock of the institution of which he is a director. This
is indicated by the fact that such requirements exist both under Federal
law and under the laws of all the States, with the one exception of the
State of Tennessee.
Generally speaking, the statutory provisions with respect to this
matter uniformly require that the stock to be held by a director shall
be held by him in his own*name and right, unpledged and unencumbered in
any way, not only at the time of his election but during his continuance
in office.
The provisions of the State statutes are in general similar to
those contained in the Federal law with respect to national banks, which
reads as follows:
" * * * Every director must own in his own
right shares of the capital stock of the association of which ho is a director, the aggregate par
value of which shall not be less than $1,000, unless the capital of the bank shall not exceed
|25,000 in viiich case he must own in his own right
shares of such capital stock the aggregate par value
of which shall not be less than $500. Any director
who ceases to be the owner of the required number
of shares of the stock, or who becomes in any other
manner disaualified, shall thereby vacatc his
place.!! (Sec. 5146, R. S.; U. S. C., title 12, sec. 72.)
Apparent defects in this statute have been noted in considering many
voting permit cases where directors had contracted to "resell" their
qualifying shares to the holding company affiliate up- n termination of
their directorship.

There is no longer any provision in the Federal laws

with respect to the ownership of stock by directors of State member banks

?3hilc the State statutes relating to this matter are substantially
similar in all the States, they vary widely from State to State vath respect to the amount of stock which must be owned by a director, as indicated in Table A of Appendix II.
(e) Bonds and oaths. Th:. banting laws of nearly all of the States
contain requirements with respect to fidelity bonds of officers of banks
and the oaths of office required to be taken by directors.

In a few

States the lav; authorizes the directors of a bank to require bonds of
the bank's officers ana to fix the penalty thereof.

In most instances

such statutes arc applicable only to officers who arc active in the
management of the bank or to officers who have the care, custody or control of the funds or securities of the bank. A typical statute is that
of tiie State of Iowa, which reads as follows:

The officers and employees of any state
bank, savings bank or trust company having the
care, custody or control of any funds or securities
for any such bank or trust company, shall give a good
ana sufficient bond in a company authorized to do business in. this state indemnifying the said bank or trust
company against all losses, which may bo incurred by
reason of any act or acts of fraud, dishonesty, forgery,
theft, larceny, embezzlement, wrongful abstraction,omisapplication, misappropriation or other criminal act committed by such officer or employee directly or through
connivance with others, until all of his accounts with
the said bank or trust company shall have been fully settled and satisfied. The amounts and sureties shall be
subject to the approval of the board of directors of any
such bank or trust company. The premium on said bonds
shall be paid by the said bank or trust company. n
(Iowa Banking Lavrs, Boc. 9217-c5.)
By such laws qualifications of bankers may be said to be regulated,
at least to some degree, inasmuch as it is presumed that the surety con-

panics look into the character and reputation of the officers concerned
before writing the bonds. It is not presumed that surety companies give
much consideration to the other qualifications based upon education,
training experience, general ability, etc.
In practically every State in the Union, a director of a banking
institution is required to indicate his acceptance of the office by formally subscribing to an oath of office. In a few States it is provided
only that each director shall be sworn to the faithful performance of
his duty, but in most states the language of the statute is almost ident
cal with that of Section 5147 of the Revised Statutes of the United
States requiring oaths of directors of national banks, which is as
"Each director, when appointed or elected
shall take an oath that he will, so far as the
duty devolves on Rim, diligently and honestly
administer the affairs of such association, and
will not knowingly violate or vdllingly permit
to be violated any of the provisions of this
title, and that he is the owner in good faith,
and in his own right, of the number of shares
of stock required by this title, subscribed by
hira, or standing in his name on the books of the
association, and that the sane is not hypothecated,
or in any way pledged, as security for any loan
or debt. * * * « (R. C. Sec. 5147; U. S. C.,
title 12, sec. 75.)
(f) Services in other institutions or in other capacitios.
The Federal laws contain provisions regarding the following matters,
which may be considered as negative requirements, with respect to
qualifications or provisions which indicate what bankers may not be
or may not do:

- 53 1. Interlocking bank connection, Section 8 of the
Clayton Antitrust Act.
2. Connections with securities companies, Secti n 32
of the Banking Act of 1933.

Connections vdth public utilities and registered
holding companies, the Public Utility Act of 1935.

Under the banking laws of several states one or more of
classes of relationships are prohibited or restricted:
(l) interlocking bank services, (2) connections with securities companies,
(3) connections vdth companies making loans on stocks or bonds, and
(4) holding certain public offices.
It will bo observed from Table 3 of Appendix II that in certain cases
it is provided that trustees of a savings bank may serve in the relationships generally prohibited.

In certain other eases the prohibited

relationship;.' is permitted if a majority of the trustees of a savings
bank will not be directors or trustees of other institutions.

In only

one instance is there any provision for the issuance of a permit
authorizing the relationship prohibited.

That case is in New York where

it is provided that .on officer or director of a State bank or trust company may serve as an officer, director, or employee of a securities com-,
pany if a permit for such service is issued by a two-thirds vote of the
State Banking Board.
There are no provisions whatsoever with respect to the service of
directors or officers of banks in other capacities in 36 of the States in
the Union| and in one other State, Texas, there is not only no restriction upon such services but it is specifically provided that a director

- 54 of a savings bank shall not be disqualified by reason of his service as
a director or officer of another State bank.

So far only eleven States

have taken any action towards restricting such services; and nearly all
of the existing State statutes with respect to this matter are applicable
only to trustees or officers of savings banks.
(g) In general. In a small number of States certain grounds are
specified as disqualifying a person for service as a director of a
banking institution, such as

Conviction of a violation of the banking lav-s
(Colorado, Montana, Oklahoma, .and Wisconsin)

2, Judgments hold by the bank against the person
(Missouri and Texas)
5. Bankruptcy
4. General assignment for the benefit of creditors,
etc. (New York, Oregon and Washington, with respect to a trustee of a mutual savings bank.)
5. Serving other institutions or holding certain
public offices (about one-.fourth of the states).
In addition to the foregoing, Federal and State laws contain numerous and varying restrictions and limitations with respect to loans,
investments, capital, etc., misapplication and embezzlement of funds,
etc., and various other prohibitory provisions, for the violation of
which penalties are provided, although these provisions may be regarded
as indirectly affecting the qualifications of directors and officers of
banks, they are not to be regarded as of such nature as to positively
promote and improve the qualifications of bankers.
Neither Federal nor State laws contain any direct provisions with
respect to the qualifications of bankers specifically enumerating

requirements with respect to education, training, experience, integrity,
and general all-around ability.
Although many restrictions and limitations have been made upon
certain transactions and activities of bankers, many persons consider
that legislation has not touched upon the fundamental problem involved; namely, incompetency of bankers.
In connection with the provisions of the statutes which deal with
criminal violations, much could be accomplished in revising the laws in
such manner as to eliminate many technicalities which have proved to be
stumbling blocks, particularly in the trials of bankers involving complicated transactions, etc.
Although til ere have been some efforts find much agitation for the
raising of the standards of qualifications for bankers by legislation, a
large percentage of the bankers and a great number of bank supervisors,
prominent speakers, and authors have -generally indicated that the desired
improvements must cone fron within the banks rather than from legislation. In this connection S. Sloan Colt, President, Bankers Trust Comf
pany, New York City, has stated*
"It must be clear by now that lasting
improvement in the banking system can seldom
be obtained by legislation. The futility of trying
to substitute arbitrary rules and laws for sound
business judgment has been amply • demonstrated. That
is why a project wherein the man actually operating
banks undertake to make a careful analysis of the banking problems is so important and nay bring productive
results. We have tried, legislation for a hundred years:
let us now try research and analysis, "(l)
The views of John W. Pole, former Comptroller of the Currency, and
others, in the natter of legislation relative to qualifications of
directors and officers are contained in Appendix II(A)l(c).
(l) Address before the Kansas and Missouri Bankers Associations in
Kansas City, May 6, 1956.


The laws affecting national banks and those of practically all of the
states contain provisions making bank directors personally liable for losses
resulting from excessive loans or Illegal investments made by them and for
the improper declaration of dividends, and both the Federal and state banking laws contain criminal provisions with respect to embezzlement, abstractions, and false entries by officers and directors of banks.
Statutes which impose liability upon officers and directors for
violations of the banking laws or for mismanagement generally may be divided
into three classes: (l) statutes imposing civil liability in damages; (2)
statutes imposing criminal liability; and (5) statutes rendering the offending officer or director liable to removal from office.
Section 5259 of the United States Revised Statutes (U.S.C. Title
12, Chap. 2, Sec. 95) provides as follows:
"If the directors of any national banking association
shall knowingly violate, or knowingly permit any of the officers,
agents, or servants of the association to violate any of the provisions of this chapter, all the rights, privileges, and franchises
of the association shall be thereby forfeited. Such violation shall,
however, be determined and adjudged by a proper district, or Territorial
court of the United States, in a suit brought for that purpose by the
Comptroller of the Currency, in his own name, before the association
shall be declared dissolved. And in cases of such violation, every
director who participated in or assented to the same shall be held
liable in his personal and individual capacity for all damages which
the association, its shareholders, or any other person, shall have
sustained in consequence of such violation."
This provision relates to violations of certain provisions of
the National Bank Act, and it has been held that it does not relieve
directors of a national bank from the common law liability for failure to

-56Aadminister the affairs of the bank with reasonable care and diligence.
Bowerpan v. Hamner (1919) 250 U. S. 504. There is a similar s t a t u t o r y provision regarding violations of the Federal Beserve Act by directors of
national banks (Fed. Res. Act section 2, paragraph 6).
Section 22 of the Federal Reserve Act contains a similar provision relating to the responsibility of directors and officers for violations of section 22 of the Federal Reserve Act. It will be noted from
the following quotation of the provision that, while it relates only to
Section 22, it specifies all member banks and not merely national banks,
and it specifies officers as well as directors:

(f) If the directors or officers of any member bank
shall knowingly violate or permit any of the agents*
officers, or directors of any member bank to violate any
of the provisions of this section or regulations of the
board made under authority thereof, every director and
officer participating in or assenting to such violation
shall be held liable in his personal and individual
capacity for all damages which the member bank, its
shareholders, or any other persons shall have sustained
in consequence of such violation."
In eleven states(l) there are statutes (as distinguished from
common law responsibilities) imposing personal liability in damages upon
officers and directors of banks for violations of State banking laws**
and in eight states (2) violations of the bonking laws by officers or
(1) Arkansas, Connecticut, Idaho, Kentucky, Nevada, North Carolina,
North Dakota, Ohio, Oklahoma, South Dakota, and Wisconsin.
(2) Connecticut, Georgia, Kansas, Louisiana, Maryland, North Dakota,
Texas, and Vermont.


directors are specifically made punishable by fine or imprisonment and
constitute misdemeanors or felonies. Many of these statutes are open to
the objection that in practice they may not be effective in producing
sound bank management. Court proceedings will ordinarily be necessary
and it is not at all inconceivable that an officer or director may bo
permitted to continue in his position even after he has paid the penalty
provided by such statutes.
Statutes providing for the removal of officers and directors guilty
of misconduct, unsound practices, or violations of tho banking laws are
found in a number of states. These provisions vary greatly with respect
to the persons removable, the causes for removal, and the proceedings, if
any, which must be followed. Table E (Appendix II) indicates these variations. It may ba noted that this table is intended to give only a general
picture of the situation with respect to the removal of officers and directors in the various states and is not n complete digest of the statutes in

Some of the principal causes of removal are summarised as follows:
(1) Specified causes, such as failure of directors to own
stock or to attend meetings, etc, (Alabama, Wisconsin,
Indiana, Florida, and other states).
(2) Dishonest, reckless or incompetent conduct. (Idaho,
North Carolina, Oregon? Washington, and other states).
(5) Abuse of trust or negligence in performance of duties..
(Massachusetts, Pennsylvania).
(4) Conduct injurious or hostile to bank.
Oregon, Washington)*

(Now York,

(5) Continued violations of law or unsound or unsafe
practices (Federal Laws and 7 states)„

- 58 The Idaho statute which may be regarded as typical of those in
effect in some of the other states, reads as follows:
"Any director, officer or employoe of any bank found by
the Commissioner to bo negligent, dishonest, reckless or
incompetent, shall bo removed from office by the board of
directors of such bank on the written order of the Commissioner, and if the directors neglect or refuse to remove
such director, officer or employee, in event any losses
accrue to such bank thereafter by reason of the negligence,
dishonesty, recklessness or incompetency of such director,
officer or employee, such written order of the Commissioner
shall be deemed to be conclusive evidence of the negligence
of the directors failing to act upon the sane as herein provided in any action brought against them, or any of them,
for recovery of such losses," (Idaho Code, Title 25, Sec* 25-40?})
While there is no specific provision for removal in the banking
laws of Texas, it is there provided that if the Commissioner of Banks finds
that any director or officer of a bank has abused his trust or been guilty of
misconduct in his official position injurious to the bank, he shall communicate the facts to the Attorney General of the State who shall thereupon
institute such proceedings as the nature of the ease nay require. Apparently, under this provision, the Attorney General would bo authorized to bring
proceedings for the removal of directors or officers guilty of the misconduct described in the statute.
Prior to 1935, there was no provision in the Federal statutes for
thg removal of bank directors or officers. Section 50 of the Banking
Act of 1935, however, in an effort to improve the management of national
and State member banks, made directors and officers of banks subject to
removal for continued violations of banking laws or c >ntinued unsound or unsafe
banking practlces, after being warned by the Comptroller of the Currency (in
the case of national banks) or the Federal reserve agent of the district (in
the case of State member bonks) to discontinue such violations or such


Some of the obvious defects of the Federal statutes, from the standpoint of effective supervision of bank management, are; (l) action must be
predicated upon the opinions of two different supervisory agencies in the
case of national banks; (2) the director or officer must have been warned to
discontinue the violations of law or unsound practices before action for removal can be started; (3) the violations of law or unsound practices must
have been continued after warning; (4) the facts of continued violations after
warning must then be certified to the Board of Governors, together with sufficient details to justify the Board in giving the offender notice to appear;
(5) notice of the charges must be served, upon the director or officer who
must be given an opportunity for a hearing before removal may be effected;
(6) the necessity for describing specifically the alleged violations of law
or unsound practices in the warning or certification to the Board of Governors and of showing their repetition may preclude the removal of a director or officer who in the meantime has discontinued the alleged violations
or unsound practices but has begun the violation of other provisions of the
law or other unsound practices.
The warning process and the necessity for a continuance of the
violations charged or alleged before removal proceedings can be held,
together with the time consumed in preparing for and conducting a hearing,
presupposes the lapse of a period of time dangerously long in some cases,
particularly those subject to bitter contests which may be based largely
upon technicalities.

Thus, it will be seen, a series of violations and

warnings may be continued over a long period of time before the Board
could legally take any effective action.
The above-mentioned defects suggest the necessity for revising the
statutes in such manner as to provide for the summary suspension of directors
and officers in certain types of situations and the removal for violations
after a warning and hearing In other cases, care being exercised to draft

-60the statutes in such terms as to clearly prevent evasions by directors or officers by shifting to other violations or unsound practices, or only temporarily discontinuing those in connection with which warnings have been issued.
In this connection attention must of course be given to meeting the constitutional requirements of "due process of law11 In effecting such removals.
It is interesting to note that removal statutes on the order of
the Federal statute are found only in certain States in the northeastern
section of the United States, vis., Connecticut, Massachusetts, New Hampshire,
New Jersey, Pennsylvania, and Vermont, and in Indiana.
In two of these States the statutes are substantially different from
the Federal statute with respect to the proceedings to be followed.

In New

Jersey it is provided that the Commissioner of Banking and Insurance may
direct the discontinuance of any violations of law or unauthorised or unsafe practices by the managers of a mutual savings bank and that if his
directions are not complied with, the Attorney General of the State may institute proceedings for the removal of the offending managers of the bank. In
Vermont the Commissioner of Banks is authorized to direct the officers of a
bank to discontinue illegal, u n s a f e or unauthorized practices or conduct,
but no specific provision is made for removal.
In the other States, however, viz., Connecticut, Indiana, Massachusetts. New Hampshire, and Pennsylvania, the statutes are essentially
like the Federal statute. They provide for a preliminary warning to be
given to the offending officer or director by the State Superintendent of
Banks and they make provision for a hearing to be had before some duly
constituted public body. They likewise provide that the order of removal shall
not be made public or disclosed to anyone except the delinquent officer or
director and to the*board of directors of the bank with which he is connected, except in the course of the proceedings for removal.
In certain other respects, however, the removal statutes in these
five states present important differences.

- 61 In Connecticut, the statute is applicable not only to officers
and directors who have been guilty of continued violations of the banking
laws or unsafe or unsound practices, but also applies to officers or directcr-s
who have used their official position in a manner contrary to the interests
of the bank or its depositors or shareholders, or who have been negligent
in the performance of their duties. Whenever, after having been warned by the
Bank Commissioner, the offending officer or director does not discontinue
the practices mentioned by the statute, the Bank Commissioner is required
to serve notice upon such officer or director to appear before the
State Advisory Council for hearing. If the Advisory Council finds him
guilty of any delinquency, it must so advise the Bank Commissioner who will
then issue an order for his removal* Upon the issuance of such an order, the
officer or director involved automatically ceases to be an officer or director
of his institution and is disqualified from further participating in its
management. Any such officer or director, however, is entitled to appeal to
the Superior Court for Hartford County within 20 days after the receipt of
the order and that court, if it finds that the order was arbitrary, illegal
or unreasonable, may vacate the order of removal* It is to be noted, with
respect to the Connecticut statute, that its provisions v/ill expire July
1, 1937.
The Massachusetts statute, like the Connecticut statute, is also
applicable to officers or directors who have used their official positions
in a manner contrary to the interests of the bank or its depositors or who
have been negligent in the performance of their duties. However, it is
provided that the Commissioner of Banks shall certify the fact in any
such case to a board composed of the State Treasurer, the Attorney General,

- 62 and the Commissioner of Corporations and Taxation. Provision is then made
for a hearing to be held before such board. In other respects, the proceedings are practically identical with those prescribed by the Connecticut
statute, except that it is provided that the order of removal shall be enforced by proceedings instituted by the Attorney General of the State» Any
person removed from office under this statute who thereafter participates
in the management of the bank is punishable by imprisonment for not more
than five years, or by a fine of not more than $5,000, or both® Any officer,
or director aggrieved by the order of removal is given the right within
twenty days to file a petition in the supreme judicial court for the County
of Suffolk for a review of the order of removal; and the decision of such
court becomes final and conclusive*
In New Hampshire, the procedure for removal is substantially
the same as in Connecticut and Massachusetts, except that in this State,
the order of removal is required to be issued by the Bank Commissioner with
the approval of two persons in good standing in the banking business to
be named by the Governor upon the request of the Bank Commissioner* Any
person removed from office "under this statute#may, with the approval of the
trustees or directors of the bank with which he is connected, appeal by
petition to the supreme court of the State within thirty days from the date
of the order of the removal. However, the court may not set aside such
order except for errors of law, unless the court finds by a clear preponderance of the evidence that the order is unjust or unreasonable.
Finally, in Pennsylvania, after providing for a preliminary warning by the Department of Banking, the statute provides that the accused
officer or director shall appear before the State Banking Board to show

- 63 -

cause why he should not be removed from office. If he fails to make
an appearance, his office automatically becomes vacant. If, after a hearing the officer or director involved fails to show cause why he should not
be removed from office, the Banking Board is required to notify the
department of its decision and the department is thereupon required.,to
issue an order directing the bank involved to remove the officer or
director and declare his position vacant.
In connection with the Pennsylvania statute, it is interesting
to note that if the institution of which the accused person is an officer
or director is a member of the Federal Reserve System or of the Federal Deposit Insurance Corporation, the statute provides that any duly authorized
representative of the Federal Reserve bank or of the Federal Deposit Insurance Corporation may appear at the hearing as a witness against the
officer or director involved.
Before concluding this discussion of statutory provisions relating to the removal of officers and directors of banks, two unique State
statutes may be mentioned which, if not particularly important, are at
least of some interest. In Pennsylvania, which it will have been noted
has a variety of removal statutes, it is specifically provided that the
board of directors or the board of trustees of a banking institution may
declare a vacancy in the office of a director or trustee who has been adjiidged to be of unsound mind by an order of court or has been convicted of
a felony or has failed within sixty days, after notice of his election, to
accept his office either in writing or by attending a meeting of the board®

- 64 -

The statutes of the State of Wyoming provide for the removal of
officers of banks who have been guilty of dishonest, reckless, or incompetent
conduct. The banking laws of that State also include a provision authorizing
the district court of the county wherein any savings bank is located to remove any director of such bank "for due cause shown", after proper notice
and opportunity for the director to be heard in his defense. (Appendix II,
Table E*)
In connection with the removal of bank officers and directors,
mention should again be made of the Nebraska statute, which provides for
the licensing of active executive officers of banks in that state. The
provision contained in that statute authorizing the revocation of the
license of any officer conducting the business of a bank in an unsafe or
unauthorized manner is, of course, tantamount to a provision for removal.
However, it may be pointed out that the Nebraska statute for the licensing
of officers appears, in theory at least, to be superior to the removal statutes
discussed in this subdivision, inasmuch as the Nebraska statute affords some
measure of assurance before the election of officers that they will not be
guilty of mismanagement, while the removal statutes provide for the elimination of incompetent and reckless bank officers only after the harm has been
If many leading bankers have expressed themselves publicly upon the
question of the removal of officers and directors for mismanagement or
violation of banking laws, such expressions have not come to light in the
present study* However, the opinions of a few prominent writers and others
on this matter have been noted and are presented in Appendix II(&)2.

