GOVERNMENT CONTROL OF BANKS 443 



as security. Each bank was originally required to keep a min- 

 imum reserve against deposits and notes issued, but this was 

 later amended to require a reserve on deposits only. 



When the act was first passed, there was much question 

 whether the inducements offered the banks were sufficient to 

 induce them to submit to examination, restriction and control 

 by the United States. Many of the early banks were organ- 

 ized or converted from state to national as much or more from 

 patriotic motives as from hopes of increased profits. The 

 fact is, the circulation has never been very profitable; never 

 sufficiently so to induce the banks to approach the maximum 

 amount permissible. The highest percentage of possible cir- 

 culation was issued in 1882 and was 81.6 per cent. This grad- 

 ually declined to 27.54 per cent in 1892 and has since then 

 steadily increased to 54.75 per cent in 1903. A strong induce- 

 ment to the banks in the larger cities to secure national charters 

 is the system of reserve and central reserve banks, which per- 

 mits a national bank in other cities to keep two thirds of its 

 cash reserve on deposit with an approved reserve agent na- 

 tional bank in a reserve or central reserve city ; and a bank in 

 a reserve city to keep one half its reserve in the central reserve 

 cities, St. Louis, Chicago and New York. This gives national 

 banks in reserve cities an opportunity to secure large deposits 

 from country banks which the state banks cannot secure, be- 

 cause deposits with state banks are not counted as reserve, 

 and are also subject to the ten per cent limit on indebtedness 

 by any one firm or corporation. An additional inducement 

 for banks to submit to federal control is the greater confidence 

 in which the banks under national supervision and control 

 are held by the people. This has steadily increased since 

 the creation of the system as the result of the examinations 

 and published reports, and that this is justified is shown by the 

 comparative statement of the failures of national and state 

 banks. From the date of the organization of the national 

 system to January 22, 1904, there were organized 7,083 nation- 

 al banks. Of this number 404 became insolvent and 1,499 have 

 gone into voluntary liquidation, leaving 5,180 in operation. 

 The percentage of failed banks to the total organizations is 5.7 



