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ticipate in the reduction in proportion to the number of shares held, and receive cash in payment, unless the whole, or a portion of the amount represented by the reduction, is to be charged off losses. In this event, the assets so charged off should be trusteed, and the proceeds distributed among those who were shareholders of record at the time of the reduction.

With the consent of all the shareholders, the assets may be realized upon and the proceeds carried to profit account.

No part of the sum set free by capital reduction can be carried to surplus or undivided profits without the unanimous consent of the shareholders.

When reduction is made, the shareholders should return their old certificates; new stock certificates, for the capital as reduced, should then be issued. Issuance of fractional shares is not unlawful.

Upon receipt of the proper application, (form furnished by the Federal Reserve Bank) the Federal Reserve Bank will cancel the stock which the applying national bank is entitled to surrender, and refund the amount due.

3. Restoring Impaired Capital-When the examination of a national bank shows that its losses exceed the amount of its surplus and undivided profits, thus impairing its capital, the Comptroller sends a formal notice to the bank. A meeting of the shareholders, (who must be notified 30 days in advance) is called and at this meeting the shareholders must adopt one of the two courses that are open, viz. :

(a) Voluntary liquidation.

(b) Making up the deficiency by assessment of the bank's stock.

If voluntary liquidation is the course elected, the procedure is the same as outlined in the next chapter. (See "Liquidation," page 49.) When an assessment is agreed upon, (a majority stock vote being required to legalize the assessment) each shareholder pays in proportion to the number of shares he holds, and the entire sum must be paid in cash within three months after receipt of the Comptroller's notice. A certificate, signed by the cashier of the bank and stating that payment has been completed, is sent to the Comptroller.

If any shareholder refuses to meet the assessment levied upon his stock, the board of directors shall cause to be sold at public

auction a sufficient amount of the delinquent shareholder's stock to make good the deficiency. Before stock can be thus sold, however, 30 days' notice must be given by posting notice of the sale in the bank office, and by publishing such notice in a local newspaper.

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LIQUIDATION

WHEN a national bank is to be placed in liquidation, the Comptroller should be notified, as the initial step, so that the proper blanks and instructions may be furnished. It is then customary to call a meeting of the shareholders, and before liquidation proceedings may go farther, the proposal must receive the affirmative vote of the owners of two-thirds of the bank's stock.

After the adoption of the resolution for liquidation, the directors cause notice of the fact to be certified, under seal of the bank, to the Comptroller by the president or cashier. Also, notice of the proposed liquidation, requesting creditors to present their claims against the bank for payment, must appear for a period of two months in a newspaper published in New York City, and also in a newspaper published in the place where the bank is located. Weekly papers may be used.

Lawful money to provide for the redemption of circulation must be deposited with the Treasurer of the United States within six months from the date of liquidation.

These requirements having been met, Federal law ceases to govern, and the affairs of the bank pass into the hands of its shareholders, for settlement in whatever legal way may be deemed advisable. It is usual, however, for the shareholders to appoint a liquidating agent or committee, and to require the agent or committee to render semiannual reports to the Comptroller showing the progress of the liquidation until it is completed. Forms for these reports are furnished by the Comptroller's office, and although this office has no authority to compel rendering of such reports, it is obviously to the advantage of all parties concerned that an official record of the liquidation proceedings should be on file.

Officers of a bank in liquidation have no authority to bind the shareholders except in transactions arising directly from the closing of the bank's affairs, unless such authority is expressly conferred by the shareholders.

Any shareholder who is dissatisfied with the manner in which the

liquidation is being conducted, may go into court and ask for the appointment of a receiver.

Although the point is not covered by the law, it has been found most advisable for the liquidating agent or committee to secure the authority of the board of directors before disposing of the assets of the bank.

The liquidating bank must file with its Federal Reserve Bank (form furnished by Reserve Bank) an application for surrender and cancellation of the Federal Reserve Bank stock that is held, and for the refund of all balances due to the liquidating bank.

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CONSOLIDATION

HERE are three distinct circumstances in which consolidations

of national banks are effected:

1-When neither bank is placed in liquidation.

2-When one bank is placed in liquidation.
(a) Without an increase of capital.
(b) With an increase of capital.

3-When both banks are placed in liquidation.

1. Neither bank liquidating-Until the passage of an amendment to the National Bank Act on November 7, 1918, it had always been necessary for at least one of two consolidating banks to liquidate. The law as it now stands, however, permits consolidation of banks without liquidation of either, where such a course is desired. The two banks that are to merge must, however, be located in the same "county, city, town, or village."

After it has been informally agreed that two or more banks are to consolidate, an application to pursue such a course is sent to the Comptroller, who, if he approves, will return notice of his approval, together with instructions as to course of procedure and the forms that must be executed.

The directors of the two associations then enter into an agreement covering the terms of consolidation, which must be approved by the owners of at least two-thirds the capital stock of each institution. Before a meeting of the shareholders to consider the consolidation agreement may be held, it must have been advertised for four consecutive weeks in a newspaper published in the place where the banks are located, and notices of the meeting must have been sent to each shareholder, by registered mail, at least 10 days before the meeting.

A certified copy of the resolution of the shareholders approving the consolidation (this certified copy containing a complete recital of the consolidation agreement) must be sent to the Comptroller, who will issue a formal certificate approving the consolidation.

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