Section 5136, U.S.R.S., grants to national banks the following
powers, among others:
"Sixth. To prescribe, by its board of directors, by-laws not inconsistent with the law,
regulating the manner in ?/hich its stock shall
be transferred, its directors elected or appointed,
its officers appointed, its property transferred,
its general business conducted, and the privileges
granted to it by law exercised and enjoyed."
Accordingly, the Comptroller of the Currency has issued a pamphlet
(Form 1417, revised October 1935) relative to the duties and liabilities
of directors of national banks, which contains the following:
"When a bank is organized, the board of directors should adopt by-laws and send a copy to the
Comptroller of the Currency. (Sec. 5136,U.S.R.S.)
The following is submitted as a general form that
may be modified in any manner deemed expedient, but
not in conflict with law or the articles of association:
" * * # Sec. 22. (By-Laws) There shall be appointed by the board of directors a committee of
members, exclusive of the president and cashier,
whose duty it shall be to examine every six months
the affairs of this bank, * * * ascertain whether
the bank is in a sound and solvent condition, and
to recommend to the board such changes in the manner
of doing business, etc., as shall seem to be desirable, the result of which examination shall be reported in writing to the board at the next regular
meeting thereafter."
The pamphlet describes in detail the suggested procedure for verifying
various accounts, etc. Information is not available as to what extent,
if any,

the by-laws of national and state banks require annual or

semi-annual audits by the directors or to what extent the provisions
of the by-lav/s in this connection are complied with ur the frequency or
extent to which the by-laws may have been modified in this respect.
In connection with this matter,

the following editorial

- 66 -

which appeared in the American Banker on June 15, 1936, is of interest:
"Most of the states require directors of
banks to conduct an examination of their banks
once or twice a year, and report on their findings to their respective state banking departments. There is nothing in the Federal banking
laws requiring directors to make examinations of
their banks, but this very important function
is generally found in the by-laws of each national
It appears that comparatively few really worthwhile audits are
made by the directors of banks and that in many respects the most satisfactory audits made for the directors are those conducted by independent
public accountants, especially in the case of the larger or more complex
With respect to the duties of directors, the Indiana Financial
Institutions Act contains the following:

"Sec. 99. In addition to such other duties
as may be imposed upon the directors by any other
provisions of this act, such directors shall keep
a record of the attendance of directors at meetings
of the board, and shall make a report, showing the
names of the directors, the number of meetings of
the board, regular and special, the number of meetings
attended and the number from which each director was
absent, which report shall be read at and incorporated
in the minutes of the annual meeting of the shareholders. Such directors, at such times as they are
meeting as a board of directors, shall also require
the secretary of such board, or some other duly designated agent, to make official communications from the
department a matter of record in the minutes of the
meetings of such board of directors. The board of directors, or a committee therefrom, or if the board shall
so authorize, an Indiana certified public accountant or
a firm of Indiana certified public accountants,, shall
examine the corporation once each year and submit a
complete statement of the condition of such corporation
to the department."
It has also been noted

that the Bank Act of Canada (1934-Section 27)

- 67 contains the following provisions with respect to attendance of directors;

(4) A record shall be kept of the attendance
at each meeting of directors, and a summary thereof
prepared so as to show the total number of directors1
meetings held and the number attended by each director shall be sent to each shareholder with the notice
of the anifual general meeting hereinbefore mentioned.
"(5) Such summary may state the nature and extent of the services rendered by any director who,
by reason of residing at a point remote from the
chief office of the bank, has been unable to attend
meetings of directors." (R.S., c. 12, s. 27, am.)
The duties and responsibilities of directors developed by law or
practice may be summarized as follows:
1. To formulate policies governing the conduct of the
bank's affairs and see that these policies are adhered to.
2. To select and maintain proper management, personnel
and administrative machinery, including the appointment of the necessary committees of directors and
3. To supervise the operations of the bank through examinations by directors or by committees thereof or
by independent public accountants, and through reports
of operations, such as reports on new and renewal
loans, investments, trust activities, earnings and
expenses, etc.
4. To participate in deliberations upon the above matters
through satisfactory attendance at directors' meetings.
The foregoing suggests the recommendation that the directors should
actually make examinations or should employ independent public accountants to make such examinations or audits. The directors should carefully
study the reports of examinations and should give particular attention
to asset values, operating statements, etc.

In addition, they should

carefully review all reports submitted by the public supervisory authority.

- 68 -

together with the official correspondence relative thereto, A satisfactory method of evidencing directors1 knowledge of and interest in
the manner in which the bank is being operated by its officers should
be evidenced in the minutes of directors1 meetings which should show
that the various matters of importance had been considered.
It would seem that if changes in the banking laws are deemed necessary to emphasize directors1 responsibilities, such changes should be
made as would adequately cover the various matters mentioned above or
the statutes should be couched in such broad language that the supervisory authorities could require that directors give the necessary active
attention to the bank's affairs and could bring about the removal of
directors for their inattention to duties•

A number of laws Intended to prevent directors and officers of a
bank from deriving any unfair financial advantage or profit from the
transactions of the bonks with which they are connected have been enacted
by both the Federal and the State legislatures.

Statutes of this nature,

which are clearly designed to improve bank management, include statutes
restricting loans to directors and officers* prohibiting the receipt of
fees or commissions in connection with loans, discounts, or sales by the
bank or the receipt of preferential rates of interest on deposits-, and
prohibiting directors or officers from selling property to, or purchasing
property from, the bank with which they are connected on more favorable
terms than those offered other persons.
One of the chief criticisms made of numerous banks which were forced
to close their doors during the banking crisis of 1933, was that they
had made excessive and inadequately secured loans to their own directors
and officers. The Banking Act of 1933 sought to remedy the situation by
making it a criminal offense for member banks of the Federal Reserve System to make loans to their executive officers3 and at the present time
there Is only one State, Arkansas, which has no provision specifically
restricting or prohibiting loans by banks to their directors and/or
There are set forth in Table C of Appendix II to this memorandum
the principal provisions of State laws with respect to this matter.
Since in many cases the statutes are of- some length, this table must
necessarily be more or less incomplete and is intended only to indicate
the persons to whom the statutes are applicable, the circumstances under

-70which loans to directors or officers are permitted, and the penalties,
if any, provided for the violation of the provisions.
The statutes of many of the states with respect to loans to directors
and officers do not specifically fix any penalties for the violation of
their provisions. In three states, however, Alabama, Iowa and South
Dakota, the violation of such statutes renders the offending director or
officer subject to conviction for embezzlement; and in two states, Minnesota and Oklahoma, such a violation renders him guilty of larceny. In a
half dozen states the receipt of loans in violation of the statute is
made a misdemeanor; and a half a dozen other states have made it a felony.
In three states, Connecticut, Florida and Idaho, the officers are civilly
liable in damages for any loss or damage resulting from the receipt of a
loan In violation of the statutes.
The Banking Act of 1933 imposed criminal penalties for violations
of Section 22(g) of the Federal Reserve Act prohibiting loans to executive officers of member banks. These penalties, however, were eliminated
by the Banking Act of 1955; and in lieu thereof, it is now provided that
any executive officer of a member bank violating the provisions of this
statute is subject to removal by the Board of Governors of the Federal
Reserve System under Section 30 of the Banking Act of 1933. The statutes
contain no restrictions whatsoever on the making of loans by member banks
to directors who are not also executive officers.
Apparently in only two states, Florida and Indiana, has any provision been
made for the removal of directors or officers for the violation of a statute
prohibiting loans to them by the bank with which they ?/ere connected.
However, it is noted that in nine other states the violation of statutes
of this kind operates to vacate or forfeit the office of the offending


director or officer. The North Carolina statute in this respect is
applicable not only to loans to officers and employees but also to
firms or partnerships in which they are members and to corporations in
which they own a controlling interest. This is also the case in a
number of other statesj and in some instances the statute is made applicable to corporations in which directors or officers of a bank own,
not merely a controlling interest, but any interest.
A number of the statutes restricting or prohibiting loans to officer
and directors, including the Federal statute, are probably broad enough
to cover overdrafts as well as loans. However, the banking laws of fourteen states specifically prohibit the officers or directors of banks from
knowingly and wilfully overdrawing their accounts with the bank with
which they are connected.
A method by which directors and officers of banks may improperly
use their official position In the bank to obtain a financial advantage
from transactions to which the bank is a party, is the receiving of fees,
commissions, or other rewards for assisting persons In procuring loans
or discounts from the tank. In order to prevent bank directors and officers from thus abusing their official positions,

the legislatures of

twenty-nine states have enacted laws prohibiting the receipt of fees and
commissions in such cases, the provisions of which laws are similar, except for minor variations, to the Federal statute (Sec. 22(c) of the
Federal Reserve Act). The states in which such laws exist are. listed In
the first column of Table D of Appendix II.

- 72 In nearly all the states having statutes of the kind under discussion, the violations of their provisions are made punishable by fine
or imprisonment.

In a few states the offending director or officer is

subject to a fine for each offense; and in North Carolina and Ohio, he
is made ineligible for further service in the bank.
The directors and officers may further abuse their official connections by purchasing property from the bank with which they are connected
or by selling to such bank on terms more favorable to themselves than it
would have been offered to persons outside of the bank in the same transactions. However, it appears that only the Federal banking laws (Sec.
22(d) of the Federal Reserve Act) and the banking laws of a comparatively
few of the states contain any provisions designed to prevent such practices. The conditions under which purchases and sales by directors and
officers from or to their banks may be made -under these statutes are
indicated briefly in Table D of Appendix. II.
Another statute designed to prevent directors and officers from
deriving improper financial advantages from their official positions is
that relating to preferential interest rates on deposits.

(See Table D,

Appendix II)Section 22(e) of the Federal Reserve Act provides:
"No member bank shall pay to any director, officer,
attorney, or employee, a greater rate of interest on
the deposits of such director, officer, attorney or
employee than that paid to other depositors of similar
deposits with such member bank."
It Is interesting to note that no similar provision has been found
in the banking laws in any of the states of the Union, except in the
case of Pennsylvania.

The statute in that state goes even further than

the Federal statute inasmuch as it is applicable not only to the directors, officers, attorneys, or employees of banks but also to the direc-

- 73 tors, officers, employees, and attorneys of affiliated institutions.
In this connection, it is also noted that a "Draft of ..Suggested
Law Governing Operation and Management of Mutual Savings Banks", prepared by the National Association of Mutual Savings Banks of New York
in 1936, places very definite restrictions upon trustees and officers
with respect to the borrowing or the use of funds of a savings bonk for
their own personal benefit and provides with respfcct to removal of
trustees, as follows:
"Whenever, in the judgment of three-fourths of
the trustees, the conduct and habits of a trustee of
any savings bank are of such character as to re injurious to the savings bank, or if he has boon guilty
of acts that are detrimental or hostile to the interests of such savings bank or his services are not
materially beneficial to the savings bank, such trustee
may be removed from office at any regular meeting of
the trustees, by the affirmative vote of three-fourths
of the total number thereof; provided, however, that
a written copy of the chargos made against him shall
have boon served upon him personally at least two
weeks before such meeting, that the vote of such
trustees by ayes and nays shall be entered into the
records of such neeting, and that such removal shall
receive the written approval of the supcrinfcendentof
banks, which shall be attached to the minutes of such
meeting and form a part of the record."
The views of a few bankers and others with rcspect to legislation
relating to restrictions on the financial interests of directors and
officers in bank transactions are included in Appendix 11(A)


Certain types of bankers have to an appreciable extent abandoned
certain ideas and formulas which they might have had, and which many of
the outstanding bankers have had and still have, and have shaped their
operations and practices in accordance with the limitations and restrictions laid down in the laws, even though such limitations might be too
broad with respect to the particular type of transaction involved in a
given bank or in a given community.

In other words, some bankers con-

sider that, because the laws and regulations lay down too many and too
definite formulas, many bankers have abandoned their own initiative and
managed their banks largely according to formula.
It has been frequently stated, and has been admitted by many outstanding bankers, th&t the bankers themselves have not worked out
uniform practices and policies for the general public good and that ithas been necessary that laws be enacted in connection with qualification
of bankers and- in prescribing the metes and bounds within which they may
function. Typical of such statements is the following by R« G. Smith,
Cashier, Bank of America N.T. & S.A.:
"'The restrictions on security purchases by
banks embodied in'the recently issued regulations
of the Comptroller of the Currency should do much
to improve the quality of bank bond portfolios.
While the principles upon which the restrictions
were based have long been recognised as a part of
sound banking practice, their addition to our organic bank law is a salutary development in banking
"Prohibiting the purchase of speculative securities; limiting the amount of securities of any one
obligor which may be held; requiring the amortization
of bond premiums paid; requiring the bank investments
have (sic) ready marketability, are requisites which can
only be regarded as definite ay beneficial to our banking structure.

- 75 -

"When new laws are passed regulating any
business, those who are affected usually chafe
under the new restrictions. This is particularly true of banking. It must appear evident to
bankers, however, that Federal legislation and
regulation have been the only means of bringing
about uniform practices and united action for the
protection of banks and bank depositors alike." (1)
A great many bankers, economists, and writers have likewise expressed the view that deposit insurance would have very far-reaching
detrimental effects upon bank management policies and practices. On
the other hand, some have stated that bankers and bank management, in
general, would be improved by the efforts of the Federal supervisory
authorities because of their superior and more uniform examinations,
requirements, etc., in connection with the administration of the insurance laws. The following views in this connection are typical:
R. S. Hecht, President, Hibernia Bank & Trust Company, New Orleans:
Taxing properly managed banks to make
up losses of failed banks is not only unfair and unreasonable but it weakens the whole banking structure.
Again guaranty of deposits places the incompetent and
reckless banker on an equal footing with the able and
conservative banker, which encourages bad banking at
the expense of sound banking. We are therefore opposed to the passage of any law carrying a guaranty
of bank deposits and believe that it is against the
interest of the people of the United States to develop
any such system." (2)

(1) Address before Bank Management Section, A.I.E. Convention, Seattle,
June 1936, American Banker, June 11, 1956•
(2) "Report of Committee on Resolutions", A.B.A. (1932), Commercial &
Financial Chronicle, A.B, Convention Section, October 1932, p. 36.

- 76 Hon. Henry B. Steagall, member of Congress from Alabama:
"It is said that insurance of bank deposits
will place a premium on bad banking. Of course,
there can be no basis for such a contention. My
reply is that the records abundantly prove that
a banking system without deposits insurance has
put a premium on unsafe banking - disastrous both
to depositors and bankers. Protection of the interests of the public is the true criterion by
which to measure the merits of any legislation.
A. A. Berle, Jr., Professor of Corporation Finance at Columbia
University (1933):
"Behind the powerful agitation for bank
guaranties was the realization by a tremendous
part of the country that its bank deposits lay at
the mercy of a conflict of forces, the outcome
of which no one could foresee. Having already
seen large deposits wiped out and having dimly not accurately I think, but dimly - seen the
crushing effect on the communities which they
serve, there came this tremendous wave from the
banks in several parts of the country, notably
from the Northwest, the Middle West and the
Southwest, demanding some security. They thought
of it in terms of security of bank deposits, but
if you were able to analyze the meaning of the
demand, it would be for a secure banking system.
It is a just demand. Whatever you may think of
deposit guaranty, you cannot merely ignore that demand and leave it -unrecognized." (2)
Several additional published statements of bankers and others with
respect to deposit insurance are contained in Appendix Il(A)5*

(1) "Recent Banking Legislation", Tarheel Banker, October 1933, p. 68.
(2) Address before the Fortieth Annual Convention of the New York State
Bankers Association, June 1933, p. 49.

Apparently most bankers have come to realize that cooperation
through associations, clearinghouses, institutes, conferences, and otherwise develops better bank management. During the past few years clearinghouse associations have been established in a great number of communities
in the country and bankers have been very active in conferences and other
efforts at cooperation. Serious thoughts and efforts of many bankers went
into the preparation of a Banking Code to meet the requirements of the N.R.A.
in 1953, from which many bankers believe that much good has come. The need
for cooperation among bankers is indicated by the following 2
F# H« Sisson, vice president, Guaranty Trust Company, New York City:
"We need to co-operate as we never have before. The banker is under indictment the country
over# We should stand shoulder to shoulder through
our great organization to meet this issue and to
try to bring about a better day not only for banking but for American business life." (1)
James H. Perkins, Chairman of the National City Bank, New Yorks
«»-x- *
the time has come when we bankers
must attack our problems with a united front and
prove that we are the best qualified group to lay
down the rule under which Yire shall operate • Let
us prove to the community our competence to serve
it well. Let every one of us feel that we are responsible, not to our depositors and shareholders
alone, but to the association which represents our
common purposes. Then, I believe, we shall have
no difficulty in securing laws that shall provide
for the protection of the public and for healthy
development of industry and business generally." (2)

(1) "Annual Address of the President", Commercial & Financial Chronicle,
A.B« Convention Section, September 23, 1955, p. 55.
(2) Address before Texas Bankers Association in 1956, as reported In
The American Banker, June 2, 1936.

- 78 With respect to the efforts of bankers through the A* B. A.
Regional Conferences in 1936, Robert V. Fleming, President, Riggs National
Bank, Washington, D. C., stated:
"I have urged the bankers attending these conferences to enter into similar programs upon their
return to their home communities, for it is iry belief that if these bankers would undertake a program
of education of their own personnel, who, in turn,
in their contacts with the bank's customers could
make plain to them the functions of banking, in addition to advertising or other public relations programs, the objectives of the regional conferences
would be intensified and it would not be many years
before there would be a thorough understanding of
banking on the part of the people which would be
bound to result in the proper public sentiment
tov/ards banking."
•fc *

-X- # -K- -X~

"I am hopeful that this nation-wide program of
banking development inaugurated in these conferences
will be carried on byraysuccessors in office, as I
am satisfied that, if banking is to progress and
render the highest service, there must be an understanding between bankers and their customers of their
common problems."

-x- * -x- -x 7s

"In the regional conferences which we have conducted this year I have seen ample evidence that
bankers are assuming their share of responsibility
in this cooperative effort, and I have also seen evidence that the supervisory officials of Government
are willing to cooperate with bankers in the solution
of banking problems in the public interest. Likewise,
from the attitude of the press and comments which
have come to me as president of the American Bankers
Association, containing a wide cross-section of public
opinion and reaction to these meetings, there is evidence that the people of the country already have a
better understanding of banking and its functions." (1)
The Bank Management Commission of the A.B.A. pointed out in its
manuals on Clearinghouse Associations that critics and special story writers
(1) "American Banking Faces the Future", Financial Age#
June 4, 1936, pp. 389-390.

- 79 in the magazine field have charged bankers as a class with complete complacency and indifference to banking conditions and with having done nothing
to treat our financial maladies and to prevent loss to the public growing
out of what those critics characterize as neglect, incompetence, and selfish
disregard of the public interest. The Commission also pointed out that
there has been a growing inclination to turn to legislation for a remedy
but that it believes that banking from within itself can supply !,the standards and uniformities, the ethics and practices and the mobilized force of
a concerted professional determination to enforce them and to give the nation the working benefit of themj" and that It has been demonstrated "that
all of this can be accomplished through the broad extension of the principle
of professional cooperation to be realised through the instrumentality of
clearinghouses of both the city and regional types."
The Commission also pointed out that clearinghouses should be purely
voluntary; that they are highly mutual and their acts must of necessity be
the result of practical unanimityj and that while their articles provide for
majority rule, and strict conformity to the rules is enforced by suitable
penalties, there must be no room for a charge of coercionj and that the
"value of the regulatory side of clearinghouses thus comes from the free
will and acquiescent attitude of the members, who not only willingly submit
themselves to a mutualized form of extra-legal supervision and government,
but sanction and enforce the clearinghouse rules and government by a crystallized body of professional opinion which is stronger and more effective in
securing complete performance than any law or legal penalty."

