count, without receiving deposits or issuing bank notes is simply an investor of its own money, as any individual may be.R As has been already said, banks formerly existed which did not receive deposits, and which derived their only means of discounting by using (in addition to their capital) their own engagements, in the form of bank notes, for the payment of money upon demand. Indeed, the issue of bank notes was at one time regarded as the primary and distinguishing function of banking, and an institution that did not issue them was not regarded as a bank. In its analysis, the obligation of a bank to its depositors is essentially the same as its obligation to the holders of its bank notes; that is, it is an obligation to pay money upon demand, so that in each case the means of discount is derived from the use in one form or the other of its own engagement to pay money upon demand.10 Speaking broadly, therefore, banking may be defined as the exercise either of the function of receiving deposits or of the function of issuing notes, or of both functions, and in addition the

• Life Ass'n of America v. Levy, 33 La. Ann. 1203; Hubbard v. New York & H. R. Co., 36 Barb. (N. Y.) 286; People v. Brewster, 4 Wend. (N. Y.) 498; Oregon & W. Trust Inv. Co. v. Rathburn, 5 Sawy. 32, 18 Fed. Cas. 555. See Dunbar, Theory & History of Banking, 18. See "Banks and Banking," Dec. Dig. (Key No.) § 2; Cent. Dig. § 2.

See Bagehot, Lombard Street, 97; Dunbar, Theory & History of Banking, 96.

This conception of the function of a bank survives in the language of some of the state constitutions, which prohibit the legislature from granting charters for "banking purposes," or prohibit the exercise of the privilege of "banking"; the intent being merely to prohibit the issue of bank notes, and not to prohibit the practice of receiving deposits and of discount. See Bank of Sonoma County v. Fairbanks, 52 Cal. 196; Bank of Martinez v. Hemme Orchard & Land Co., 105 Cal. 376, 38 Pac. 963; State ex rel. Stone v. Union Stock Yards State Bank, 103 Iowa, 549, 70 N. W. 752; Dearborn v. Northwestern Sav. Bank, 42 Ohio St. 617, 51 Am. Rep. 851. See, also, State v. Scougal, 3 S. D. 55, 51 N. W. 858, 15 L. R. A. 477, 44 Am. St. Rep. 756. See "Banks and Banking," Dec. Dig. (Key No.) § 197; Cent. Dig. §§ 743751.

10 Dunbar, Theory & History of Banking, 16 et seq.

function of making advances by way of loan or discount.11 But having in view the manner in which banking is conducted to-day, it is not too much to say that it is of the essence that the function of receiving deposits be exercised, and that the exercise of this function, together with that of using the fund created by the deposits in discounting, are the primary and essential features of banking. The additional function of issuing bank notes may or may not be exercised. In the United States to-day only the national banks issue bank notes; but the business of banking is conducted also by deposit banks, which do not exercise the right of issuing such notes.

Other Functions

In addition to exercising the functions of deposit and discount, and of issue where this is authorized, the business of banking usually includes the employment of the deposits of the bank in buying and selling exchange, coin, and bullion, and also the remission of money, the collection of commercial paper, and the receiving of special deposits. These various kinds of business are engaged in by bankers because they are convenient and profitable, but they are not confined to banks and bankers. A corporation is not a bank, nor is an individual a banker, because of engaging in some or all of these activities, so long as they are not accompanied by the receipt of general deposits or the issue of bank notes. The business of collecting commercial paper by a bank, however, usually involves the crediting of the proceeds of the collection to the deposit account of the customer, and in that case involves a banking function.

11 "Having a place of business where deposits are received and paid out on checks, and where money is loaned upon security, is the substance of the business of a banker." Warren v. Shook, 91 U. S. 704, 23 L. Ed. 421.

Cf. People v. Bartow, 6 Cow. (N. Y.) 290. See Banks and Banking," Dec. Dig. (Key No.) §§ 2, 120, 176; Cent. Dig. §§ 2, 293, 253.

KINDS OF BANKS

3. Banks are classified, according to the functions which they exercise, as (1) banks of deposit; (2) banks of discount; and (3) banks of issue. But all commercial banks to-day exercise at least the two first functions, and some of them exercise also the third. Banks are also classified as (1) commercial banks, in which the business is conducted for the benefit of the bank itself; and (2) savings banks, in which the business is conducted for the benefit of the depositors.

Banks are also classified as (1) private, or unincorporated banks; and (2) incorporated banks, which include in this country (a) state banks, or banks incorporated under state law; and (b) national banks, or banks incorporated under federal laws.

Kinds of Banks

The classification of banks as banks of deposit, banks of discount, and banks of circulation or issue has been considered. Banks are also classified as commercial banks and noncommercial or savings banks. In a commercial bank, the business of banking is carried on in the manner already indicated for the benefit of the bank itself; that is, for the benefit of the stockholders, if it be incorporated, or for the benefit of the person or persons engaged in the business, if it be carried on by a single individual or by a firm. A savings bank, on the other hand, is carried on for the benefit of the depositors; the funds derived from deposits being loaned or invested in mortgages, bonds, stocks, or other securities authorized by the law under which the bank is incorporated. Savings banks do not carry on the business of banking in the ordinary or commercial sense, and they will be made the subject of a separate chapter. Banks, using the term broadly,

may also be classified as incorporated and unincorporated.12. Incorporated banks in the United States may again be classified as national banks, or banks incorporated under the federal statutes, and state banks, or banks incorporated under the statutes of the several states. National banks will be made the subject of a separate chapter.13

