from one to ten dollars; in a few cases more than ten dollars is paid.

The directors and officers are held strictly to account for every activity of the bank. Every director who knowingly violates the law, or who permits an officer or employee to do so is held liable in his personal and individual capacity for all damages to the association, the shareholders, or to other persons, on account of the violation. Heavy penalties are provided for the malfeasance of any director, officer, or employee.

231. The maintenance of reserves. Without any restriction a bank might lend too much; it might not keep on hand enough money to meet all demands for payment. The law requires a fixed proportion of deposits to be kept in reserve. No reserve is required for deposits of the United States Government but each bank has to pledge bonds which it owns as security for their repayment. For the purpose of reserves two kinds of deposits are distinguished demand deposits which are payable within 30 days, and time deposits which are payable after 30 days. All savings accounts which are subject to 30 days' notice before payment and all postal savings accounts are time deposits. National banks and other member banks of a Federal reserve bank must keep on deposit with it a reserve equal to 3% of their time deposits.

It is the work of the Federal Reserve Board to classify the cities of the United States as central reserve cities or reserve cities. The reserves against demand deposits required by law differ according to where the bank is located. At the present time New York and Chicago are central reserve cities. In 1922 St. Louis which had been a central reserve city was reclassified as a reserve city. The reserve cities are:

Member banks in central reserve cities must maintain a reserve of 13% of their demand deposits with the Federal reserve bank. Member banks in reserve cities must maintain a reserve in the reserve bank of 10%. All other member banks are required to have in the reserve bank only 7% against demand deposits. Banks not in a central reserve city or a reserve city are designated in the Comptroller's reports as "country banks." The Federal Reserve Board has the power to classify banks in outlying

districts of a central reserve or reserve city, or banks in a territory that has been annexed to such cities, as either reserve city," or country banks." As a result some banks in the central reserve cities keep reserves of 10%, or 7%, while some in reserve cities keep but 7%.

Whatever money a member bank keeps on hand in its vault, called "till money," is that much additional reserve. Vault cash runs from 5% upward.

Banks operating under state supervision must keep reserves similar in amount. The requirements vary from 4 to 15% on time deposits, and 10 to 20% on demand deposits. Usually a part only of the reserve needs to be cash in bank, the remainder being on deposit with other banks. State laws generally are being changed to permit state banks which are members of a Federal reserve bank to maintain the same reserves as are required of national banks. The chief effect of reserve requirements is to force a bank to check its lending when its cash resources get down to the legal minimum per cent of the deposit liabilities of the bank.

232. Restrictions on loans or investments. - National banks cannot lend on their own stock and are limited in their loans and discounts to one individual or corporation, in their loans on real estate and farm lands, and in their acceptances of drafts drawn upon them. These limitations are given in chapters 11 and 14. The only real estate that can be owned is such as is necessary for the immediate use of the bank in business; whatever comes into its possession under the terms of a mortgage given to secure a debt previously contracted must be disposed of within five years. State banks have more freedom than national banks in lending. They have nearly always been allowed to lend on real estate. The restriction is in regard to how much they shall lend. The limit for total loans may be a proportion of capital or a proportion of deposits. It is

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recognized that at least a good part of the loans of every bank should be kept liquid. Savings banks and trust companies are allowed to invest deposits only in the highest grade of bonds and notes.

233. Liquidation and receivership. - A bank may decide to go into voluntary liquidation, but if it does, it must notify the Comptroller and publish a notice thereof for two months in a New York City newspaper and in a local newspaper so that all holders of notes and other creditors may present their claims. Within six months enough money must be deposited with the Treasurer of the United States to redeem all of its notes. The bank may then receive back its bonds to be sold along with its other assets.

When a bank does not pay its notes, or a judgment, or whenever the Comptroller becomes satisfied that a bank cannot meet its obligations, he may cause an examination of the bank to be made, and appoint a receiver to close up the affairs of the bank and enforce the personal liability of the shareholders. The receiver takes charge, realizes on the assets, and pays off the claims of the creditors of the bank. After all the liabilities have been paid, all the notes redeemed or provided for, and all the expenses of the receivership paid, the shareholders are/ assembled so that they may determine whether the receivership shall be continued or whether they themselves shall elect an agent to take control of the remaining assets and dispose of them for the benefit of the stockholders.

Up to Oct. 31, 1920, there had been failures of 594 national banks.1 The creditors received on an average 84%. The assessments against shareholders averaged 51% of their holdings. Thirty-eight per cent of these bank failures were due to criminal actions of officers or employees; 19% were caused by excessive illegal loans, 23%

1 Report of the Comptroller of the Currency, 1920, Vol. 1, pp. 182, 183.

were the result of injudicious banking, and 14% to depreciation of assets. Illegal acts, it is seen, account for 58% of the total. Examinations uncover many such transactions before they become disastrous to the bank. 234. Reports and and examinations. Every Every national bank must make three reports of its condition each year to the Comptroller of the Currency according to the form prescribed by him. These reports must be verified by the president and cashier under oath or affirmation, attested by the signature of at least three directors, and published in the same form in which they are made to the Comptroller. State banks are required to make similar reports. As these reports are detailed, banks find it to their advantage also to publish their statement in a condensed form.

Examiners appointed by the Comptroller must investigate and audit every national bank at least twice a year. State banks which are members of Federal reserve banks are examined under the direction of the Federal Reserve Board unless the Board chooses to accept the examinations of the state authorities. Federal reserve banks may also make a special examination of every member bank as to its condition and its lines of credit. The salaries of bank examiners are fixed by the Federal Reserve Board. All expenses of bank examinations are assessed on the banks in proportion to their resources.

State banks are examined regularly by examiners who are appointed and supervised by the state commissioner of banking.

Clearing houses perform other functions than clearing. One of the most important is the examination of its members. These examinations are searching as to the character of the loans. A governmental examiner looks to see if the law is obeyed. A clearing house examiner is inquiring if loans are judiciously made. Clearing house exami