The Commission listed the following general subjects for clearing-


- 80 -

house considerations
At Credit regulation

Et Donation and gifts

B. Fixing hours for banking

F. Public relations

C. Compensation bases

G. Clearinghouse examination

D. Advertising and new business activities

H. Education

Fred Vf. Ellsworth, Vice President! Hibernia Bank & Trust Co,, New
Orleans, stated^that as of March 25, 1955, there were 350 city and 245
regional clearinghouse associations, or % total of 593 in the United States,
located in every state except one, Nevada* The Rand McNally Bankers Directory, First Edition, 1956, listed 550 cities having clearinghouse associations and 51 cities having clearinghouse examinations. The present study
has failed to disclose information with respect to the extent or quality of
such examinations or the number, if any, of regional clearinghouses which
make examinations.
Credit bureaus were first organized within the metropolitan clearinghouses and proved invaluable from their inception and from this experience
in the cities, the plan was extended and later found its place as .an adjunct
to county bankers1 associations. The "ideal" credit bureau has been described
as follows;
"In the ideal bureau, it is sought not only to
collate credit line information so as to detect duplications where they exist but to look farther toward a progressive survey of the entire credit structure of the area served by the member banks, and ultimately to classify the loans as to character and
security, to warn members of approaching hazards,
changing stresses, over-extensions and improper trends,
as evidenced by the loans being made, and to avoid any
degree or form of unliquidity or freezing." (2)

(1) BANKING,July 1955, p. 25.
(2) City Clearinghouse Associations> Bank Management Commission of the A.B.A.,
p. 26

- 81 The Commission pointed out that the necessity for clearinghouse examinations has been due to the fact that public supervision in too many instances "has proved not entirely adequate unless assisted from within and
among the banks, by additional safeguarding systems voluntarily set up and
willingly and liberally participated in by the banksj" and that banking
therefore should "submit willingly and with full acquiescence to the regular public supervision looking to the safety of the people's funds and
close compliance with the laws granting specific powers and limiting conduct," and in addition "there ought to be a strictly voluntary system of
mutual self-examination combined with means for making the knowledge and
experience of the best individual banking practitioners in the region the
common possession of all the bankers within the region." This, the Commission pointed out, can be done by clearinghouse associations affording the
following s

"1. Agreed articles of association, and by-laws
and rules establishing standards, penalizing
and preventing conduct offensive alike to good
banking practice and recognized banking ethics.
2« Centralising the credit information of the
specified region, and more especially exchanging specific data as to individual borrowing
lines, duplications and credit bases.
3# Some system of mutual self examination to determine A* (1) The tendencies within each given
member bank, growing out of its
management, its methods, and its
policies, .and the specific application of them to individual
transactions within the bank.
(2) The development of increasing
liquidity in each member bank,
and the adoption of budgets, controls and programs to that end.

- 82 (3) The compliance of each member
bank with the standards adopted
from time to time by the clearinghouse association.
Bf The examination methods may be initiated
by (1) Use of the regular reports of
examinations of public examiners;
copies being furnished by the
member banks to the executive (or
similar) committee as agreed
(either regularly, or upon request) .
(2) Outside independent auditors or
certified accountants making
periodical examinations and reports to clearinghouse executive
(3) Regular clearinghouse examiner
employed for that purpose by the
executive committee and reporting
to the committee in detail, or
under such plan or limitation as
may be agreed upon*11 (1)
The value of clearinghouse associations is indicated by the
following views:
John W. Pole, former Comptroller of the Currencys
"What constitutes good management can always
be determined by the consensus of banking opinion.
In our larger cities clearinghouses have played an
effective part in the development of banking standards. The type of work done by these associations
should be extended to all banks. I know of no better instrumentality by which to build up in this
country traditions strong enough to effectively discourage all types of bad banking." (2)
S. L. Cantley, State Bank Commissioner, Missouri:
"Organized cooperation in banking is just as
essential to success as is organisation in an army.

(1) ibid, p. 32.
(2) ibid, p. 13.

- 90 A most important factor in banking is organization
for assembling and disseminating credit information
by cities, counties or groups of counties, preferably the latter, and also, for self-imposed examinations. The clearinghouse idea appeals to me as
not only one of the best corrective but also one of
the most salutary agencies available for stable
competitive unit banking." (1)
W. L. Brooks, President, Northern National Bank, Bemidji,
"Our bank now makes §8000 annually from float
and service charges and savings on interest. Why?
Because we work with our competitors through a
clearinghouse, llty advice is % organize a clearinghouse association without delay. It's a simple
proposition, so easily done, and it will greatly
increase your bank profits and promote safety in
banking." (1)
0. W. Adams, Vice president, Utah State National Bank, Salt
Lake City?
"Salt Lake City banks have demonstrated, beyond any question of a doubt, the value of city
clearinghouse associations* Good fellowship among
the bankers has been promoted and maintained.
"Recently a service charge, based upon account activity, has been worked out and agreed
upon, which is the most forward looking step that
the Salt Lake bankers have ever taken, as an organization. Criticism resulted therefrom. The
Clearinghouse banks, first having decided that
the schedule of charges was fair, remained firm
and although this new departure has been in operation only a short time, its success is admitted. Many other difficult problems have been
handled successfully.
"Our association has demonstrated its importance and made its contribution a most valuable one in bank management problems.
"Clearinghouse organizations are indispensable." (1)

(1) ibid, p. 19.

- 84 -

The American Bankers Association, with its various divisions,
sections, commissions, and committees, and the several state associations, county organizations and special federations or groups have, despite the fact that they have no power to compel bankers either to join
such associations or to follow their precepts after they become members,
contributed considerable to the cooperative efforts to improve bank management, as indicated by the following statements and by the statements
of others included in Appendix II(B)i
William K. Payne, Chairman, National Bank of Auburn, New Yorks
"Bankers' associations, both nation-wide and
in the States and in smaller subdivisions, have a
record of wonderful accomplishments, in many ways.
I believe the bankers' associations have more real
accomplishments to their credit than nearly any of
the others of the vast number of trade organizations
which exist in nearly every branch of American business. But the weakness of this sort of organization
is that it has had relatively less influence for good
on those bankers who most need itf and has no power
to compel such bankers either to join the association
or to follow its precepts after they become members." (1)
James H. Perkins, Chairman, National City Bank, New Yorks
"The supervision of our banks must be more
alert, more thorough and more resourceful than it
has been heretofore. I feel that the strengthening of our banking associations, their standards
of membership, and the discipline of their members, can be as important a source of mutual protection as the examinations by public authorities." (2)
W. Gordon Brown, Executive Manager of the New York State Bankers
"The county - associations are the logical
machinery for the more intimate discussions of local problems and determination of policies." (3)
(1) Address before New York State Bankers Association, June 1933*
(Underscoring supplied)
(2) Address before Texas Bankers Association, American Banker»June 2, 1936.
(3) Annual report to New York State Bankers Association, American Banker,
June 27, 1956.

- 85 It is interesting to note that neither the Federal banking laws
nor the banking laws of the variotis states, to any great extent at least,
recognize the American Bankers Association, the various state or regional
associations or clearinghouse associations, whereas in Canada the Canadian
Bankers Association, of which the chartered banks are members and bank
officers and clerks are associates, was formed in 1892, and later came
to have an important influence on Canadian banking. It was incorporated
by Parliament in 1900 and empowered "to promote generally the interests
and efficiency of banks and bank officers and the education and training
of those contemplating employment in banks11 j to establish and regulate
clearing houses, of purely voluntary membership$ to supervise issue and
destruction of bank notes. In 1901 the by-laws of the association were
made subject to approval by the Treasury Board and came into effect according to law. They required from every chartered bank doing business
in the Dominion a monthly return, under penalty of fine, showing all details of their circulation and provision was made for an annual inspection of the circulation account of each bank. A considerable amount of
cooperation among the banks resulted from the formation of the association. (The Canadian Bank Act of 1934 repealed these note issue powers, after
the creation of the Bank of Canada.) (1) In this connection, it has been
said s
"The co-operation, good management, and safety of depositors which are mentioned as highly desirable, are all
attained in Canada, through the branch banking system and
through the Canadian Bankers1 Association. Their effects
are patent in the solidity of our banking institutions in
this time of worldwide economic stress." (2)

(1) Report of the Royal Commission on Banking and Currency in Canada, 1955.
(2) "Where Banks Do Not Fail", by Horace F. Pomeroy, New York, published
in Journal of the Canadian Bankers Association. July 1952.

- 86 -

The Canadian Bankers Association is the recognized medium for
correlated measures on the part of the banks. The origin of this organization has no exact counterpart in other banking systems. Its declared objects were to "watch legislation and court decisions relating
to banking to protect the interest of the contributories to the bank
circulation redemption fund, and generally to guard the interests of
the chartered banksj also to promote the education and efficiency of
bank officers by various means". There Is no attempt to formulate
what in Great Britain or the United States would be called "monetary"
or "banking policy". Each bank is autonomous and determines its own
policy, but policies and other matters are discussed informally by
the chief executive officers of the banks at meetings of the association*
Some of the outstanding views of bankers and others with
respect to the cooperative efforts of bankers are included in
Appendix II (B)*

1. Selection of Personnel. H. N. Stronck, former Chicago bank consultant, in his book on "Bank Administration" (1929), stated that a recognition
of the importance placed upon the selection of personnel is witnessed by the
rapid development of personnel departments and specialists in interviewing
and engaging help in large banks and the tendency also of centering this
work in one individual in the smaller banks*

Mr. Stronck stated that

personnel selection should be recognized as a function of major importance.
He pointed out that from a practical standpoint the two major questions to
be answered in the consideration of prospective employees are:
1« Has the individual the experience, ability, and
personal characteristics necessary to handle
effectively the work of the position under direct
2* Has the individual personal characteristics and
dormant abilities which, if properly fostered and
developed, will qualify him for the position of
next higher rank?
The views of a few bankers in this connection follow:
R. M. Hanes, President, Wachovia Bank & Trust Co., Winston-Salem, N.C.s
"Giving serious thought and constant attention to the
development of the bank's personnel will pay any banker
handsomely. Merely because the son of some director or
substantial customer wants a position is no earthly reason
for hiring the young man unless, after serious consideration,
it is believed that he possesses qualities which some day will
make him a good bank officer. Systematically picking young
men from families whose forebears have themselves accomplished
something, whose characters are above reproach, who have accepted
their educational opportunities and, preferably, have college
degrees, who have shown a capacity for leadership and the accepting of responsibilities, in college or community, and who have a
real, earnest desire to succeed at anything they undertake, will
pay large dividends to any bank's stockholders over a period of
years*" (1)

(1) "Bank Earnings—Positive and Negative", discussion before Regional Conf.
Phila., Jan. 2S-24, 1936, Present Day Banking (1936), p. 236.

- 88


Henry R, Kinsey, president of the Williamsburg Savings
Bank, Brooklyni
"I think we all agree that the root of
possible trouble lies in the original selection
of men to fill our executive positions." (1)
2. Education and Training, The importance of banking education
and training is evidenced by the many articles written and speeches made
on the subject of banking education by bankers and others in recent years
and by the educational opportunities which have been afforded by the banking profession through the American Institute of Banking and other agencies.
The Bank Management Commission of the American Bankers Association has
issued a booklet (No. 16) on the subject of "Educational Policies in the
Training of Bank Employees" in which it pointed out that for 35 years the
banking profession has offered, through the American Institute of Banking,
courses which constitute an invaluable training in the technique of banking, In addition to the American Institute of Banking, educational facilities
are available through the newly inaugurated Graduate School of Banking
(which is under the auspices of the Institute), through courses in banking
and related subjects offered in various other schools and universities, and
through trade associations and other agencies. (Examples of educational programs followed by several banks of varying size and in different geographical
locations were included in an appendix to the A.B.A. booklet.) It appears,
however, that the efforts to provide educational opportunities have exceeded
the efforts to bring such opportunities to the attention of bank employees
and that perhaps many employees who need the training have not been sufficiently

encouraged to secure such training.

(1) Address Savings Banks Asso. of State of New York, Banking t
November 1935, p. 72.

- 89 In writing on the subject of professional bank management, Dr.
Gaines T. Cartinhour, New York University Professor, pointed out that
the stability of the Canadian banking system is greatly facilitated by the
systematic and progressive training of bank executives. He wrote as
follows 2
ii* * *The activities of the Bank Management Commission
and the American Institute of Banking (both of the American
Bankers Association) should be developed to their full
potentialities, and employees who are so inclined should
be permitted to follow prescribed and approved banking and
finance curricuiums in the colleges of commerce of reputable
universities. Successful progress in the educational aspects
of banking should be made a definite prerequisite to promotion.
"Educational facilities in Canada along this line are
provided by the Canadian Bankers Association in the form of
a junior and senior course, fees for which are usually
advanced by the banks, repayable in small monthly payments
without interest. To all who pass the examination the banks
refund the fees in full, and in addition pay a bonus. The
Canadian Bankers Association has no facilities such as the
Aperican Bankers Association, but has arranged for these
courses as well as supplementary courses to be given under
the direction of Queen's University." (1)
It has also been pointed out by others that in the training of
personnel the branch banking system in Canada has a distinct advantage
over the unit, banking system in this country. In Canada, the banks begin
the training of their employees at an early age, shift them from branch to
branch and from locality to locality and when deemed satisfactory, make
branch managers out of them. This training system weeds out the fit from
the unfit before they obtain posts of responsibility so that the branch
manager is an experienced banker when he becomes a manager. The status of
their personnel is in practice analogous to the Civil Service in the United
States with respect to permanence of tenure so that a devotion to the bank is
(1) "Branch Banks versus Unit Banks," Annals of the American Academy of
Political and Social Science, January 1934, p.44.

- 90
In this connection, E. L. Stewart Patterson statedt
"An unique feature of Canadian banking service is
that it recruits its staff with lads fresh from school
and trains them to advance to the highest position in the
service. Every officer of a bank from general manager down,
started his career as a junior.
"Promotion goes by merit and not by seniority. The
officer who ably discharges the duties assigned to him and
endeavors to obtain a working knowledge of the positions
ahead, is the first to obtain merited promotion." (1)
With respect to the value of education in banking, Ernest L. Pearce,
President, Michigan Bankers Association (1936), said:
"The high objectives of sound banking will be ultimately
attained through education. The instruction and education
of employees is one of the best ways of insuring public
favor. The effectiveness of any public relations work of a
bank will be helped or hindered by the attitude and training
of its own personnel. There is really no excuse for any bank,
at this time, not taking up the work of training its employees
in all phases of barfking and in customer relations work. The
American Bankers Association has given us the American Institute of Banking, lias given us the prepared program on Constructive Customer Relations, and last year the Graduate School of
Banking. Time will not permit a discussion of either, but
those of us who have taken advantage of them can recommend
them unconditionally.
# -x~ * -x- -x- * -x- -x~ -x"Sound banks rest upon sound management and sound management rests squarely on education in sound banking principles.
The problem, therefore, resolves itself into a matter of the'
wide dissemination of knowledge and the encouragement of the
proper educational activities, for sound banking management is
simply, sound banking education in practice." (2)
Education and training may come—
(a) From within the bank,
(b) Through educational institutions,
(c) Through bank management conferences and
studies, trade periodicals, and other
(1) Canadian Banking9 The Ryerson Press, Toronto (1932), p. 243.
(2) Address before Michigan Bankers Association, 1936, Michigan Investor,
July 18, 1936, p, 5.

- 91 -

(a) Within the bank, The Bank Management Commission in its booklet
No, 16 pointed out that if a bank realizes and assumes the responsibility
for the training of its employees, it will find some way of accomplishing
that training and by so doing will insure the smooth and continuous functioning of its own organization and will aid greatly in eliminating many of the
misunderstandings of the general public.
The Commission also pointed out that in considering an educational
policy thought should be given to a program which will train each person in
a three-way point of view of his job - the educational policy should be so
designed that it will give the person the best possible training for the
work he is now doing 3 it should encourage him to study the job ahead; and
should make him realize his obligation to help tdach someone else the technique
of the position he now holds. It was indicated that as a result of its study
the Commission feels that the best educational policies in banks have been
those which have been predicated upon this three-fold attitude of every
employee towards his job.
In its booklet, the Commission described some of the methods used by
banks to educate their own employees* It stated that it believes that the
prominence given to intra-bahk education is warranted by the importance of
this work. The following statement is of interest in this connections
"Regardless of the excellence of the educational
work done by outside agencies, what the employee learns
in connection with his daily duties is by far the most
practical, most useful, and most lasting training of
any, for it is a well-established principle of psychology that the best and most efficient time to learn
is when one has need of the information or training," (1)

(1) Educational Policies in the Training of Bank Employees (Booklet No, 16),
issued by Bank Management Commission, A,B,A,, p, 4,

- 92 That many banks have adopted programs for the education and training
of their employees is indicated by letters from a number of banks of varying
size describing the methods they follow in educating their employees, which
have been included in an appendix to the Commission's booklet No* 16*
(b) Educational institutions*

The Commission stated that there are

several organizations offering courses designed to aid employees in the
study of certain phases of bank operation and that the most important of
these is the American Institute of Banking1, which represents banking's
organized effort to provide educational opportunities for its employees.
The Commission also stated that it believes that the courses given by the
Institute are sufficiently comprehensive to provide training for all types
of bank employees, no matter what department of the bank they may work in.
A brief description of the courses offered by the Institute has been included in the Commission's booklet No. 16. They included courses in bank
management, bank organization and operation, credit management, analysis of
financial statements, investments, money and banking, trust business, economics, commercial law, public speaking, constructive customer relations,and
other subjects.
In 1954, the American Bankers Association took another step in education for those engaged in banking, through the organization of the Graduate
School of Banking, as a means of extending the work of the American Institute
of Banking in its program of offering training for bank officers. The work
of the Graduate School is embraced in three resident sessions of two weeks
each at Rutgers University, and twenty months of extension work given off
the campus. Those eligible to make application for admission to the school
ares Institute graduates who are bank officers, Institute graduates who
hold positions equivalent to those of bank officers, and bank officers with
Institute courses or their equivalent to their credit. The Bank Management Commission explained that advanced courses are available also through

--toother educational institutions; that In most of the large cities, universities
have either extension divisions or business school evening classes for the
specific development of various subjects having to do with a well rounded
education in banking and finance; and that most universities offer correspondence courses which may prove valuable to bank employees.
(c) Other. In its booklet No. 16, the Bank Management Commission
also explained that the trade associations in various fields can be
enormously helpful in banking education and made brief mention of association work in several fields related to banking and to certain books and
publications bearing on these subjects.
Other means of banking education mentioned in the booklet were: trade
periodicals, which furnish information on the progress of banking technique
and make it possible for each bank to take advantage of new methods and
processes found successful in other banks; studies of the Bank Management
Commission, which should be utilized by banks which would offer to employees
the opportunity of keeping up with current banking developments; and
regional bank management conferences, at which current problems in bank
operation are discussed by practical bank men who have solved them successfully in their own banks.
The attitude of bankers and others towards the American Institute of
Banking and other educational agencies and facilities is illustrated by the
following excerpts from addresses and writings:
Fred N. Shepherd, Executive Manager, American Bankers Association:
"I regard the American Institute of Banking
as the most potential single influence for good
in the American banking field today." (1)

(1) "Organized Banking - An Educational Force", California Banker,
July 1936, p. 32.