Right to Engage in Banking

At common law banking is open to all persons.14 Deposit and discount, and, if no statutory prohibition exists, issue as well,15 may therefore be carried on by individuals and firms, as well as by banking corporations. The legislatures, however, have power to forbid individuals or firms, as well as corporations, from engaging in banking unless they conform to legislative requirements; 16 and it has been held that in the

12 See Davis v. McAlpine, 10 Ind. 137; Norton v. Jewett, 12 Ind. 426; Way v. Butterworth, 106 Mass. 75; Den ex dem. State v. Helmes, 3 N. J. Law, 1051, 1057; Exchange Bank of Columbus v. Hines, 3 Ohio St. 1, 32; Bank of California v. San Francisco, 142 Cal. 276, 75 Pac. 832, 64 L. R. A. 918, 100 Am. St. Rep. 130. See "Banks and Banking," Dec. Dig. (Key No.) § 2; Cent. Dig. § 2. 13 Post, p. 360.

14 See People v. Utica Ins. Co., 15 Johns. (N. Y.) 358, 8 Am. Dec. 243; Attorney General v. Utica Ins. Co., 2 Johns. Ch. (N. Y.) 371; Bank of Augusta v. Earle, 13 Pet. 519, 10 L. Ed. 274.

While the right to do a banking business is not a franchise, yet the right to carry on such business through the agency of a corporation is a franchise, dependent on a grant of corporate powers by the state. Bank of California v. San Francisco, 142 Cal. 276, 75 Pac. 832, 64 L. R. A. 918, 100 Am. St. Rep. 130. See "Banks and Banking," Dec. Dig. (Key No.) § 1; Cent. Dig. § 1.

15 Post, p. 256.

16 Noble State Bank v. Haskell, 219 U. S. 104, 31 Sup. Ct. 186, 55 L. Ed. 112, 32 L. R. A. (N. S.) 1062; Engle v. O'Malley, 219 U. S. 128, 31 Sup. Ct. 190, 55 L. Ed. 128; Assaria State Bank v. Dolley, 219 U. S. 121, 31 Sup. Ct. 189, 55 L. Ed. 123; Nance v. Hemphill, 1 Ala. 551; Ex parte Pittman, 31 Nev. 43, 99 Pac. 700, 22 L. R. A. (N. S.) 266; Meadowcroft v. People, 163 Ill. 56, 45 N. E. 991, 35 L. R. A. 176, 54 Am. St. Rep. 447; State v. Richcreek, 167 Ind. 217, 77 N. E. 1085, 5 L. R. A. (N. S.) 874, 119 Am. St. Rep. 491; Blaker v. Hood, 53 Kan.

exercise of the police power they may restrict the right of banking, not only the exercise of the function of issue, but the exercise of the functions of deposit and discount as well, to corporations organized for that purpose-in other words, that while the right to engage in banking is not essentially a corporate franchise, the legislature may make it such.17 "The matter of regulating and prohibiting private banking, and all banking not expressly authorized by law, is strictly within the legislative discretion, under that branch of the police power relating to the public safety, and the courts will not interfere and declare such legislation unconstitutional as an evasion of individual rights." 18

Order of Treatment

* * *

The fundamental part of the law relating to banks and banking concerns the business of banking in all the various kinds of transactions between banks and those dealing with

499, 36 Pac. 1115, 24 L. R. A. 854; Cummings v. Spaunhorst, 5 Mo. App. 21; People v. Utica Ins. Co., 15 Johns. (N. Y.) 358, 8 Am. Dec. 243; People v. Bartow, 6 Cow. (N. Y.) 290; Chapman v. Lynch, 156 N. Y. 551, 51 N. E. 275; State v. Struble, 19 S. D. 646, 104 N. W. 465; State v. Williams, 8 Tex. 255; McLaren v. State, 141 Wis. 577, 124 N. W. 667, 135 Am. St. Rep. 55. See "Banks and Banking," Dec. Dig. (Key No.) § 3; Cent. Dig. § 9.

17 Noble State Bank v. Haskell, 219 U. S. 104, 31 Sup. Ct. 186, 55 L. Ed. 112, 32 L. R. A. (N. S.) 1062; Shallenberger v. First State Bank of Holstein, Neb., 219 U. S. 114, 31 Sup. Ct. 189, 55 L. Ed. 117; State ex rel. Goodsill v. Woodmansee, 1 N. D. 246, 46 N. W. 970, 11 L. R. A. 420; Weed v. Bergh, 141 Wis. 569, 124 N. W. 664, 25 L. R. A. (N. S.) 1217. See, also, State v. Stebbins, 1 Stew. (Ala.) 299; Nance v. Hemphill, 1 Ala. 551; People v. Utica Ins. Co., 15 Johns. (N. Y.) 358, 8 Am. Dec. 243; Morse, Banks & B. (4th Ed.) § 13. Contra: State v. Scougal, 3 S. D. 55, 51 N. W. 858, 15 L. R. A. 477, 44 Am. St. Rep. 756; Marymont v. Nevada State Banking Board (Nev.) 111 Pac. 295, 32 L. R. A. (N. S.) 477. See "Banks and Banking," Dec. Dig. (Key No.) § 3; Cent. Dig. § 9.

18 State ex rel. Goodsill v. Woodmansee, 1 N. D. 246, 46 N. W. 970, 11 L. R. A. 420. Sce "Banks and Banking," Dec. Dig. (Key No.) § 3; Cent. Dig. § 9.