Scope of Powers conferred upon Directors; Specific Duties.

Paragraphs 6 and 7, section 5136 (see page 9, National-bank Act, edition 1888), contain a summary of the general powers conferred by statute upon the directors of a National bank, and prescribe how some of these powers may be delegated by them to the officers whom they appoint.

Section 5145 (see page 13, National-bank Act, 1888), in prescribing that "the affairs of each association shall be managed by not less than five directors," clearly contemplates that its affairs should receive the constant and personal supervision of the board as a whole, or where this is not practicable, that it should be accomplished through committees selected from their number charged with special duties in this respect.

The scrutiny of all loans and discounts made is a matter which should always receive the particular attention of the board as a whole, or of its committee selected specially for this purpose, but perhaps the most important duty devolving on directors is that of making a thorough and searching examination of the assets, books, and accounts of the bank, without previous notice, at reasonable intervals between the dates of the Government

examiner's visits. These examinations should be made by such of the directors as are most familiar with figures and expert at accounts, otherwise they will not always disclose the actual condition of the bank's affairs.

Every bank officer and clerk who is faithfully discharging his duties will gladly welcome such a verification of the trust confided to his care, and, through fear of discovery by this means, the wouldbe dishonest official or employé may be restrained from acts ruinous to himself and detrimental to the interests intrusted to his keeping.

As directors are empowered by section 5136, par. 5, to "require bonds of" the officers whom they appoint "and fix the penalty thereof" a sufficient bond should be required of every officer or employé intrusted with the keeping of valuables or of the books in which account of such is kept. Such a course certainly is prudent as affording to stockholders and depositors some measure of protection against official negligence or dishonesty.

In this connection it is suggested that, as the necessary bonds may now be procured from companies specially organized for the purpose of furnishing such, at very low rates, the premium on

these bonds might be paid, and in some instances is paid, by the bank, instead of by the officers bonded.

There is fully as much reason and warrant for paying for such surety or guarantee of official integrity as there is for the payment of premium for insurance of the bank building and other property against the risk of destruction by fire, and surely there is no question as to the duty of directors in this latter case.

Another important matter demanding their attention is of course the provision of a suitable, convenient, and secure office in which the business of the bank may be carried on entirely separate and apart from any other business.

It is also necessary that a fire-proof and burglarproof safe should be provided for the safe keeping of its cash, bills receivable, securities and other valuables, and also of its books and records. Whereever the safe will not accommodate the latter, a suitable fire-proof and burglar-proof vault for them should be provided in addition to the safe.

Decisions as to Liabilities; What would constitute Violations of Law "Knowingly" Committed or Permitted.

With regard to what constitutes violation of law "knowingly" committed or permitted by a director,

resort must be had to the many legal decisions on this point, two of the most recent of which by Federal courts are those in the cases of "Movius vs. Lee (30 Fed. Rep., 298)," and "Witters vs. Sowles (31 Fed. Rep., 1)."

For general and reliable treatment of this subject, reference may be had to the work of "Morse on Banks and Banking," third edition, by Parsons, chapter IX, where these two and other leading decisions are referred to.

In general terms it would seem that if a director has no official knowledge of a violation of the banking law he is not to be held personally liable for any loss or damage resulting therefrom, but if, at a board meeting or elsewhere, he officially assents to any transaction which on its face constitutes a violation of law, he may be held liable personally for any resulting loss or damage; and ignorance of the law under such circumstances could not be set up as a defense, for it is to be assumed that a person acting in such a capacity should have such a correct knowledge of the law under which he acts as is readily obtainable by a practical man of affairs.

CHAPTER III.

BOOKS, ACCOUNTS, AND RECORDS.

One of the essentials of successful banking is that the records of all transactions should be kept in a clear, simple, and systematic manner.

The number and character of books for keeping these will vary with the volume and special features of the business done by each bank, but certain of them are necessary in every case, and of these a slight sketch is here given.

A book should first be provided in which the minutes of all meetings of stockholders and meetings of directors should be promptly recorded, giving tersely but clearly an account of all business transacted at such meetings.

All certificates of stock should be bound in book form, with a stub to each certificate, upon which stub the name of shareholder, the number of shares issued to him, and the date when issued, should be carefully noted before the certificate is detached. This book should also be used in cases of all transfers of stock, a new certificate being issued in the