* 94 -

C. T. Leinbach, Vice President, Wachovia Bank & Trust Co., WinstonSalem, North Carolina, and President of the North Carolina Bankers Association (1936)s
"The management of a bank calls for qualities
and capabilities equal to those of ahy profession,
and, while I believe banking is distinctly a business,
I am convinced that, in the selection and training of
men who conduct the business of banking, professional
standards should be employed. More and more our
chartering authorities are giving consideration to this
thought, and the renewed interest in the activities of
the American Institute of Banking, and particularly the
success of the newly established Graduate School of
Banking at Rutgers University, are further evidences
that professional standards of requirement are gaining
wider attention and acceptance." (1)
G. Fred Berger, Vice President, Norristown-Penn Trust Company:
"Many members of our profession who now have to do
with the operation of banks must also provide themselves
with improved bank management knowledge, but in addition
we can look forward with confidence to the future, for
there is a greater realisation of the need for education
in bank management and thousands of our junior bankers are
obtaining it through the classes of the American Institute
of Banking." (2)
H. J. Haas, Vice President, First National Bank, Philadelphia, and
former President of the American Bankers Association (1932):
"In the American Institute of Banking we have what is
considered to be the outstanding project for adult education
now being carried on in business and industry. The Institute
should be familiar to every member of the Association, and
every senior banker should insist that hie employees wherever
practicable shall pursue its co\irses« It is one of the best
practical methods for bringing about universal good banking
for America.1' (3)

(1) ''annual aauress of the President5', Tarheel Banker, July 1956, p. 51*
(fc) "Bank Management Lessons Learned from Recent Experiences", Financial
Age, May <c7, 1955 P p.. 415.

(5) "Annual Address of the President", Commercial & Financial Chronicle,
a. B. Convention section^ October I93&, p .

- 95 -

Henry M. Zimmerman, while president of the Michigan Bankers Association;
"In spite of all the panaceas offered to provide
necessary protection to depositors it is pertinent to
point out that nothing provides such security as does
sound bank management, therefore the idea of Bank Management Conference should be encouraged and enlarged upon." (1)
Craig B. Hazlewood, Vice President, First National Bank, Chicago;
"We must continue our cooperative study of bank
management. I have strongly recommended to the American
Bankers Association that they encourage the holding of and
actually institute bank management conferences in groups
of counties in each state, probably working through and
with State bankers' associations. This is the real nub
of the County Clearing House idea, which has been advocated
for several yearsj and in my judgment the conference part
of the program is more important than the clearing of checks
and is possibly more workable than the idea of local and
private examination.I commend this idea for development
by your Ohio Bankers Association," (2)
In writing to Dr. Harold Stonier, Educational Director of the American Institute of Banking, Hon. J.F.T. O'Connor, Comptroller of the Currency,
"The demand for trained minds was never as great as
today. Every banker who is interested in raising the
standards of the profession should lend his support to
the work of the Graduate School." (3)

(1) "Annual Address of the President", Michigan Investor, July 23, 1932, p.9.
(2) "We Must Rebuild the Banking Business But We Must Have a New Plan",
Ohio Banker, July 1332, p. 29.
(3) Banking, March 1935, p. 70.


- 96 -


- 97 -

(A) Table Sh.n.lnp; Major Causes for Bank Failures for Indiana Bank£

Causes for Failure
Improper loan policies
Iriofficicnt management
Breach of trust
Bank unable to obtain aid on collateral
Death of President who was sole o-jner..

Improper chartering of banks....
Inadequate supervision of banks

Number of
Percentage of
times each
occurrences to
cause occurrcd. total occurrences



Declining price levels .and earnings of
Psychological attitude of the public...
Failure of other banks..
High taxes
Robbery of bank
Charter expired





(l) Report of Study Commission for Indiana Financial Institutions
(1932), p. 74.

(B) Comments of State Bank Authorities and Others With Respect to
the Negligence and Incompetency of Bank Directors, As Summarized in a
Book by Craig B. Hazlewood»^
"This department, in reviewing bank failures,
cannot but conclude that, in every instance, the
boards of directors have been largely responsible
through neglect of their duties."-C. F. Schwenker,
Commissioner, State Banking Department, Wisconsin.
"Let me say that the outside directors of
banks are often to blame for bad conditions in
banks. I admit that their sins are far more often sins of ommission than sins of commission,
but they do not take seriously enough the obligations imposed on them in accepting directorships.
If they will take their obligations in all seriousness, and oppose lending money to those people
or corporations that they know are not ?;orthy of
credit, many banks will be saved, and communities
enriched." - James Shaw, State Commissioner of Banking, Texas.
"A good bit of bank trouble comes from directors
failing to take proper interest in the bank's management. They are either grossly negligent or vailing
to allow some one person in the bank to take the
responsibility. This keeps directors in ignorance of
the bank's affairs and true condition, and when
trouble comes it is always a shock."—Ernest Amos,
Comptroller, State of Florida.
"A number of dii*ectors accept the obligation
as an honor rather than as a real liability." A. A. Schram, Superintendent of Banks, Oregon.
"During the past ten years there have been
only three bank failures in Maryland, all of small
institutions, and those failures were directly attributable to either crookedness or indifference
on the part of the directors." - G. W. Page, Bank
Commissioner, Maryland.

(1) The Bank and Its Directors, Ronald Press (1929), pp. 54-58.


"My observation as a bonk examiner and bank
commissioner, covering a period of more than ten
years, convinces me that fully seventy-five per
cent of the bank failures in this country are due
primarily to the fact that directors are not fully
conversant with their bank's condition or with the
details of its operations; and that the majority
of such failures could have been averted or would
never have threatened had the board of directors
functioned as the law contemplates. For when a
bank functions under the direct supervision and
careful management of its directors, a sound, solvent institution is the result, serving its clientele as a bank should, deserving the confidence reposed in it - a financial success. And, on the other
hand, when a bank becomes embarrassed and it is necessary to call for assistance either from neighborhood
banks or from the Banking Department, it usually develops that the board has failed in its duties, and the
directors have allowed some one man to assume the authority that they should exercise as a body." - J. S.
Love, Superintendent of Banks, Mississippi.
"We have found v&iere directors are vigilant
in keeping up with the bank's affairs and really
know the condition of the bank that such on institution does not cause; this department much anxiety. " - E. H, Blair, Former Superintendent of
Banks, Ohio.
"The duty of a director is to Direct. Hie business
of the bank should not be entrusted to the judgment and
management of One Man.. Recant developments have disclosed that every bank failure in Oregon was very largely
the result of "One-Man Management (or mismanagement).";—
Frank C. Bramwell, Former Superintendent of Banks, Oregon*
"Audits of banks by certified public accountants
may provide, in largo measure, against abstractions of
cash and manipulation of the bank's records; and since
directors are usually not accountants and do not make
audits of their institutions, I am strongly in favor
of periodical audits being made by certified
accountants.'L^Petor G. Cameron, Secretary of Banking,


"In one examination I discovered that the
cashier had been using some customers1 liberty bonds,
which had been left for safekeeping, to bolster up
his undivided profits account to prevent showing an
operating deficit. He plead with me to overlook the
matter and to refrain from reporting it to his
directors or to the department, and threatened suicide
if I should do so. Of course, I reported the fact to
both. The directors were very much astonished and
could not understand how Bill could do such a thing.
This illustration, I believe, demonstrated the
necessity of the directors having a competent Examining
Committee or of engaging auditors outside the bank to
assist them in their semi-annual examinations. They
should make an examination themselves, and not depend
ontiiebank examiners, as it is their duty to do
so."—P. D. Marshall, Chief, Bureau of Banking, Nebraska.
"It is my belief that failures of many bank# could
have been and can be averted if the directors had given
or would give closer attention to the affairs of the
bank."—J. W. Mcintosh, Former Comptroller of the

(C) Published Statements of Bankers, Writersy and Others With
Respect to Weaknesses in Bank Management and the Effects Thereof.
W. F. Gephart, Vice President, First National Bank in St. Louis:
"Political control of banking in the United
States has not concerned itself primarily with those
major aspects of banking organization and operation
which were most influential in promoting public welfare and protecting the bank depositors. Three of
the most important causes of bank failures are: first,
the inadequacy of bank capital; second, the lack of
qualifications of those organizing and operating banks;
and, third, the unnecessarily large number of banks.
For many decades the states and even the federal government have permitted banks to be organized with small
capital (in many states with as little as $10,000) and
by individuals with no banking or business experience
to qualify them to conduct a banking business. Banking, by and large, in this country is not a profession
and, in many cases, does not oven have the standards required of the personnel of many trades. Not only has
this been true, but thanks have been permitted to be organized in communities where there were already adequate
banking facilities or in communities where there was not
sufficient business to support a properly conducted bank.
"State bank commissioners and even federal authorities cannot perhaps be too much criticised for this
situation, for if they had not consented to grant the
charters, political influence would have been brought
to bear In many cases and they would have been forced
to do so."(l)

n r "Our Commercial Banking -System". American Economic Review,
March 1935, p. 84.

Craig B. Ha2lewood, Vice President, First National Bank, Chicago:
"In the great majority of cases where failure
and inadequate profits were found, there also were
found bankers without the proper experience or with
an astonishing lack of familiarity with the technique
of banking.
* * -x- -x- -x- -x-

" -x- * -x- -x- The record of the American unit banking system not only proves that a poorly managed unit
bank fails, but it also proves - a fact we have too
frequently forgotten - that a soundly managed unit
bank succeeds."
» -x- * * -x- it is not the system, but the management that needs attention. Sound banking depends upon
sound bankers far more than it does upon any particular
system. It was primarily bad management that caused
5000 failures in the past decade, approximately 90 per
cent of which occurred in cities of 10,000 or less and
in banks with a capital of less than $100,000. * * *
One may examine every kind of banking system in operation anywhere in the world, and it will be found that
there is only one factor which in the last analysis
determines whether a particular system will be successful. That factor is management. Give me the measure
of a banker1 s management ability, and I can describe
the limits of his bank's success."
-x- * -x- -x- -x- *

it -x- -x- -x- -x- Banking evils are not to be cured by
any revolutionary procedure which completely changes
banking systems. They are rather to be eliminated by
the evolution of management ability through management education. * * *
"Whether we operate "unit banks, branches, or
groups, we must improve our management. * * * *(l)

(1) "Well-Managed Unit Banks Can Stand Alone", A.B.A.
Journal, October 1930, p. 298.

Dr. Harold Stonier, National Educational Director of the
American Institute of Bankings
"To understand why the American hanking system
is as it is today, we must consider not only our
political theories but also our economic ideals and
objectives. America has believed in an economic
order "which gives wide opportunity to all the people
to enter any business or profession they choose.
During at least two-thirds of our banking history,
it has tnus been possible for almost any one to enter
the banking business without training or experience
and without very much money. Through the years we
have consistently supported the thought that America
was the land of opportunity, that a man could enter
any trade, profession, or calling which his judgment
dictated. Is it any wonder, then, that thousands of
incompetent or irresponsible people have entered the
banking business by the easy routes that our laws
left open to them?"'1)
F. H. Sisson, Vice President, Guaranty Trust Company, New York2
"There are a few principles of practical bank operation that have been widely enough disregarded in the recent past to make them worthy of special mention. * * * *
"These few concrete suggestions (relating to liquidity of assets, bonds as secondary reserves, segregation
of deposit accounts, investments in real estate mortgages)
are intended merely to point to some of the more obvious
ways in which our banking practice can be improved. Underlying and antecedent to them all is the need for a more
uniformly high grade of bank management. Social progress
consists largely in the elimination of undesirable elements
from the body politic, and banking is not different in this
respect from any other branch of human activity. The
weeding-out process has been going on very swiftly and painfully in recent years; and, for all its disastrous features,
our banking system is a better and stronger system because
it has taken place. It ought never to have been necessary.
The least we can do now is to avoid repeating the mistakes
of the past. "(2)

(1) "Ihy tiie American Banking System?", Commercial & Financial
Chronicle. A.B. Convention Section, September 25, 1933, p. 28.
(2) "Annual Address of the President", Commercial & Financial
Chronicle. A.B. Convention Section, September 23, 1953, p. 51.

Q. Howard Wolfe, Cashier, Philadelphia National Banks
« -x * -x- -x- I am going to outline as briefly
as I con seven different kinds of things that
have come to our attention in the handling of the
work of the Reconstruction Finance Corporation
that have to do with bank management, and I would
list as Number One this fact: that our bankers don't
seem to have used enough foresight as to their needs
to borrow in crises like these." (Then followed a
discussion of the physical condition and the
characteristics of notes presented by various
institutions, etc.)
" * * * * So I would criticize then as the
second marked weakness in bank management the disposition to consider what has been done in the past
as good enough for all time.
"Then the 'third thing I have noticed is a very
common and old weakness * * * * and that is a fear
of depositors *
"Then the fourth, and this gets down a little
bit deeper, is the hesitancy which is almost
characteristic, I think, of the average country bank,
to buy good commercial paper because of the low
rate. * * * *
"Then the sixth thing (the fifth not being
indicated) is one that I would like to talk on for
an hour. * * * * If there is any one thing, gentlemen, that hurts banking, not only in Pennsylvania, but
throughout the country, it is our disposition to look
upon mortgages as gilt-edge investments, and so they
are, provided one thing is true: provided the man who
has borrowed on the mortgage has been taught to know
that a mortgage is a loan.
"Then finally, and we see this everyday in the
bank statements submitted with the applications (to
the Reconstruction Finance Corporation) is evidence
that no effort is made to keep some balance or proportion between time deposits and demand deposits,
-x- ->f -x- -x- The trouble isn't on the asset side of the
ledger; the trouble is on the liability side. The
trouble with your bank is with the depositor, not
with the borrower.

(1) "The Reconstruction Finance Corporation", Financial Age,
June 6, 1952, pp. 506-508.

UlUIC Jl»t/<./fw j jj 0 M.TXI


J. T. Flynn, authors
"As a matter of fact the outrageous performances
of the Bank of United States were not the criminal
acts for which the bank*s officers were prosecuted but
a group of acts which did not figure in the trial at
all - a group of acts which are not against the law a collection of acts which can be duplicated in numerous
other banks. To put the matter more seriously, the acts
which were responsible for the destruction of that
institution are those which now characterize the tendency
in bank management.

The crime of the officials of the Bank of United
States consists in having failed, in not having been
intelligent enough bankers to manage the mechanism they
set up without a crash. * *
* -x- -x- -X- -Xn * * ft All the things, or many of them, which
the bank!s officers were charged with having done are
acts made possible by the financial structure of the
bank. In other words when the collection of corporations which constituted that institution was formed it
could have been done with no other purpose than to permit the doing of the very tilings which were later done.
ft ft ft ft

"The important fact now is not that * # * * made
bad loans here and there, but that they started off with
this carefully set up manipulation of the bank!s powers
with the intention of exploiting the bank's funds.
» ft ft ft Jt was a scheme deliberately cooked to
deprive the bank's stockholders of a large part of the
profits accruing from the management of their funds.
The point I am laboring to make is that the failure of
the bank was a mere incident. Even if the bank had not
failed, and all these affiliates had pursued their appointed courses, the profits arising from all the variety of transactions of the Bankus Corporation and the
City and Municipal corporations would have been cleverly
detoured from the bank*s stockholders to the pockets of
the officials. With these three corporations, unrestricted by law and outside of all official scrutiny,
the bankers proceeded to organize some fifty-seven other
corporations engaged in all sorts of business. It was
through these three initial affiliates that they were

enabled to carry out their schemes. * * * * It
must not be supposed, however, that the men who
formed the directorate of the Bank of United
States were not reputable business men. That
is tiie most serious phase of the affair. That
bank had a large board of directors practically
all of them widely known as business men. Yet
most of them approved the tilings that were done,
all of them were thoroughly aware of the intricate web of affiliates organized and some of
them had full knowledge of everything that went on.
The disturbing thing is that an organization, carefully devised, rigged from the outset to perform
secret services for the gentlemen who run the bank,
invested for no other purpose than grafting in bank
credit, should have among its directors a group of
well-known business men. * * * "(l)
F. P. Bennett, Jr., Editor, United States Investor, Boston:
"I am firmly of the opinion, however, that the
program for lifting bank management to the higher plane
must bo far more virile than any program thus far suggested (referring to deposit insurance). Here is a system of 22,000 separate banks, each manned by its own executives and directors. Each is in the main a selfgoverning unit, owing some fealty to laws and to State
or Federal regulations, by its shaping its own conduct
for the most part in the light of its own experience
and its own self-interest. * * * * Hie alternative acceptable to the public must be more virile than a plan
seeking by mere argument to overcome the inertia of
22,000 self-governing corporations -and to induce them to
adopt new methods that to the country banker's eye seem
expensive and otherwise burdensome. Probably the correct
response of the American banking system to the indictment
brought by the grand jury of public opinion against it,
is for bankers to unite in lifting our banking examinations to a much higher level of efficiency.
"The great parade of 9,285 bank failures in the
eleven years recently ended is just as much of an indictment of our present scheme of bank examinations as
of our banking system itself. "(2)

(1) Graft in Business, Vanguard Press (1951), pp. 255-257; 266-268.
(2) "Our Banking System on Trial", California Banker,
June 1952, p. 294.

J. S. Love, tvfaile Superintendent of Banks in Mississippi:

* * *
to a great extent the large number of
bank closings is due to the fact that too many banks
have been chartered by both National and State authorities; and it is due to the further fact that too many
banks have been operated by men ?iio are not bankers;
who are not conversant with the banking business. And
we have emphasised from time to time the absolute necessity of better bank management and better and closer
supervision, and we can't get away from the fact that
banks cannot be operated bv remote control and properly
promote local interest."(l)
William A. Kennedy, President, The First National Bank of Pomona,
"Our critics say that banks are operating with
insufficient capital and with untrained men as officers and directors. May I ask in all fairness at
whose door the blane should be laid? Who made the
laws arid chartered the banks and approved the management? How often have banks been licensed by state and
national banking departments, when a committee of experienced and impartial bankers would have definitely
refused the charters? The matter of adequate capital
and qualified personnel has been too often of minor
consideration by those in authority. "(2)
H. J. Haas, Vice President, First National Bank, Philadelphia:

* * * The idea has become widely prevalent
that the blame rests wholly with the banks and bonkers
and their faulty management."
-x- -)(- -x- -x"TNho is to blame if government officials, in
both the state and national systems, for over a
period of more than twenty years, permitted the
organisation of great numbers of banks with insufficient capital or in places where they never could be
successful? In many instances In all parts of the
country this took place over the protest of the well
established banks. But what happened was this - the

(1) "President1s Address", Proceedings of the Thirty-first Annual
Convention of the National Association of Supervisors of State
Banks« Philadelphia, July 1952, p. 28.
(2) "Address of the President", California Banker, Juno 1954, p. 203.

Federal Reserve Bank of St. Louis

"Annual address of the President", Commercial & Financial
nVinnm-i r»1 r> A _ "P . Hrvmr nirhi nri Sp.^-hinn - Or»t,r>fofvr 1952. n. 28.


applicant for a charter would get the most
influential political sponsorship and the protest
of the well established banks was made to appear
as selfishness on their part; however, we all know
that except in rare cases they acted for the best
interests of the public."
->(- -)c -Xf,

It certainly was not wholly the fault of the
banker if customers with whom he had safely loanod
money year after year suddenly failed to meet their
notes owing to the ruination that had overtaken their
own businesses. Nor was he to blame for the fact that
the basic securities of the nation's industries, municipal governments, oven of the national government, suddenly suffered such market depreciations that he could
not realize from them the deposits entrusted to them
rapidly enough to meet the hysterical deraonds for cash
from rumor-scared depositors."(l)

"Annual address of the President", Commercial & Financial
Chronicle, A.B. Convention Section, October 1932, p. 28.

(A) 1 (a). Draft of A. B. A. Model Bill for Licensing of Bankers,
A EILL for Licensing of Executive Officers of Banks and Regulating
the Granting of Bank Charters.
(Note: Title of Bank Commissioner must, of course, be
change^ to conform to the correct title in each
particular State.)

Be it enacted, etc.
Section 1. DEFINITIONS, (a) An "executive officer" is one who holds
a position in a bank calling for the exercise of executive duties, as
more specifically defined in regulations of the State Banking Board.
(b) Bank. The term "bank" shall include any institution
doing a banking business under authority of the law of the State,
whether a commercial bank, trust company (mutual savings bank or
private bank).
Section 2. LICENSE REQUIRED. No person shall hereafter be appointed
or elected an executive officer of a bank unless licensed as hereinafter provided; except a person now an executive officer or a person
now holding similar office in a national bank doing- business in this
Section 5. STATE BANKING BOARD. There is hereby created a State Banking Board hereinafter termed Board which shall consist of five members
who shall be either (a) licensed executive officers of banks or (b)
persons who at the time of the passage of this Act have been for more
than five years active bank executives. The members of such Board shall
be appointed by the President of the
Bankers Association
subject to the approval of the Executive Committee of the Association
and the names of such appointees shall be certified by the Secretary of
the Association to the Bank Commissioner. For the purpose of making,
approving and certifying such appointments such Association officers and
Executive Committee are hereby vested with a governmental function and
such Board shall be an adjunct of the State Bank Department. No two of
such appointees shall be from the 'same town or city. The terms of such
appointed members shall be for five years from the first day of January
next succeeding the date of their appointment and until appointment and
qualification of their successors, except that the members first
appointed shall serve from the date of their appointment for terms of
one, two, three, four and five years from the ensuing first day of
January and one member shall be appointed annually thereafter. Members
of the Board shall be eligible for reappointment and vacancies shall be
filled for the unexpired term in the same manner as original appointments. In default of appointment of a member or members of the Board
as above provided, the appointment shall be made by the Bank
Commissioner upon a strictly nonpartisan basis. The Board shall elect

one of its members as Chairman and another as Secretary. The Board may
meet at any time and place in the State, upon call of the Chairman or
any three members. Each member of the Board shall be entitled to
compensation at the rate of $
for each day of actual attendance at
meetings of the Board and reimbursement of his actual and necessary
expenses to be paid out of the appropriation for the State Banking
Section 4. APPLICATION FOR LICENSE. All applications for license shall
be addressed to the Bank Commissioner accompanied by a fee of $ which
shall be paid to the Treasurer of the State and added to the appropriation for the Banking Department. It must be accompanied by proof that
the applicant is over twenty-one years of age and of good moral character
.and such other information as may be required by the rules and regulations of the Board. Applications for license when received by the Bank
Commissioner shall be turned over to the Board for investigation and
Section 5. BOARD ASCERTAINS QUALIFICATION. It shall be a function of
the Board to determine the qualification and fitness of applicants for
licenses and for this purpose it shall fix its own, standards of
education, ability, experience and character and make such investigations
and provide for such examinations as it may deem necessary.
Section 6. REGULATIONS OF BOARD. The Board shall make and may amend
from time to time, all rules and regulations needed to carry into effect
the purpose of this Act including regulations prescribing the standard
of qualification, the conduct, scope and character of examinations, the
time and place of meetings, the form and contents of all notices, certificates, documents and papers necessary to its operation and methods of
procedure. The necessary expense for printed matter shall be chargeable
to the appropriation for the Banking Department.
Section 7. REJECTION OF APPLICATION. If upon due investigation and
examination, the Board shall decide that an applicant is not qualified
to receive a license as an executive officer, it shall report such decision to the Bank Commissioner. No license shall be issued by the Bank
Commissioner in the absence of a certificate of qualification by the
Board. An applicant for license whose application has been rejected,
may renew such application after six months from the time of such rejection.
Section 8. ISSUE OF LICENSE. Upon decision of the Board after due
investigation and examination that -an applicant for license is duly
competent and qualified as an executive officer, the latter shall return
such application to the Bank Commissioner accompanied by a certificate
of qualification duly attested by the Secretary of the Board, whereupon
the Bank Commissioner shall issue a license in such form as may be prescribed by the Board, entitling such applicant to accept employment as
an executive officer in any bank in the State.

- Ill -

Section 9. SUSPENSION OF LICENSE. Whenever it appears to the Bank Commissioner that any licensee has violated any law of the State or has
performed the duties of his office In an unsafe, unauthorized, negligent
or dishonest manner or has refused to obey any lawful order of the Bank
Commissioner, the latter with the approval of any two members of the
Board may suspend the licensee and during the period of suspension the
licensee shall not be employed by any bank.
Section 10. RESTORATION OR REVOCATION OF LICENSE, At any time within thirty days after suspension, a licensee may appeal to the Board for
a hearing and a restoration of his license in which case the Bank Commissioner shall prefer written charges against the suspended licensee
and submit the same to the Board. Such charges shall be heard and
determined by the Board as soon as practicable and in no event longer
than three months from date of appeal. The time and place of such hearing shall be fixed by the Board and notice thereof with a copy of the
charges shall be served by registered mail on the suspended licensee at
least ten days before the date fixed for the hearings. At such hearing
the suspended licensee shall have the right to appear personally or by
counsel, to cross-examine witnesses against him and to submit evidence
In his own behalf. After such hearing the Board may restore or revoke
such license as the facts may warrant. Failure of the licensee to
appeal to the Board within thirty days after suspension of license shall
operate as a revocation thereof. Nothing herein shall deprive a court
of competent jurisdiction in a proper proceeding of power to review a
decision of the Board revoking a license and to grant such relief to the
licensee as the facts may warrant. The Bank Comissioner, upon approval
of the Board, may re-issue a license which has been revoked after one
year from the time of such revocation upon reasons deemed satisfactory
and sufficient.
Section 11. BANK CHARTERS. From and after the passage and approval of
this Act, all applications for bank charters made to the Bank Commissioner shall be referred to the Board for approval. It shall be the
duty of the Board to investigate the need for a new bank in the
community, the character and capacity of its organizers, and adequacy
of capital and all matters and things pertinent to a decision whether
the granting of a charter "would be wise and desirable. No charter shall
be hereafter granted by the Bank Commissioner except upon approval of
the Board duly certified by it to the Bank Commissioner. Nothing herein shall deprive a court of competent jurisdiction in a proper proceeding of power to review an adverse decision of the Board and to
grant such relief to the organisers of a proposed bank as the facts
may warrant.
Section 12. PENALTY FOR VIOLATION. Any person or corporation who
violates Section 2 of this Act by appointing or accepting appointment
and acting as an executive officer of a bank contrary to the provisions
of that section, shall be guilty of (insert nature of crime and punishment) .

- 112


(A)1(b). Published Views of Bankers and Others With Respect to the
Matter of Licensing of Bankers:
E. V. Frick, Vice President and Cashier, American Trust Company,
San Francisco:
"Tomorrow's banker includes bank officials, directors, and all others connected with banks who are
in any way responsible for the funds entrusted to
them by the public. The attitude of the public in
regard to this responsibility has reached such a
stage that perhaps in the not-far distant future
bankers will be licensed or accredited as are doctors, la?yers, engineers and other professional
people. This should be welcomed by bankers, and it
is a question whether the time has not come when they
themselves should provide for this, and erect such
barriers as will prevent undesirables from entering
or remaining in the profession. ,!(1)
The view of another prominent San Francisco banker was reported in
the "American Banker" of August 11, 1936, as follows:
"F. L. Lipman, chairman of the Wells Fargo Bank &
Union Trust Co., stated that he would like to see the
banker given a better professional status by requiring
that officers qualify for their jobs by pursuing required
courses of study leading to certificates of competence.
Amplifying this suggestion the other day, Mr. Lipman said
that the idea might be tried first in some of the large
cities and, if it worked there, be gradually expanded. He
implied that it might be as well to have more than one type
of certificate for different executive duties, much as
doctors must pass a different group of qualifications from
those laid down for nurses. However, he would go very
slowly so as not to place an undue burden on small country
banks. Presumably, too, he would prefer to see the plan
developed by the banks themselves rather than by statute."

(1) "Qualifications of Tomorrow's Banker", California Banker,
June 1933, pp. 270-271.



John M. Miller, Jr., President, First & Merchants National Bank,
Richmond, Virginia:
"The time should and will come when bankers
will be required to pass an examination and to
secure a license before they may become executive
officers of banks. When that time comes maybe
we shall be able to call our business a
"In Virginia, and doubtless in North Carolina,
a man, in order to practice on a hog, a dog, or any
other animal, must be a 4professional1 man. He has
studied. He has taken an examination and secured a
license. But they turn us bankers loose to practice
on the widows and orphans and defenseless without
requiring an examination or a license.
"And what has been the result? It has been
distressing, and the situation should be corrected.
Some day we shall have a higher standard for bank
officers, brought about by requirement of examination, license, etc."(l)
Thomas C. Hennings, Vice President, Mercantile-Commerce Bank
and Trust Company, St. Louis:
"In my opinion the great mass of bankers
of this country are not and have no desire to be
considered members of a learned profession. Many
have come up from the grass roots, are practical
bankers, financiers, and business men,are the
leaders of public thought and business in their
coimirunitieB, are proud of their vocation and would
prefer to be known now and in the future as business

(1) "Troubles and Remedies", Tarheel Banker, June 1932, p. 92.
(2) "Is Banking a Profession?", A.B.A. Journalf October 1932, p. 86.

- 114 -

R. G. Thomas, Associate Professor of Economics, Purdue
"There are, naturally, two general methods
of approach to the problem of improving bad bankmanagement. The first consists of using direct
pressure; the second involves altering the institutional framework lYithin which bankers must
function. One form of direct pressure might well
consist of ! a requirement that all bank executives
should demonstrate their possession of a minimum
amount of knowledge of sound banking principles
and practice by passing some form of examination'.
Such a plan 'might give rise to a body of "Certified
Bankers" which would assist in the promotion of a
professional attitude among bankers in general1. In
addition to such measures, there must be retained and
strengthened the existing methods of examination and
control by public authority. The intelligent bank
examiner and supervisor can very effectively improve
the quality of bank management by insistence upon
sound loan and investment policies as well as by the
detection of fraudulent and illegal practices."(1)
The following statements were contained in a bulletin of the
Employment Stabilization Research Institute of the University of
» * * ->f * Any shareholder possessed of sufficient voting power, even though ho has no knowledge
of banking, may elect himself a director or have himself appointed president of his bank, and the state
raises no objection until the depositors' money has
been lost. Could not a license system for bank
directors and officers be adopted, involving for
directors an examination covering the general field
of banking practice, certain legal phases, and
especially the tests of sound banking? For officers
a more searching proof of their knowledge of sound
practice and of some knowledge of theory should be
required. In the case of officers, successful
completion of such minimum tests might well be
pre-requisite to qualification for the lowest executive position."

(1) "Bank Failures - Causes and Remedies", Journal of Business of the
University of Chicago, July 1955, p. 516.


"Important advantages of a license system
on these general lines are at once apparent.
The requirement of the test would insure that
directors were informed of the specific nature
of the obligations to be assumed, a most important desideratum. Furthermore, it would
contribute materially to the selective process
in choosing directors. As applied to officers,
the test would first of all tend to reduce
nepotism in banks. The requirement of a searching examination before the lowliest executive
position could be legally held would induce,
first, careful preparation for the all-important
test, and second, a spirit of professional
pride in thoroughness."
ftftftftftft-ft ft

" - * * * Poor management of a grocery
would eliminate that one enterprise. Equally
poor management of a bank might paralyze hundreds
of businesses and work hardship to society in a
much wider circle. Mere ownership therefore
should not confer the same right to absolute
control of the policies and affairs of a bank as
in the case of other businesses. Since the
public is so profoundly concerned with the quality
of management, the director or officer who assumes
control should be obligated to give satisfactory
evidence of previous training and of ability to
manage a bank successfully.



-ft ft ft ft ft

*Tho principal hope for sound banking lies
in improved management; hence in men and not in
laws. Nevertheless, as long as a system composed
of large numbers of banks, many of them of small
resources is retained, the regulatory authorities
may greatly assist in the process of securing good
banks through the further education and training of
bankers. What is needed is a better standard of

A Type Study of American Banking; Non-Metropolitan Banks in
Minnesota, Vol. IV, November 1954, pp. 159 and 162.


- 116
(A)1(c) Published Statements With Respect to Legislation Relating
to Qualifications of Bank Directors and Officers.
John W. Pole (while Comptroller of the Currency):
"In banking as in many of our activities
we are inclined to attempt to cure all defective
operations by new statutory enactments and new
governmental regulations.
"In the final analysis however governmental
action, whether statutory or regulatory, can only
set the metes and bounds of bank operations. They
can penalize violations of the law and can exercise
a restraining influence upon banking practices within the law but it is well known that good management
cannot be procured by legislation or governmental
fiat. Good management must be a natural grov/th from
within the institution.
* * * -x- *

* *

"I realize that from the standpoint of the
banker, banking is a private business similar to
other gainful occupations and that the fundamental
business principles of freedom of action and unity
of responsibility upon boards of directors should
not be subjected to what might be called governmental interference. On the other hand in banking
there is a large public interest at stake—an
interest both of the government and of the
depositors—and so long as there is the possibility
of a repetition of certain recent outstanding
examples of bad management, whether through incompetency or through a wilful disregard of
responsibility and honor, there is the prospect of
increasing the powers of governmental supervision
as a remedy."(1)

(1) "Public Aspect of Ba&k Management", Proceedings Second Central
Atlantic States Bank Management Conference, held in Washington,
D. C., in February 1931, pp. 8-9.

C. T. Leinbach, Vice President, Wachovia Bank & Trust Company,
Winston-Salem, North Carolina:
"At the same time, we recognize that the
ultimate soundness of our banking system lies
not so much in legislation as it does in the
ability and Integrity of bank management. Laws
provide certain safe,guards, but the experience,
honesty and sound judgment of the men who operate
our banking institutions will always be the
determining factors. Therefore, while we welcome
helpful banking legislation, it in no manner
relieves us of our individual responsibility to
operate good banks."(1)
J. S. Love, former Superintendent of Banks in Mississippi:
"My observation as a bank examiner and
bank commissioner, covering a period of more
than ten years, convinces me that fully 75 per
cent of the bank failures in this country are due
primarily to the fact that the directors are not
fully conversant with their bank's condition or
with the details of its operation, and that the
majority of such failures could have been averted
or would never even have threatened had the board
of directors functioned as the law cohtemplates.



"The problem of getting directors of a bank
interested in their own institution is not only
being given serious thought by the leading bankers
and bank commissioners of the country today, but by
the law-making bodies of the various states. They
realize that a bank, in order to function as it
should, must be carefully supervised and controlled
by its directors, and they are trying to devise
some means by which directors may be aroused to
such keen interest that they will keep themselves
familiar with the detailed management of their own
"Legislation on this important matter is helpful to a certain extent, and in some states statutes
have been enacted making it unlawful for a loan of
any consequence to be made by the active officer of
a bank without first getting the approval of a raajor—
ity of the board of directors, or of a loan committee

(1) "Annual Address of the President", Tarheel Banker, July 1936, p. 31.

appointed by the board. But it is obviously impossible through legislation to make competent
Commission for Financial Institutions of the State of Indiana:
"The Department of Financial Institutions
has made a careful survey regarding the extent
of the knowledge of batik directors concerning
their duties and responsibilities. This survey
discloses that a surprisingly large percentage
of directors actually do not realize what is implied when the Oath of Office is taken.
"Safety is synonymous with sound bank
administration, and in order to insure the
greatest possible protection to stockholders,
depositors, and other interested parties the
legislatures of various states have imposed
definite obligations on directors. The courts
of the United States have invariably construed
these obligations to be valid and have upheld them.

* *

x x xx

"2;t is important for directors to understand
that their duties, responsibilities, and liabilities
are not governed alone by the statute, but also by
common law. Briefly, the common law principles applicable are: ORDINARY DILIGENCE, REASONABLE CONTROL,
and GENERAL KNOWLEDGE of the peculiar problems of
their bank."(2)
Employment Stabilization Research Institute of the University of
"What measures, if any, can be taken to accomplish the selection of suitable directors and officers of banks? First, the law can more explicitly
and directly lay upon both the responsibility for
the sound conduct of the business. Our theory of
government makes banking a semi-public activity; the
banker is privileged to dispose of the funds of others.
The statute should by law more sharply define this
position of trusteeship and more clearly fix the
responsibility it involves."(3)
(1) "Slipshod Bank Direction", A.B.A. Journal, May 1928, p. 869.
(2) Duties and Responsibilities of Directors of State Banks and Trust
Companies, compiled in 1935 under the direction of the Commission
for Financial Institutions of the State of Indiana (Foreword and
(3) A Type Study of American Banking: Non-Metropolitan Banks in
Minnesota, published in November 1934, pp. 158-159.

- 119 -

(A)2. Published Statements With Respect to Removal From Office
of Directors and Officers, etc.

J. E. Goodbar, author:
« x -x- * ft Government administration has
no power to prevent the elevation to positions
of authority in banks of ex-soap manufacturers,
ex-real-estate operators (as well as real-estate
operators who operate a bank as adjunct to the
real-estate business), ex-investment bankers,
ex-furniture dealers, ex-medical men, ex-ministers,
ex-ranchers, ex-cattle 'dealers* ex-hardware
merchants. Too often some of these men take on
the bank business because it facilitates the
securing of credit for some outside interest that
has otherwise an uncomfortably low borrowing limit.
"Until 1953 reckless management of any kind
within the law was beyond the reach of positive
control by administrative officers. The power of
removal that was conferred on the Federal Reserve
Board, in 1935, is necessarily so restricted, and
the exercise of it would be so damaging to a bank's
reputation, that it cannot be regarded as even approaching in effectiveness the power that lies in
the hands of the managing officers of a large
system of branch banks."
-X-ft-ft -X- X- -X- -ft ft
"Effective enforcement of banking law has
always suffered from the serious dilemma that
faces any government officer who discovers improper conduct on the part of a bank officer who
is unwilling to mend his ways. Unless prepared
to close up the bank, which, of course, means injury to thousands of innocent depositors, and
might even start a wave of distrust that would
affect innocent banks in the same territory, vdth
ultimate results which could not be foreseen, the
administrative officer has been utterly helpless
to compel the adoption of sounder practices.
"The Banking Act (of 1933) has sought to
remedy this * * * *."(1)

Managing the People's Money (1935), pp. 177,- 400-401.

- 120 -

Dr. Robert Weidenhammer, Assistant Professor of Economics at the
University of Minnesota:
"The authorities should have the right
to remove officers that are fotind to be
objectionable, be it on account of having
purposely violated banking laws or be it un
account of obvious lack of competency•lt (1;
Chamber of Commerce of the United States:
"The Committee does not desire to question,
in any way. the importance of proper management
of member banks of the Federal Reserve System. It
believes, however, that any power to remove an
officer or director or to cite an officer or
director to a board which has power to compel his
removal upon such general grounds as the continuance
of 'unsafe or unsound practices' in conducting the
business of a bank, must be carefully safeguarded.
The Committee feels ttyat in all such cases the charges
under consideration should bo investigated by the
board of directors of the regional Federal Reserve Bank
and a report made by that bod;/ to the Federal Reserve
Board. The directors of the regional banks are charged
with the responsibility of keeping themselves informed
as to conditions within their districts and are in
intimate contact with the peculiar conditions surrounding the banks of those areas. Under another section
of the Act, moreover, the directors of the regional
reserve banks are required to keep themselves informed
with respect to the uses of credit by member banks in
their districts and to report to the Federal Reserve
Board any misuse of credit. It would seem that the
same procedure should be followed in regard to the
removal of officers or directors for unsound banking
practices or the violation of banking laws, so as to
centralize these extraordinary powers and to insure
uniform treatment for national and state member banks."(2)

n r "Better Bank Management: An Analysis of Fifty Bank Failures",
The Annals of the American Academy of Political and Social
Sciences, January 1934.
(2) Legislation on Banking, a report of the Finance Department
Committee, Chamber of Commerce of the United States, Washington,
D. C., April 1934, p. 11.

- 121 -

Employment Stabilization Research Institute of the University of
"Because of the far-reaching effects of
the suspension of a bank it appears to be
desirable that the banking department be provided with means less abrupt and cataclysmic
for the protection of the public interest. The
Glass Act provides that any officer or director
of a member institution who violates the law
or who continues unsound practices in conducting
the business of such an institution after being
warned by the Comptroller or by the Federal
Reserve agent may be called before the Federal
Reserve Board for a hearing. If found guilty
he may be removed from office by order of the
The New York superintendent of banks
recommended in 1931 that he be given legal power
to remove from office directors or officers of
banking institutions who were guilty of persistent
violations of the banking law or of a continuance
of unsafe and unsound policies and practices, with
the provision that a board of directors upon
two-thirds vote might reinstate any officers or
directors removed. Similar powers should be
authorized as an aid to bank supervision in

(1) A Type Study of American Banking: Non-4
Minnesota", ^uBIxshe<5 in 1SSI, p.

1 Q m i h l i s h o d in Pr^snnt Dav Haninn;/ f i

i _m.


(A)3. Excerpts from a Report of the Study Commission for Indiana
Financial Institutions (1952) With Respect to Duties, Responsibilities
and Powers of Directors*
"The Study Commission's investigation of insolvent banks has revealed the fact that in some
instances officers failed to apprise the members
of the board of directors of the state department's
criticism of conditions within the bank. In some
of these instances directors have maintained that
they could have corrected unsound conditions had
they known of their existence. To prevent such situations from arising and to insure that the board will
at all times be fully acquainted with the recommendations of the Department of Financial Institutions the
proposed statute provides that the directors shall require the secretary of the board or some other duly
designated agent to make official communications from
the state department a matter of record in the minutes
of the meetings of the board. The enforcement of this
provision will not be difficult because it will be possible for the examiner to bring with him at the time of
the examination duplicate copies of all official communications from the department to the bank and check
his copies with those entered in the minute book of
the board.
"After the failure of a bank, its directors
sometimes insist that they were intentionally deceived by the officers and, as^ a result, did not know
the true condition of the bank. In many wellmanaged banks in order to make such deceptions
impossible it has long been the practice to have the
directors periodically audit and examine the books
and affairs of the institution. In this manner it is
possible for the members of the board to secure a
personal knowledge of the bank's condition. Such
examinations, moreover, serve to place the responsibility for unsound practices and conditions sq&arely
upon the board. Recognizing the desirability of this
practice of self-examination the proposal of the Study
Commission provides that the board or a committee
therefrom or a firm of certified accountants selected
by the board shall examine every bank or trust company
at least twice each year and shall submit to the Department of Financial Institutions a complete statement
of the bank's condition as determined by the

(1) Report of Study Commission for Indiana Institutions (1952), p. IgO.

- 123 -

(A)4. Published Statements With Respect to Legislation Relating
to Restrictions on Financial Interests of Directors and Officers in
Bank Transactions.
Russell G. Smith, Cashier, Bank of America N. T. & S. A.:
"Certain provisions of the new laws have
ended some unsound practices and abuses of
which a few banks were guilty. I refer particularly, to the provisions which prohibit the
employment of bank funds in loans to officers,
the restrictions regarding the use of bank credit
for speculation in securities, and the separation
of the investment securities from commercial
J. F. Sullivan, Jr., Vice President, Crocker First National Bank,
San Francisco:
"One of the primary laws in sound banking
practice is that loans must be based on good
credit judgment and not dictated by bank directors
or officers for their personal benefit. Recent
disclosures of a sensational nature have focused
the spotlight of public censure upon flagrant
abuses of this custom, and this circumstance has
given birth to a recommendation that there should"be
enacted federal legislation more strictly to regulate
bank loans. Laws, however.detailed and stringent,
can never completely control every banking practice,
and it is still possible to run a good bank with a
degree of latitude left to good management. Laws can
never be a substitute for sound judgment and approved
procedure. I would personally go much further than
this recommendation and urge that banks should not
make loans against unlisted bank stocks. Banking
capital supposedly Is supplied by stockholders out
of their own funds, and not furnished indirectly by
bank deposits loaned against collateral of that class.
This may be regarded as an extremely radical viewpoint, but in my opinion it is in the interests of
conservative banking and I submit it for your more
deliberate consideration."(2)

(1) Address before Bank Management Section, A.B.A. Convention, Seattle,
June 1936, The American Banker, June 11, 1936.
(2) "The Address of the President", California Banker, June 1933, p. 184.

- 124 -

Professor R. G. Thomas, Purdue University:
"In both good and bad times defective
bank-management has all too frequently taken
the form of excessive loans to the bank's own
officers. This fact suggests two possibilities for improvement. First, the prohibition
against loans by banks to their executive
officers, as provided in the Banking Act of
1933, should be extended to include loans to
firms controlled in any substantial measure
by such bank officers. This would definitely
ban the doubtful practice of attempting an
impartial appraisal of the banker's own credit
standing and should go far in reducing the
abuses of excessive and fraudulent loans to
"Second, temptation to borrowing by inside interests might well be reduced. An outright prohibition of all banking affiliates would
be a wholesome change. This could be done with
no harm to banking efficiency if branch banking
barriers were abolished. Also branch banking, in
contrast to unit banking, furnishes a more adequate
outlet for the energies and abilities of the
capable banker and reduces somewhat the urge to
develop outside business interests."(1)

(1) "Bank Failures - Causes and Remedies", Journal of Business of
the University of Chicago, July 1935, p. 317.

(A)5. Views of Bankers and Others With Respect to Legislation
Relating to Deposit Insurance.
S. Sloan Colt, President, Bankers Trust Co., New York City:
"Deposit insurance on a national scale
is a new experiment and while it may have its
effect in preventing withdrawals in time of
trouble, it can in no way be accepted as a
substitute for good banking. Supervision can
limit the scope of bank operations but the
ultimate decision as to quality of assets to be
held in the portfolios of the banks rests with
the bankers themselves.
* The banker has become a trustee for
the public and has assumed responsibility for the
investment of its funds
"The responsibility assumed in this connection
is a real one. * * * Give this class of small savers
security and protection in good times and bad, and
you will establish a public confidence and support
of the banking system against which the demagogue will
be powerless. Let the losses to these people be substantial and the seeds of political and economic discord will fall into fertile ground.
"The Federal Reserve and the other supervisory
authorities have been given extensive powers to check
or prevent unsound credit activities and excessive
credit expansion. However effective these controls
may be, it israyopinion that they can never take the
place of sound bank management. The responsibility
for maintaining high quality assets of the right character must rest upon the management of the individual
Col. James L. Walsh, former executive vice president, Guardian
Detroit Union Group, Inc.:
"The proposed system of guaranty of bank deposits cannot fail to place a premium upon unsound
banking methods, and, in the end, destroy bot£ sound
and unsound banks, without distinction. As such, it
should be opposed by every intelligent banker - if
only in his own selfish interest."(2)

(1) Address before Kansas and Missouri Bankers Association in Kansas
City, May 6, 1936.
(2) Address before Michigan Bankers Association, July 1932, Michigan
Investor, July 25, 1952, p. 51.

- 126 -

L. E. Birdzell, General Counsel, Federal Deposit Insurance Corp.:

In the face of the record since the insurance
fund came into effect, which I have already given you,
there should be no occasion to argue its need. However, there are still some who say that it is but a
substitute for a sound banking system, and that our
efforts should be directed toward establishing better
management for banks rather than insuring banks against
losses. The proponents of this argument usually give
the Canadian banking system as an illustration.
"The argument for better banks is well taken.
We concur fully in what its proponents say, but we
feel that better banking can best be achieved with
the aid of our corporation. In the United States
there is a division of authority between the several
states and the Federal Government, and consequently,
unlike the Dominion of Canada, the character of our
banking varies according to the location of the bank
and the character of supervision given it. Through
the aid of our corporation we believe that there can
be a better co-ordination throughout the country to
the end that a -uniform high standard of banking may
be maintained."(1)
0. Howard Wolfe, cashier, Philadelphia National Bank and former
president of Pennsylvania Bankers Association;

"The following statement which I have read
recently sums up the argument against deposit guaranty:

'The conception of a guaranty of bank deposits strikes at the foundation of sound banking.
It leads to unsound loans and poor banking practices which hasten failures. It is a direct encouragement to reckless banking. The reckless
banker realizes the larger profits which can accrue
to that type of banking in good times and in bad.
times passes the losses to the experienced, conservative banker.'"(2)

(1) "What Deposit Insurance Has Accomplished", Michigan Investor,
July 7, 1934, p. 21.
(2) Address before Pennsylvania Bankers Association, Financial Age,
May 27, 1933, p. 406.


F. P. Bennett, Jr., Editor, United States Investor, Boston:
"But guaranty of deposits is not the correct
method of relieving my client from the Indictment
which has dragged our banking system once more before the bar of public opinion. Let that be the
sentence meted out to our banking system, and the
system must inevitably be haled again before this
same bar a few years hence, for having once more
dealt unfairly with the American people. The
woes that will occur under guaranty of deposits
are fairly to be compared 'with the woes that have
occurred under existing conditions. I shall not
use much of the time of this audience in exposing
the evil possibilities of deposit guaranty plans.
The idea underlying them is plausible enough. So
long as guaranty plans are exposed only to the
tests of the inventor's laboratory, they indicate
only their alluring features. It is only when they
meet the tests of real life that they reveal their
weaknesses. Eight states, beginning with Oklahoma
in 1907, and including your own state for a season,
have given the guaranty idea as fair a trial as even
its own earnest advocates could expect. Not one of
these states has been satisfied with the results.
How could they be, when the plan is in reality an
effort to apply the insurance idea without including the most fundamental of insurance principles,
the intelligent selection of risks? Only In Utopia
can insurance succeed if it turns its back squarely
upon the most fundamental lesson which insurance companies have learned from their hundreds of years of
actual experience. Guaranty plans assume the existence of a millennium, when the whole despairing
world unites in testifying that the millennium is
still far away."(l)
Mortimer J. Fox, former Chief of Division of Research and
Statistics, Federal Deposit Insurance Corporation:
»-x- * * -*iAre must bear in mind that the present installation of confidence in bank deposit money
is no more a cure for basic banking ills than was
the creation of confidence in bank note money 70
years ago. The problems of proper bank management
and bank supervision are quite as great as ever before. "(2)

(1) ,f0ur Banking System on Trial", California Banker, June 1932, p. 293.
(2) American Banker, June 4, 1936.

(B) Published Statements of Bankers and Others With Respect to
Cooperative Efforts of Bankers.
W. F. Gephart, Vice President, First National Bank, St. Louis:

In the first place, there must be increasing
recognition by the bankers and business men of the
unfair, unjustified, and unprofitable practices in
their own business and an increasing effort and cooperation among them to correct these shortcomings
without the intervention of the Government. More
self-government in banking and business by the individual bankers and business men is the greatest
need. There are too many lone wolves in banking as
well as in many other lines of business. Through
county and regional clearing houses and group and
state bankers associations and the American Bankers
Association, bankers have agencies for correcting
many of the bad banking practices. Such correction
would result not only in profit to the banks themselves and their stockholders, but also would create
a better public attitude and thus prevent and even
remove unduly restrictive legislation and regulation. "(1)
C. K. Withers, former trust officer of First-Mechanics National
Bank, Trenton, and now Commissioner of Banking and Insurance, New Jersey:

"If we are to have a Code of Fair Competition—
and vsre should, by all means—let us have one which
can be Interpreted; one that will be workable and
equitable alike to depositor and bank, and one which
shall not require of every institution the elaborate
system of costs apparently necessary in the present
regulations. Let us assume for once that most bankers
are honest, and ready and -willing to cooperate in
every way possible to bring about a return to more
nearly normal conditions. Permit us to get together
in our local clearing house or county associations and
trade areas, and work out a code of compliance which
shall be fairly based upon average conditions in our
individual communities. Let us have cooperation, not
recrimination, and our Codes will be speedily completed—
and enforced."(2)

(1) Address before the Regional Conference of the A.B.A., Memphis,
March 26-27, 1936, published in Present Day Banking (1936),pp. 23-24.
(2) The President's Address, Proceedings, New Jersey Bankers Association,
May 1934, p. 113.

- 129 Edward J. McQuade, then Vice president, Liberty National Bank,
Washington, D. C.:
"Senior bank officers of District of Columbia
get together at weekly luncheons to bring about more
intimate and frequent contacts. Discussions are
frank and not carried beyond meeting room. Ideas
are exchanged and problems worked out. As a result
of such luncheons committees for various purposes
are formed.
"A Protective Committee was created to furnish
information on undesirable accounts, employees dismissed for cause, and to issue special warning bulletins as emergencies arise. The results were noteworthy.
"Cooperation in advertising brought about a
tremendous saving to banks plus an increase in business. It has been valuable in installing service
charges, credit bureaus, securing concerted action
in legislative enactments, standardization of bank
forms, etc.
"These weekly luncheons protect members1 business, promote welfare, and foster fraternal relationship, all of which in turn react favorably on
the general business interests of the community." (1)
Professor Paul F. Cadman, University of California:
"In some respects it is unfortunate that there
ar© nob bankers1 exchanges whose members would submit voluntarily to the control and regulation of the
group. Such control from within the profession would
be far better than a political control from without.
It is immediately argued that the business is too intimate, personal, and competitive to submit to exchange regulations. Such has not been the case with
stock brokers. Theirs is perhaps the most competitive business in the financial field, but exchange
members nevertheless submit to investigation and
analysis which no other business in the country would
endure. What has been the result? The smallest percentage, of failure in this present depression which
any business has suffered. In the New York Stock Exchange, with thirteen hundred members, less than ten
(1) Summary of an address before the Central Atlantic States Bank Management Conference in Philadelphia, March 1950, in which Mr. McQuade
stated that the District of Columbia bankers had for many years recognized the value of getting together for the discussion of common
problems. Proceedings» p. 53.


- 150 failures; in the San Francisco Stock Exchange, with
over seventy members, only two failures© To press
this analogy further; the relations between stock
brokers and clients are as intimate as those between banker and client, yet the Ethics and Business Conduct committees of the major exchanges examine such relations in detail, criticize, restrict5
and, if necessary, penalize. Furthermore, one of the
most rigid regulations of the stock exchange is the
uniform commission rule. In only the rarest of Instances may a commission be split with a nonmember.
and under no circumstances can a member ever cut a
commission for a client. The language of the commission rule is so inclusive and exact that no violation is possible. If stockbrokers were to compete
by rate cutting as banks now compete by Interest-rate
inducements, the majority of brokerage houses would
be bankrupt in less than a decade.
"Perhaps a bankers1 exchange is too radical an
idea. Banking is an exceedingly conservative profession and in some respects a very self-satisfied
one. It will not take many years of operation in the
red, however, to shake this complacency. Clearing
houses could easily function as exchanges and could,
under member consent, extend the control which they
already exercise. But if this is too advanced a proposal, then consideration should be given to other
existing agencies. Local, State, and national banking associations are well established. Few trade associations have such excellent organization. The committees and secretaries of the State and national associations have done excellent work in research and
have served admirably in an advisory capacity. Publications have been, particularly in recent years, informatory and stimulating. Conventions have been numerous, well planned, entertaining, and as far as it is
possible for any American convocation to be serious,
they have devoted a goodly number of their sessions to
real business for the good of the profession. The accomplishments of the A.I.B. are so noteworthy as to
place that organization at the head of all institutions
of its kind." (1)

"Competition, Cooperation or Control", California Banker»
June 1935, pp. 209-210.

T A B L EE.-.15


Mi n.








Each must' be citizen $1,000$ or |500 if
of U.S.; 5/4 must re- bank's capital is
side in State, terri- less than $25,000,
. Bks.)
tory, or district
where bank is located,
or within 50 miles.(Nat. Bks.)
3/4 must reside in

u.S.C., Title 12,
71, 71a, 72.


Alabama Code,
•. r-',->

a oo.


Service of other institutions . (see
Table B)

or oDju xn

cities of more than
£0,000 population.

Rev.Code 1928,


Crawford & Hoses1
Digest, Castle's
1927 Supp.fc 683


Deering's Codes,
Title 50, § 10.






A, - 2

TO BiL o u m


• - .ttCIAL



aajority must reside
in county or contiguous counties.

5 shares in b-: nk of
less than f.50,000
capital. 10 shares
in bank of more than

Conviction of felony
or violation of State
or Federal, banking

Colorado Stats.
(-1935), Ch. IB,
§§ lf.,1?-.


3/4 must reside in


Service of other instituti ons. (see
Table B.)

Gen. Stcts., h
§§ 3316,5874. %








j ' 1,JO ) .

All must be citisens
of United States j
3/5 must reside in

Rev.Code (1955)
§ 2380
Rev. Stats.,
4123, 4133,
4190, 4134.

Banks: 10 shares, or
5 shares in bank ox
less than ^25,000
ca-pi tax.
Trust companies: 10
shares of (100 par

T A B L £ A. -










All i.iust be citizens
of Stete or reside
\/ithin kS miles of
city in v:hich bank is
located. 5/4 must
reside in city or
within 25 miles.
i, ,,
Majority must reside
in State.

i.\jL»i/ j—Iv^jji.1. C ljO

Ctv. Code,
§§ 2SGG (147),
25566 (148)



Idaho code5
'Title 25 ?
§ 25-406,



All must be citizens
by Arts, of U.S.} 5/4 must reof Inside in State or
within 50 miles of

£'1, 000 j or £500 if
capital is less than
s,>509 000.



Fixed q/

<200 if capital is loss
than §30,000j :,-o00 if
more than ;;.50,000.




5/4 must be citizens
of State. (Savings


10 shares j or 5 shares
if bank' 3 capi'tai is
less than ^25,000.

1 y 0' 30 .

by stock




CiT. 16-1/2,
§§ 4, 12.


M . Stats. (1933),
§§ 13-503,13-510.

1925 Code, §§ 3135,
9164, 9210,9211,
9212, 9217-C2.

T A B L E E. - .15









Banks Must reside in
county or adjoining
Trust cos.s Majority
must be citizens of






Sav: 5


TO Biu QuiiED


Trust cos: £1,300*



"n- ;
A.X.J J .
5/4 must be citizens .< j
of State? all must
be citizens of U.S.

Tr.Cos.: 2/3 must reside in State.

§§ 9-109. 9-104,

Bank > ? 5 shares (applicable also to cashier and managing



or 5 more
for each
of capital over
2 millior


Tr.Cos.: $1,000.

Carroll!"s Ky.
Stats., § 16?a-20f
Dartr s Gen. Stats.
( ; , § 611.

Service of other institutions (see Table

§§ 15,72,74.







Majority must reside
in State (bits.)

Sav; 5
Tr.Go^ 5



- .15



Bks:; $100 if capital is
iess than £25,000;$250
if more than |25,000
but less than $50,000.
$500 if more than



Ann.Code ("1524).
Art. 11, §s 26,
51, 50.


Tr.Cos.; |500.
Massachusetts 3 Tr.Cos;
Bks; 5


Tr .Cos..; 5/4 must be
citizens of, and
reside in State.

Bks: 5

Bks. 3


Service of oth^r in- Gen. Laws,Ch.172,
stitutions . (see 'Table §§12, 14; eh.168,
§ 15; ch. 170,
§ 4.

Bks . t

, J Jo j; ox* %>ou0

if capital is less
than |25,000.
Tr.Cos.o $1,000.

Tr.Cos t7


ir.u o s.: vx

Bks.: |300. or $500
if capital is more than
$15,000; or $1,000 if
Tr.Cos.: Majority
capital is more than
must reside in State.
Tr.Cos.z 10 shares.
Sav.RKS.* Must reside
in county.

Oomp.Laws (1929),

Cren, Stats. (1925),
H 7453,7729,
7670, as amended.

T A B L E E. - .15


iviin •





Bks ^ 5














corvico of other institutions. (see Te-ble

tavrs 13 34,eh.146,
§§6,37, as &-nond~
ed by ch. 165,
Lars of 1-336.

Bks; k shares > or 5
shares if capital is
more than §25,000.

Judgment- held against
person by bank.

Laws of M0.ch.34,
Art. 2, §§ 5363,
5435, 5494.

Conviction of crime
against Federal or
State banking lawo.

§§ e014;l'.:-;

Tr.Cos.: 5 shares



All uust be citizens
of U'.S.j 3/4 must reside in State.


All must be citizens
of U.S. -3/4 must reside in State
Majority must reside
in county or adjoining counties.

Comp.Sta ts.1323,
§§ 8-121,8-153,

Bks.: £500$ or £1,000
if capital is more
than v^5,000.
Sav.Bks.- §500.

.. %




Majority must reside
in State; at least
one must reside in

<^'1., uoO.

Service of other Institutions (see
Table B).

§§ 747,747.09.





Cos aa 5

Hew Jersey

Bks. 5

Max. 'din.


New York


Bks. 5

- .15


Bks. & Tr.Cos.: 10
shares> or 5 shares
if capital is loss
than $50,000.


260, §"3; ch.

Service of other institutions (see Table B)


C'oTnp. Stats.,
§§ .17-9,

Reside in State.
Majority must reside
in county.



Bk3.- Majority must re-I Bks.i 5 shares
; side in State
Tr.Cos.; $500.


Kaw Mexico

r~ ••
Tr.Cos.:: Majority must
be citizens and reside
in town or city.


Laws of "1.915,
eh. 167, § 17,
as amended by
Laws of 1913^


15; or 20 Bks.; All a List be citi- Bks.: 10 shares of
if capi- zens of li.S.j, majority value of 01,000.
tal is
must be citizens and
more thar . residents of State^
2 mill ior• 3/4 railst be citizens
dollars; and residents of State
or 25 if or contiguous States.
'exceeds 5

Service of other institu- Cons. Laws, ch.
Art. Ill,
tions (see Table B).
Sav.Bks.s Bankruptcy, gon- §- 123; Art.V,
§§ 206,210;
oral assignment, or unArt.'VI, § 260.
satisfied judgment.

(M.Y. cont. p. 0)




same as banks

Bks: 9








- .15

to be

Tr.Cos.* All but one
must bo citizens of
United States. Majority
must be citizens and
residents of State;
3/4 must be citizens
and residents of State
or contiguous States.
Sav.Bks.: All must reside in State, oxcopt
that 1/5 of trustees of
Bk in City of How York
may reside in State adjoining such city or
county of Westchester*
3/4 must reside in



m m )


Same as banks

$200) or $ 5 0 0

Sav. Bks. t Bankruptcyf
General Assignment,
or unsatisfied judgment .


Bks, 3


Cos.: 9


Bks .& Tr .Cos.: 11: in
j ority aust res

Bks.- & Tr.Co




Art. 6, §§220(w)

— —

ch. 96, H 15,
26j Co:?.p. Laws
1313, § 5208.

capital is more than



T A B L iii A.



Mi n.





Bks.: 3


Cog *; 5




- 9

TO BE OffrilED




5/4 must reside in
St rate .
Bks.: ;50j.

Violation of banking

CTolnp .Stat. (1921}
§§ 4119, 1137,




Sav. Bks.t9

Bks &



& Tr.

Bks. oc Tr .Cos. ? All
must he citizens of
U.S. - 2/5 must reside
in State or within 100
/niljs 01 hamc, provided titfvt at least one
must reside ia State.


must- be citizens
of U.S., 2/0 must reside in State.

Banks & Tr.Cos.: £.300.

Cos,: ; 500.

Servian of other inOre. Code (1930)<o
stitutions . (seo Table
£ 2 - 6 0 5 , 22-2i>37 ;
19*5 Ruop.


Svs * Bks.: Baiikrup toy,
gonorrl assignment,
or unsatisfied jud.£~
Service of
tain other
(see Table

other InPurdon's Code,
or in cerTi tle 7, § 819-502.





Rhode Island Sav.



Tr.Cos.r A11 must be


T O B E QVu»j£D



Sav. Bks.: Service of
other institutions
(see Table B)

Title XXV,eh.270,
§ 8jch.27S, § 12.

Tr.Cos.2 v"'50-j.


must reside in Stc.te.


Comp.Laws(1329) o

Bks. ? Majority must re- Bks.2 5 shares
side in State; 3 must
reside in county or
Tr.Cos.2 10 shares
adj oining count les •
Tr.Cos.: Majority
; must reside in county
or adjoining counties. 1



citizens of U.S., 5/4

:| Bks. c 5
But if
deposit s
Si capital are
have 5.


- .15

BkSo & Tr.Cos.t $500.

Cos. 5



T k B LEA.


i-d X i l •

S.iiixiES Or' STOCK
TO iiiv O^El)

KESlDZ>;<CE r+iiD/O'ti

i.' l< -X

- 11

ft CITI^Srfitf

q orr
t pr ' '




Eire.; iajority aiust bo
residents ana citi^-ena
of State•

Bics. 5
Bo if


lii-C 5 . O



Sav • B^o .; ; iaj v;ri by :aust
bo citizens of Stote.






Persons against whom
bank holds judgment

Civ.Code, Arts.


/O'J'J , J'J^




Bks.s $500$ or $1,000
if capital exceeds



11 j or
13 if
a merged bar k*
Maj ,rity must reside in

Sav.Bks.: Service of
other institutions by
trustees.(see Table E)

or y-ooO if bank
is in city ox first
or second class.





R.S. 192?,
§§ 7-3-19

Tr.Coa.: $1,000

Pirbo Laws,
§§ 6785, 6810.

$100, if capital loss
than £50,000; £500, if
capital exceeds $50,00C but
net more than £100,000;
$750, if capital excoeds 4100,0)0 but
not more than 4>300,000j
$1,000? if capital oxcoeds ^30 0,00.j.

§§ 4149(18),
4149(3.9) .

T A B L E E. - .15





Sav.Bks.: All must re- Bks.: 10 shares, or 5
side in State.
shares if capital is
leSS the 11'pDLj2 JU'./ .

Cos. 5;
or 3 i?
is less
3i£ 3 • « ii






Banks &



Service of other Institutions (see Table | $§5**7,5857.

Sav. Bkn.: Ba rtkruptcy,
General assignment, or
unsatisfied judgment.



Majority crust reside ir

— —

All must reside In
Statu; majority raust
reside in county or
adjoining counties.




W.Va.Code (1931),
eh. 31, Art. 4,
!;:500r or one per cent
of capital stock If
eapitel is less than

Conviction of crime
against State or Federal Banking laws.

WIS •S'GS.tS . ,

BKS. & Tr.Cos.: $500
Savs.Bks t §1,000

Bankruptcy or General
a s s ig rii lie nt.

P-q q^"1.
5 $10-119,10-120,

§ <1(1.1. J 8.

T A B h £ B.







Federal Law

(1) -Directors, off! - Directors, officers, or employees of nation:-1 or Ste-te
cers or employees of
member orn.-LS, or pri- bc.ij^s or branches •
vate bankers.




(2) Officers, direc- Officers, directors, or
tors, cr employees of employees of securities
member banks.
companies- or individuals
dealing in securities.

One other institation under regu- Clr.yton Act,
h:- r.ion of Borrd of Governorsj
§5; U.S.O.,
Institutions of which U.S. owns
Title IS, § 19.
more than 90S of stock;
Bank in formal liquidation]
Foreign bankings corporationsj
Bank of which more than 50 per cent
of common stock is owned by more
than SO per cent of common stock
of member bank;
Bank not located and having no
branch in same city er town or in
any contiguous or adjacent city
or town;
BaiiK not engaged in same class or
classes of business,
mutual savings banks ^
Services lawful on Aug. 25, 1955,
until Feb. I, 1959.
Limited classes of cases permitted Bkg.Act 1953,
by regulation of Board of Governors , § 521 U.&.C.,
Title 12, § 78.

(Federal lav; contini:
ed on p. 2)

TaBLE B • — 2



Federal Law
(2) Officers and di(continued) rectors of baiucs which
underwrite securities


Officers or directors of
public utilities


Autiiori'//, t i oxi by securities and
excha nge com:; iss io n.

Author!nation by Securities and
(4) Executive officers 5 Officers jr directors of
registered holding companies' Exchange Comiaission
j or directors of banks
j (5)Officer or diroc- Members of Board of Govern-- —
1j tor of member bank
ors .


I (6) Officer,director, Class B and C directors of
1 or employee of any
Federal Reserve banks
| baruc.

(7) Officer or director jf any bank

Directors _-f Federal Deposit
Insurance Corporation



Public Utility
Act of 1955jU'.S.C.
Title 16,
§ 325d(b).
Public Utility
Act of 1355;
U.3.C., Title 15,
; Federal Reserve
| Act, § 10* U~. S • C.
1 Title 12, §§242,
j 244
| Fed. Res. Act,
i? ttu.o.ur,
Title 12, § 3C3.
Fsd.Rss .Act,
§ 125(b) ;t>.S.C.
i Title 12,§ 264.



















- -j






(—(KG Provisions)






(1) Executive officers
of savings banks

Officers of ban&s of diecount or circula ti )n.

: 3 or loss may servo in such :>ther

Cten.Stats o >

(2) Officers ^f any
State bank, savings
bank, or trust company

Bank Comiuissi^iier


-I .

§ 3975

m .'V— UW « j
^ o3oo.






Louis iana

( •— (Aio Provisijns)





TABLE B. - 5






(1) Trustees ox
savings banks

Directors of national banks
or other banking institutions .

(2) Certain officers
of savings banKs

Agent or representative of
securities company

(5) Treasurer of savings bank

Cashier in national bank or
other bank

(No Provisions)


2 or less trustees may serve in
such capacities

R-.S., ch. 57,
$ 16.

E.S.,ch.57§ 17.

If deposits of savings bank are
less than £150,000, treasurer may
be cashier of another bank provided not more than one director
or 2 stockholders of the other
bank are trustees of the savings


R.S., ch.57 J 17.

TABLE E. - .15







(1) Director, officer
or employeo or trust

Director,offiner, or employe,; of corporation which
makes loans on stock or
bond collateral

(2) President, vicepresident, or treasurer of savings bank

Pros ide nt, vie o-pro sidont,
treasurer, or cashier of
national benk, trust company, or other bank of

ch.163,v 5

(5) Trustees or officers of savings banks

.Trustee or officer of another savings bank

ch. 163, § 15.



( —




(Ho previaions)

Mutual savings banks;
C:.•:.pcrativo ban,^)
eh.172, $ 14.
iviorris Plan eomoany or credit
Service authorized by permit issued
by Conn]issloner of Banks


TABhE B. - 7




M1S 313 SX ppX


Directors of other ban&s
serving same city or town

Inapplicable to savings banks
and trust c jnpanies operated in
connection vrith commercial
banks in same building




.L aiii/ a, i JLiM C iifS




(Ho provisions)




Agent of corporation, or
(1) President,treasurer
person selling or negotiator member of investment
committee of savings bank; ing securities in State, or
officer of such corporation.





Laws 1934,
ch. 146, § 38.

(2) Treasurer of savings

Director of any other bank
in State, national or State.

Private banker

; Oomp. La u s,
§ 747.09.


Pub.Laws,ch.2 61,
§ 4.

TABLE E. - .15





Sew Jersey

. . . .






\ ~~ \i*o provisions)
He\o Mexico

Mew York

(I) Officer or director of any bank or
trust company

Officer, director or mana
ger of securities company
which deals In securities
other than those issued or
guaranteed as to principal
or interest by United States

(2) Trustee of savings bank

Director or trustee of bank
Permitted if majority of trustees
operating special interest
vaill not be directors o:£ trustees
department; or of mortgage
of the other institution
or title ec; or of any bank,
trust co. or nail .-rial hank.

Permit issued by 2/3 vote of State
Banking Board

eh.5, Art. Ill, H
§ 159; Art.V. g

•Art, VI,v§ 060,

TiiBLE B. - 9







( — (No orov I s i .»as)



(1) Director of savings bank

Director,officer, employee
of any other savings bank
in saaie county

(2) Director of savings bank

Director of any other bank,
trust company, or national

vj 22-2557

Permitted if majority of directors Ore. Code,
of savings bank will not be direc- § 22-2543,
tors of the other bank.

TABLE E. - .15




TO m O d iiPPnlCiiBuE




(!) Directors of trus- Judge of court of record;officer in Dept. of Banking,
tees of batiks
Treasury Dept*, Auditor
Ge2ierai1 s Dept., or Dept. of

Purdon's Cods,
Title 7j
§ 819-502.

Person authorised to rocoive:
public moneys of State


(2) Trustees of savings banks

Trustee, officer, or employee of another savings

(3) Cashier jV treasurer of bank

Judge of court of record.
Officer in Departments of
banking, treasury, revenue,
or Auditor General;


Person authorised to receive public moneys y
Treasurer of city or county*
Any other gainful business
or profession.


Purdon's Code,
Title 7,
j- 319-51?.

TiiBLE B. - 11





Trustee of savings

Trustee of another savings




Title XXV,
Ch.270,$ 8







( —(No Provisions)
Director of savings

Director or officer of
another State bank


(No Provisions)



No prohibition; such service does
not disqualify director of savings

Civ. Code,
Art. 397.

TiiBLE B. - 12






j —-(Ho Provisions)






(i) Officer or employee Officer, employee, member,
or majority stockholder of
of bank or trust company
,j securities company5
Tr us tee,direc tor, off icer
or employee of corporation
wjUich makes loans on stock
or bond collateral

(2) Director,officer,
or employee of bank or
trust eo.; or trustees
of savings banks.

Director of another bank,
trust company, or national

(S) Trustees of savings banks

Trustee, officer or employee
of another savings bank

Oomp. Stats.,
§ 3257-1



Permitted if majority of directors! Oomp.Stats.,
or trustees will not be directors | § 3365.
of other institution

$ 3357


TAbJuE E.


CO V.liOivi iiPPLICKBi^


REI Jjjitxijn oES

Virginia ! j

— Wisconsin
H ! j>

{ —

(,«o Provisions;




T A B L £ C.







Federal Lav:

Executive officers of
member banks, including partnerships in
which they have majorit/ interest.

Loans not exceeding $2,500, with approval Removal from office Fed.Res.Act,
, 09 (cr) •
of directors>
Indorsements for bank's protection,
12, 3 375r


(1) Directors, salaried officers, and employees j or firms or
corporations in flhich

Approval by directors and good securityj
Hot over 20 per cent of capital and surplus to one individual.

(2) Officers and employees (not directors)

Prior approval by directors; execution
of note

Conviction for embezzlement

J 3412.

Officer or director

Approval by directors;

Forfeiture to State
of amount loanedj
loss of office.

Rev.Code of
1928, 1936
Supp., § 222.



Security twice value of loan.
Mot over 10 per cent of capital and
surplus to one person; nor over 25
per cent to all active salaried officers or directorsa

Ala. Code,
§ 6338




C .lorado






(No Provisions)
(1) Officers

Loan to corporation of which officer is
minority stockholder, director, officer, or em pi jyee

(2) Directors

Approval by directors and report to
Superintendent of Banks


(5) Directors and
officers of savings

Loan to corporation in which director or
officer is minority stockholder, with
approval of directors of bank


(1) Officers of banks

None; except that officer may becone In~
dorser on loan with approval of directors

(2) Directors of banks

Not over 10 per cent of capital and surplus, except with approval of directors


Codes, Tit.50,
§ 83.



Codes, Tit.50,
§ 65

(1935), ch.18,
§ 39 o

TABLE E. - .15





(i) Executive officers
and clerks of banks
and trust companj.es j
including discount of
paper indorsed by

Loans to clerks if secured by real estate
worth twice amount of loan.

(2) Directors or
trustees of banks
and trust companies.

Not more than 5 per cent of capital and
surplus GO one Individual unless secured
by readily marketable collateral worth
20 per cent more than amount of loon;
Not more than 10 per cent of capital and
surplus"to one individual;


$1,000 fine or
one year.



$ 5904, as
amended by
1955 Cum.Supp.y
5 1455c.


Gen.Stats., g
\ 5905, as
amended by
1955 Cum.Supp.
5 1456c.

Not more than 50 per cent of capital and
surplus to all borrowers.
(5) Officers, directors, Nono; absolute prohibition
or trustees of savings

§ 5971, as
amended by
1955 Cum.Supp.
§ 1474c.

TABLE E. - .15





and employees

Approval by 2/3 of directors; and submission
of statement of financial condition unless
loan is secured by liquid collateral worth
20 per cent more than amount of loan.


(l) Officers and directors jf banks and
trust companies; or
corporations in which

Not in excess of 10 per cent of capital
and surplus, unless approved by directors


5 2300.

Felonyj removal
from office.



(3) Officers of savings Nonej absolute prohibition.
banks in charge of investments .

employees; or firms
of which they are


(2) Officers and direc- Submission of written application and
tors of trust companapproval by directors.



Approval of directors; good and ample
collateral or other security


§ 4181.


§§ 2366(157),
2236;" Penal
Code,*! 211(21),

TABLE E. - .15





Officers actively engaged in management

Sot over 5 per cent of capital ami surplus Directors personally
to one officer$
liable for resulting
Combined indebtedness of officers, directors, and employees not to exceed 40 per
cent of capital and surplus>

Idaho Code,
§ 25-603.

Good collateral or other ample security or


In no case, with.ait approval of majority
of directors or committee thereof.


President,vice president, or salaried officers or employees,
or corporations controlled by them.

Approval by directors as to security
and amount.

(l) Active executive
officers of banks
or trust companies

Loans to corporations or firms in which
officers are members or stockholders, if
approved by directors, provided total
loans to officers and directors of firms
or corporations must not exceed 15 per
cent of total resources.

efi.16- 1/2,
I §10.

Felony; 2-14 years in
• (1955)
prison and fine
double amount of

(Indiana continued on p. 6)

TABLE E. - .15









(2) Directors not
holding other office

Authorization by majority of directors
and all present at meeting


(5) Trustees and officers of savings
banks .

Konej absolute prohibition.

Hsmovnl from office

§ 18-2615.

(l) Active executive
officers; and corporations in which majority stocjmolders.

riot in excess of 10 per cent to one
officer, aor in excess of 25 per
cent to all active executive officers j
prior approval by directors.

Ssbc; zleraent;fine
in amount embezzled or not nor-than 10 years.

1955 Code,
9220,9221. m

(2) Directors not
holding other office

Authorization by directors

(1} Executive or m n aging officers.

DJot more than 5 per cent of capital and
surplus to one officerj nor more than
10 per cent to all such officersj
Approval by directors

(2) Directors arid officers other than active managing officers

No restrictions




IS3c Supp
§ 9-111.*

TABUS C. - 7

Crr. ? rr.-r?




Directors and officers
of banks and trustcompanies

Not in excess of 10 per cent of paid-up
capital stock, unless excess is secured
by real or personal property double
amount of exces3.


(1) Active president,
vice president, cashier, or asst. cashier; or corporation
of which he is active
(2) Corporation with
stock unpaid up to 50
percent, of which officer or director of
bank is officer or

Resolution of directors

(3} Active officers
of bank, trust company or savings bank.



Carroll1s Ky.
$500 to $1,000

Dart*s Gen.
§ 616.
; Dart's Gen.
: Stats.(1932),
§ 662.


Adequate security approved by directors

#1,000 fine or not
more than 5 years


$500 or 90 days


j Bart's Gen.
Stats. (1932)
§ 566.

TABLE C - 8





(1) Officers of
savings banks or
firms of v/hich

None; absolute prohibition

(2) Directors and
officers uf trust
companies;, or firms
of which members$
or corporations of
v/hich directors,
officers, jT managers . (Renewals

Submission of proposition to directors
and approval by majority of board or
executive c omnittoe.






§ 53.

5 ?8£

regc.ra.ea as loans.)

(3) Treasurer, assistant treasurer, or

If loan is not on security of corporate
sto cks.


TABLE E. - .15








(1) Officersj or corporations of which
officers or holders
of majority interest;
or firms of which

Approval of directors

Md * Code 1924,
Art. 11, §68.

(2) Directors for
personal account

Approval of directors

Art. 11, § 63. h

(5) Directors actually engaged in business; or firms of
which membersi or
corporations in
which they have
majority interest

No restrictions, If for use in business.

(4) Officers or
directors of savings institutions.

Hone; absolute prohibition



Art.11,§ 35.

TABLE E. - .15





None; absolute prohibition

(l) Executive officers of trust


(2) Officers of
savings banks
charged with investments .






Not more than
«jj>5,000 fine or
1 year



ch\ 172,
$$ 16,17.

, ,

Loans on deposits

•ch. 168,
§ 29.

(1) Officer and
directorj or firm
of which member;
or corporation
of which majority

Not in excess of 10 per cent of
capital and surplus; except that 2/3
of directors may authorise loan up to
20 per cent of capital and surplus
on satisfactory security.

(2) Officers and

Prior approval of directors

Cornp.Laws of
1329, § 11922,


TABLE E. - .15




TO vAQ,:i nPrLIC/.buE


(1) Officers and directors of bamcs

Approval of directors on same security
as other loans

(2) Trustees and officers of savings

Cur re it and necessary disbursements
authorised by directors

Forfeiture of office

§ 7707

(5) Trust funds to
officers or directors of any banK

iione- absolute prohibition

Guilty of larceny

§ 7664

[4) Directors and
officers of trust

None; absolute prohibition

Guilty of lureuny

Gen.Stats. ?
§ 7740

(1) Directors

Hot more than 7-1/2. per c-~nt of capital and surplus to one director; or
not uiore than 15 per cent, if secured
by certain government obligations, provided loan does not exceed 80 per cent
of value of such sooiiriby •
In no ease without approval of directors

(2) Active officers

No more than b per cont of capital and
surplus to one officer; or not more than
10 per cont, If secured by certain government obligations, provided loan does
not exceed 80 per cont of voluc of such
In no case without approval of directors
Up to &300 on demand.secured by wrrehouse receipts or bills of lading,
viith approval of directors

(r6) Officers .i.V
"... LX'I..OX- . J T V





§ 7673

Laws, 1954,
§ 59, as fimondod
by ch.165,Laws
of 1936.






TABLE E. - .15



la o a tana





(1) Active salaried
officers of banks
and trust companies;
or corporations in
which they own or
control majority
of stock.

Not in excess of 10 per cent of capital
and surplus to one person] nor in excess
of 2b per cent to all active salaried

(2) Director of
Savings Bank.

Necessary current payments or investments
for safety.

(1) Managing officer of bank or
trust company.

Good collateral> and approval of directors if loan exceeds 10 per ceht of
capital stock.

| 6014.49

(£) Directors of
banks and trust
companies a

Approval of directors if loan exceeds 10
per cent of capital stock.


(3) Officers and
directors of savings banks.

None; absolute prohibition

[•orfeitui t j ' t. te of
amount of loan.

tj 5357,5429

In no case without approval of directors

Forfeiture of office

Mo. Laws,
$ 54JU




TABLE E.- .15






(1) Officers

None; absolute prohibition

j Felony- $1,000 fine
or 5 years

(2) Directors and
corporations in
which directors or
officers have controlling interest.

Approval of directors

|j Felony - f1,000 fine
j or 5 years.

or employee

Good and sufficient security and approval
of directors.

Ne^v Haznoshir e (1) Officer or
Unanimous approval of directors
director of
bamc or trust co.



; Comp.Stats.
1329, ^b~149«

i 747c1?o


i 14.


(2) Officers of
savings banks
(3) Trust funds
to officers or
directors of trust

Unanimous eons ont of trustees in writing


None5 absolute prohibition.

Pub.Laws,ch.264 ,
ri6 o

TABLE E. - .15


TO ViHOii ii?PLICii3LE




(1) Directors and officers of banks and
trust companies

Submission of proposition in writing and
approval by directors

(2) Managers o:r officers of savings

iiorrj; except use of funds for current
and necessary payments authorized by

§ 184-20.

Hew Mexico

Officer or director
of any bank

Not in excess of 10 per cent of capital
and surplus, and in no case without approval of directors.

Laws of 1315,
ch.67,§ 35,
as amended by H
Laws of 1919, g
ch. 120.

.Die's? York

FOJ ~fe it lire to State
(l) Directors and of- Written approval of directors,
of twice amount of
ficers of banks and
Restrictions not applicable to loans on
trust companies; or
liberty bonds or other U.S. bonds issued IOCin.
corporations in v/hich for war purposes, if market value exceeds
tiiey own or control
amount of lorn by 10 per cent.
maj rity of stock.

New Jersey

(2) Officer of bank
or trust company in
city of first class.

Misdemeanor - $1000
fine or 5 years

ch.S, Art.Ill,
j 139; Art.V.
$ 222.



Forfeiture of office

Art. VI,

None^unles secured by liberty bends or other
U.S. bonds issued for war purposes, if market value exceeds loan by 10 per cent.

None; absolute prohibition
(3) Trustees or officers of savings; or
corporations of which
they own 15 per cent
of stock singly, or
25 per cent with other
trustees or officers.

$ $17-12,221-15.

TABLE E. - .15



• jV+h




Good security and approval by directors
Officers and employees
or firms of which members, or corporations
in which they
controlling Interest.(Not
applicable to directors)
: Directors and officers
of State banks



member of executive
committee ;f any bank
(1) Active managing
(2) Person, firm, or
corporation with
which officer or director Is associated
in business.

N.C.Code, ch. 5,
Art. 6,§ 221(n)

Approval jL directors and security
like that required of other borrowers;
Consent of State examiner if in excess

Sess.Laws, 1931,
% 36.

Approval of directors and security like
that required of other borrowers

i 710-115.

None; absolute prohibition

Larceny; 5 to 15

1921,^ 4127,

Written approval, of directors

Felony.; §100 to
$1,000 fine, or 1
to 3 years.

3 4184.

TABLE E. - .15








(l) Directors, officers,
or employees of banks
or trust companies, or
firm of which partner,
or corporati jxi In which
such jorson jwns 20 per
cent of capital.

Not in excess of 50 per cent of capital
and surplus to ail directors, officers,
and employees; nor in excess of 6 per
cent to any employee or officer active
in management; good collateral for loan
to employee or active officer;; and approval by directors or executive or
finance committee,

Oro.Code, 1935
Supo,§ 22-917.

In other cashes, only with written c onsent :
of superintendent of banks


(2) Director or officer
of savings bank; or
corporation in which he
owns 15 per cent jf
stock, or with other
directors or officers
25 per cent of stock

None; absolute prohibition

(3) Trust funds to
officer or employee
of trust company.

None5 absolute prohibition

S 22-2545.

#500 to §1,000
fine, or one
month to one year.


TABLE E. - .15






(1.) Trustees of savings

I&onej absolute prohibition

forfeiture of office

§ 509.

(2) Director,officer9
or employee of bank
or trust company.

Prior approval of directors or of
executive committee subsequently
ratified by directors 5 but such
approval is not required if loan
Is secured by collateral having
market value of 20 per cent more
than lorn.

Misdemeanor; one
year or :|1,000 fine,
further fine equal
to amount of loan|
and disqualification from holding

§ 1007.

(2) Salaried officer
Not in excess of $1,000, unless
or employee of bank or
excess is secured by readily martrust company* or salketable collateral worth 120 per
aried off ic or or employee cent of amount of such excess} but
of ryn affiliated bank
restriction is not applicable to
or trust company *
loan on homo of such salaried officer
or employee.
Rhode Island



(1) Officers of savings
bank charged with investments .

None^ absolute prohibition

(2) Officers,directors,
employees of banks and
trust companies.

Submission of proposition for loan and #1,000 fine or 5
prior approval by directors or execu- years.
tive or finance committee; but loans may be made to directors up to 2 per
cent of capital and surplus on good
collateral, to be approved at next
succeeding meeting or directors or
executive or finance committee.

Forfeiture of office



Gen. La-;? 3, ch. £78,
§ 5.
J 4.

TABLE E. - .15


South Carolina



security; and approval by 2/5 of oil
uot in excess of 10 per cent of capital
and surplus to any director or any firm
of v/hich member or any corporation of
v;hich an officer j unless loan Is secured
by cotton in bales evidenced by warehjus3 receipts•

(1) Directors and
officers of banks


(2) Directors, officers,and employees
of trust companies^
or corporations In
which they own maj..rity of stocK.

Not in excess of 10 per cent of capital
and surplus, unless first -approved by



Fine or imprisonment



5 7889.

South Dakota

Active officers or
Prior approval of directors and ample
employees, and noncollateral or responsible indorser.
resident officers and
directors of any bank

fine or 5 years

Corn p. Laws (1929)
* 8952.


and employees of
any hank; or any
firms in which they
own interest.

Misdemeanor to fail
to file report of
condition of any firm
in which interested.

§ 6024.

Prior written approval of directors or
executive or finance committee, report
of financial condition of any firm in
which borrower ovrns an Interest.

TABLE E. - .15







(l) Directors of banks
and trust companies

dot in excess of 10 per cent of capital
and surplus without prior consent of

(C j ears

Art. 526;
£ 546.

(2) Officers of
banks and trust

Prior consent of directors

2 years


(3) Trust funds to
or employees of ban^s
and trust companies

Bone« absolute prohibition

Felony; 2 to 5

Arts. 546a,

(4) Directors and
officers of savings

Ivionc; except use of funds to make
necessary current payments, investments or deposits authorized by

Forfeiture of

Arts. 402,403.


TABLE E. - .15




TO V»H0M Ar.pjbICi-.BLE

Officer or director
- of any bank

(1) Trustees or
officers of savings


Security at least double amount of loan;
Forfeiture of office
prior approval by ,73 of directors; in
bank to be taken
no case in excess of 15 per cent of capital over by bank
and surplus to one borrower
i None; absolute prohibition

(2) Officers, direct- Written consent of directors; not in
ors, or employees of
excess of 5 per cent of paid-in capital
trust companies
stock. Restrictions are not applicable
to discount of bills of exchange against
existing values or commercial or business paper actually o-.Tried by borrower,
or to ,$10,000, or to loans on securities
which are legal investments up to same


or employee of any


Good collateral or ample security or
indorsement; and prior approval of
directors or committee of directors


§ 7-3-25

§ 6790

Pub. Laws,


$ 4149(48)







(1) Officers and
employees of ban&s
or trust companies

None; absolute prohibition

(2) Directors of
ban&s or trust

Approval of directors 50 days prior to
l.oan and report to supervisor -;f
baulkingj not in excess of 5 per cent
of capital and surplus go one director,
unless approved by supervisor of banking •
If in judgment of supervisor, ly.ni*; is
maicin? unsafe loans to directors or to
firms or corp -roti^ns in which directors ore interested, ho may require oil
loans to directors to be submitted to
him f...r approval.


Stats. £ 3259


(5) Trust funds to
officers and employees of trust

Bone? absolute prohibition


$ 5260.

(4) Trustees and officers of savings
banks> o r e oro orations in which they
singly oon 15 per
coat of stock or together oo;n 25 percent oi S'fjCA*

Hone; absolute prohibition

Forfeiture of office

§ 5763o

TABLEE.- .15


West Virginia



TO KHOii iiPPblGiiBiiE



Officer,director, or
Written approval of directors or discount
employee of any bank^ C OIili iii t to 0
or corporation in which
he is majority stockholder
and employees of banks
and mutual savings

ivot more than ^1,000 to one borrower,

utiless previously approved by directors, and secured by indorsements of
collateral approved by directors


ch.51, Art.8
i is.

10 years

§ 221.51

(1) Officers,directors \7rit"&en application approved by dior employees of State
banivS; or firms or
corporations in which
they ?ire interested

1951, $ 10-156.

{2) Officers of savings banks

§ 10-215 o

done, absolute prohibition



Receipt of fees for Purchases or Inter- Sales or Interest in Ownership of PropPreferential
Interest in Gains
Procuring Loans and est in Purchases of Sales of Property to erty on which Bank
Interest Rate or Profits of
holds mortgage as
Bank Prohibited
Property from Bank
Discounts by Bank
on Deposits
Forfeiting Office
Federal Law1
Federal Law1'6*7
Federal Law1
: Massachusetts
New Jersey^
New York5
New York3
K ^rth DaKota6
Rhode Island
Colorado*P onmrv 11raiiia7
Connect! cut^
West Virginia
^Member Banks
Permitted if terms not less favorable
to bank than those offered to others,
^Prohibited if for less than face value,
sales of securities or property.
Ma s sachus etts4
without consent of directors.
^Savings banks only
^Prohibited without consent of Supt. of
New Hampshire^
'-Trust companies only.
New Mexico^
Oprohibited jf f o r ] e S 3 than face value.
Nev; York3
^Permitted if terms not more favorNorth Carolina
able than those offered to others.
^Permitted if approved by directors•
West Virginia^





Federal Law





Director and
officers of
national or
State member


Continued violations
of law or unsound
or unsafe practices

Failure to own required rmount of


Board of Governors .



Preliminary warning by Comptroller
or Federal Reserve Agent;
Certification of facts to Board of
; Governorsj
Opportunity to be heard;
Order of removal, which is not to
be made public;
Further participation in bank's
management punishable by not more
than $>5,000 fine or 5 years imprisonment .

U.S;C., Title 12,
5 77.

Board of directors or
Supt.of Bks.


Ala.Code, §6599.

Board of


Crawford & Moses1
Digest, Castlefs
1327 Supp. ,§ 683.


(Wo prov isions)

Dishonest,reckless , or incompetent conduct





Failure to own Supto of Banks.
required amount
of stock.



Dishonest,reck- 1 Bank Commisless or incompe-i sioner
tent conduct.



or trustees.




Violation of
banking laws or
continued unsafe or unsound
practices^ improper use of
position, or

(I4c orovisio ns)



ot :u.s Com missioner .

Deering1 s "Codes,
Title 50,§ 10

Co^issioner authorized to report conduct to sureties on bond

Ch. 18, $00.

Warning by bank commissioner j
Hearing before State Advisory

1955 Com.Supp„^
to Gen.Stats.,
§ 1519c (Expires July 1,

Report of Advisory Council to
bank commissioner;
Order of removal, which is not
to bo made public;
Appeal to court.



TABLE E. - .15




Officer or


Violation of certain laws relating to excessive
loans, improper

Rev.Stats., § 4154.


of fic-

Officer or

Dishonest, inSupt.of Banks
competent, or
reckless conduct,
or violation of



negligent, dishonest, reddens
or incompetent


Renders officer or director
Ineligible forreelection
for 5 years.


(J:k> Provisions)

Summary removal;

State Comptroller

titious assets.




Board of
on order of
Bank Commissioner.




Civ.Code, § 2385(47)


Idaho Code, Title
25, $ 25-407 o

TABLE E. - .15




(i) Directors
or officers.





Continued viola- Commission for Warning by director of financial { Itid.Stats. (1933),
tions of law or
financial ininstitutions.
§ 18-220
unsafe or unstitutions.
sound practices.
Certification of facts to commission for financial institutions;
Hearing before commission;

Order of removal, which is not
to bo made public;
Further oarticipa:ion in management punishable by not more
tfe&n $5,000 fine or 5 years in



Application for removal bo be
modo to circuit court by any
trusteo, officer, or any five

(2) Trustees
or officers
of savingsbanks .

Unlawful borrow- Court order
ing from bank or
receipt of com™
missions for procuring loans.


Failure to attend Supt. :>f Banks
meetings of Board
without good causc

Ind. Stats.,
§ 18-2639.

1335 Code,
§ 9224-02

TABLE E. - .15






Dishonest,reck- Board of direcless, or incom- tors on order
petent conduct. of bank commissioner.

(No ProvIsions)


(ll o Prov


(iaq Prov





(Ho Prov isions)


§ 9-158.


TiliiLiL &. — C:





(1) Officers, Violation of law,
continued unsafe
or unsound practrustees.
tices , improper
use of position,
or negligence In


Board composed
of State
At ty.Gcn. ,and
of curporations o


Warning by Bank Commissioner;


G"o n. Laws, Ch. 167,
Si 5.

Certification of facts to a
board composed of State treasurer, Attorney General and
Commissioner of Corporations
and taxation?
Hearing before board;
Order of removal, which is not
to be made public;


Institution of proceedings by
Attorney General;
Further participation punishable by not more than f5,000
fine or 5 years in prison;
Appeal to county court for
review within 20 days.
(2) Trustees
of savings

Abuse of trust
or negligence
In duties.

Trustees on
recommendatijn of Bank


Sen.Laws, Ch. 168,
5 23.

TABLEE.- .15





(No Provisionis)


(No Provisions)






(Ko Provisions)
(No Provisions)
(1) Directors Failure to own
required amount
of stock
(£) Directors, Negligent,disofficers, or
honest ,reckless
or incompetent

Superint endont
of banks.


Rev.Codes (1935), H
i 6014.15

Board of directors on order of Supt.
of banks.


Rev.Codes (1935),
§ 6014.120


(Licenses may be revoked)

Negligent preSupt.of banks
paration or approval of accounts ,reports
or statements.


i 747.15

TABLE E. - .15


New Hampshire

Officers,directors, or



Continued viola- Bank Commistion of banking sioner
laws or unsafe
or unsound practices.



Warning by bank commissionerj

Pub.* L'ws. Ch. 260,

Hearing before bank commissioner|
Removal by commissioner with approval of two bankers named by
Governor, order not to be made

Appeal to court within 50 days.
New Jersey

New Mexico

(1) Managers
of savings
ba nits.

Violations of
law or unsafe
or unauthorized practices.

(2) Directors
and officers
of Dailies and
trust companies.

Illegal and un- C ommis sioner
safe practices. of Banking
and Insurance.


failure to attend 3 meetings
without good

by Attorney

State Bank

Commissioner of banking and insurance may report managers to
Attorney General who may institute proceedings for removal.,

% 184-52

Commissioner not specifically au- Somp.Stats.,
thorised to order removal, but
may make such orders "as the fact
and justice may require."


Laws of 1915,Ch.67,
§ 25, as amended.

TABLES. - 9





New York

Conduct injurious
Trustees of
savings banks. to bank or acts
detrimental or
hostile to bank1s

North Carolina

Officers, di- Dishonest, inCommissioner
competent, or
rectors, or
of Banks.
reckless conemployees.
duct, or persistent violations of law
or orders of
Bank Commissioner.

North Dakota

3/4- of trustees
at regular


Written charges to be served at
least 2 weeks before meeting.


Cons. Laws, ch. 3,
Art. VI, § 268.

Ji.C.Code",ch. 5,
Art. 8, § 225(c).


(Ho Prov:isions)



Failure to own
required amount
of stock.

Board of directors or
Supt. of Banks.


§ 710-65.



Dishonest, reckless, or incompetent conduct.

Board of directors on
order of Bank



TABLE E. - .15



(1) Officers
or directors
of banks or
trust companies .

(2) Directors


Dishonest, reckless, or incompetent conduct;
or refusal to
comply with
of Supt. of




Board of direc- Right of appeal to State Banking Ore.Cods, § 22-415.
tors on demand
of Gupt. of




Supt. of Banks.
Failure to own
required amount
of s t o c j
Conduct injuri5/4 of direcWritten charges to be served at
ous to bank or
least 2 weeks before meeting.
tors at reguacts detrimental lar meeting.
or hostile to


Ore.Cods, § 22-305.g


(S) Directors
of savings

Ore. Code, s 22-2544.

TABLE E. - .15




(l) Directors, Continued violation of law
officers of
or unsafe or
unsound practices .

BY vfflOivi

Department of



PurdorP s Code,
Warning by Department;
Order to appear before State Banking! Title 71,
§ 733-501.
Board ^
Forfeiture of office for failure
to appear;
Hearing before Banking Board;
Report of findings of board to
Department of Banking^
Representation of Federal Reserve
Bank or F.D.I«C. at hearingr
Order of Removal;
Proceeding not to be public;
Subsequent disqualification for
period fixed by Banking Board.

(2) Directors

No cause

Majority of


Banking Code of

(5) Directors
or trustees

Unsound mind,
conviction of
felony, or
failure to
accept offico.

Directors or


I Banking Code of
1933,§ 510c

(4) Directors

Fraudulent or
Court of comdishonest acts, mon pleas.
or abuse of

Suit must be brought by a shareholder or shareholders holding
at least 10 per cent of outstanding shares.

Banking Code of
1933,§ 510.


TABLE E. - .15




Rhode Island

(Ho Pr-:visions)

South Carolina

(No Pr.visions)

South Dakota



Dishonest,reck- Board of diless, incompetont rectors on
or dilatory con- order of Supt.
of Barnes.





Come.Laws (19£9)
' § 9001.

(No PiWisions)


Directors or

Abuse of trust, Attorney Genmisconduct or
injurious to

So specific provision for removal
Civ.Code, Art. 368.
but Commissioner of Banks may report misconduct to Attorney General
who shall institute such proceedings as the nature of the case may


Officers or

Di shenes t,reckless,or Incompetent conduct
or failure to
perform duties.

Board required to meet within 20
days after report by Commissioner
of Banks.

Board ofdirectors On report of Bank

§ 7-1-15.

TABLE E. - .15






Violations of
law or unsafe
or unauthorised


of Banks *



Ho specific provision for removal,
but Commissioner of Banks /nay direct
§ 8756.
discontinuance of improper practices.

(i^o Provis:Ions)
(1) Officers
Dishonest,reck- Board of direcor directors
less, or incom- tors or Superof banks aiad
petent, failure visor of Banking.
trust compan- to perforin duties; or violaies.
tions of law *

Supervisor of Bamcing to notify
Board of directors;
Board to meet within 20 days and if
objections are well founded it must
order removal^
If after hearing, board fails to
order removal, supervisor may
himself order removal;
Removal is bar to reelection without consent of supervisory
Right of appeal to court.

(2) Trustees
or officers of
Mutual Savings

Dishonest,reck- Board of Trus- Supervisor of banking to notify Board
less, or incom- tees .
of trustees which must meet within
petent conduct,
20 days.
or failure to
perform duties.

(3) Trustees
of savings

Conduct injurious to bank or
acts detrimental or hostile
to bank's interest.

3/4 of trustees at regular meeting.


§ 3217


§ 3364a.

CoTnp. Stats.
§ 3384.

table e.





- 1 4



West Virginia


(No Prov:.sions)

of Banks.

(l) Directors Failure to
attend meetings of board.


Wis.Laws, § 221.08.

(2) Directors Loaning, inor officers. vesting, or
other banking practices
which will
endanger safety or solvency of bank or
impair interests of

Board of directors or
of Banking.

Commissioner may request removal by Wis. Laws,
board of directors;
s 220.04.
If request is not complied with in
reasonable time, Commissioner may
order removal, with approval of
Banking Review Board, after giving i
opportunity t_ be heard;
Removal bars reelection without
consent of Commissioner and
Banking Review Board.


TABLE E. - .15




(i) Officers
of banks.




Dishonest,reck- Board of direcless5 or incom- tors on demand
petent conduct, of State Examiner*
or noncompliance with approval of
with law or regu- Governor.
lations of banking dept.

(£} Directors
of savings

"For due cause




R;S. 1951,



Notice to director and opportunity
to be heard.

R.S., 1921,
§ 10-205.