with clashes of authority inevitable and the certainty of an ultimate ouster of the State by the paramount National authority.

The conformity to law of the National banks was maintained on the ground that they were the necessary agencies through which the National Government might sell its bonds in the urgency caused by the civil war. No express authorization to create corporations is found in the Constitution of the United States, and "The powers not delegated to the United States by the constitution, nor prohibited by it to the States, are reserved to the States, respectively, or to the people."

The United States Supreme Court determined that the National banks are convenient, useful and essential instruments of the Government in its fiscal operations, and accordingly may be created as means to a legitimate end under the grant of power to Congress to make all laws which shall be necessary and proper for carrying into execution the powers expressly delegated to the Government of the United States. In several adjudications that court has maintained the right of National banks to carry forward the business of banking in its various branches, in one case quoting from Story:

Whenever, therefore, a question arises concerning the constitutionality of a particular power, the first question is whether the power be expressed in the constitution. If it be, the question is decided. If it be not expressed, the next inquiry must be whether it is properly an incident to an express power and necessary to its execution. If it be, then it may be exercised by Congress; if not, Congress cannot exercise it.

The Illinois court inquires, therefore, whether power to act as trustee, executor or administrator is necessary to the efficiency of a National bank for the purposes of its creation as a governmental agency and decides that such powers are not given to all National banks, but are made elective and permissive, concluding that National banks do not require such powers in meeting the purposes of their creation.

DECISION OF THE ILLINOIS SUPREME COURT CONSTRUING SECTION 11 (K) TO BE UNCONSTITUTIONAL

Chief Justice Farmer of the Supreme Court of the State of Illinois in stating that section 11 (k) of the Federal Reserve Act is unconstitutional and in contravention of the Illinois statutes, uses the following language:

Trust companies or corporations organized for the purpose of acting in trust capacities are very different from banking corporations. In some of the States a corporation may be authorized to do a banking business and also to act as trustee, executor or administrator, but the two functions, when exercised by the same corporation, are kept separate and apart. In some States banks do not exercise the powers of trust companies, and in others trust companies do not exercise banking functions. Since Congress has no expressed or implied power to create trust companies to act as trustees, executors or administrators, the nature and character of their business making them the creatures of the various States, Congress could only vest National banking corporations with such powers if they were reasonably necessary to the efficiency of such corporations for the purposes of their creation as governmental agencies. If Congress had deemed the exercise of trust powers by National banks necessary to the accomplishment of the governmental purposes for which they were created, it would seem such power would have been granted expressly to all National banks, as was the power to exercise certain banking functions granted by section 5136 of the federal statutes.

The right of a National bank to act as trustee, etc., as conferred by the Federal Reserve Act, was made clective with the bank. This feature of the act would preclude the conclusion that Congress deemed it necessary, on any ground, that National banks possess the power to act as trustees, executors, administrators or registrars of stock and bonds. If it had, it is evident it would not have made the act elective and permissive. National banks without the power to act as trustees, etc., have efficiently served the governmental purposes for which they were primarily created, and it not being shown such added powers are now necessary to the further success of such purposes, and we being of the opinion the powers attempted to be conferred by Congress belong strictly to the States, we think the act, in so far as it attempted to confer such powers upon National banks, is unconstitutional and void.

The Chief Justice, in holding that the grant of trust powers to National banks is in contravention of the laws of Illinois, made the following statement:

Trustees, executors and adininistrators deal with private property.

They are the instrumentalities through which estates are settled and the transfer of property effected, and through which private property is protected and guarded for the purpose of applying it to the uses for which it was intended. They are not subjects over which the Federal Government has been given control, and any attempt to exercise such control would be "in contravention of State or local law," which is forbidden by section 11 (k) of the Federal Reserve Act and would also be in violation of the constitution.

THE RESERVE BOARD DEFINES THE POWERS OF BANKS AND RULES ALSO AS TO PERMISSIBLE TRANSACTIONS

November 1, 1915, the Federal Reserve Board in reply to a letter received from the governor of the Federal Reserve Bank of New York, sent a communication to all the reserve banks defining their powers in several exceedingly important particulars.

That governor's letter asked as to a reserve bank's authority to collect notes and drafts, collect items not covered by the present collection system, collect items on non-meinber banks, execute orders for securities, answer inquiries as to credits, and purchase commercial paper.

The board holds that reserve banks may collect notes and drafts sent to it by its member banks, as this function is necessary to the bank's power to receive deposits from member banks. By items not covered by the present collection system the board takes to mean coupons and the like, and the board holds such collections to be within the powers of federal reserve banks.

The board also holds that federal reserve banks may collect items drawn on non-member banks, though not for immediate credit, as the non-member banks could not, under the law, have a deposit with the federal reserve bank. The credit cannot be entered until the collection is made.

The board does not find any authority, express or implied, under which a federal reserve bank can execute orders for securities on behalf of a member bank. The board suggests, however, that the federal reserve bank receiving such an order might forward to a broker with the request

that he confirm the transaction directly. The federal reserve banks must not execute these orders on a commission basis or profit from them.

COMPTROLLER OF THE CURRENCY AGAINST USURIOUS CHARGES

November 1, 1915, the Comptroller of the Currency served notice on the officers and directors of all National banks in the United States that they must comply with the laws of the States in which their institutions are located or be regarded as violating their oaths of qualification.

He sent to each of the National banks a circular letter calling attention to the oaths taken by the officers and directors that they would not knowingly violate the federal banking law. He is anxious to stop the charging of excessive rates of interest. If banks refuse to keep their rates within the law, proceedings may be instituted to cancel their charters. The circular is in line with the general propaganda started by the comptroller some time ago to put an end to high interest charges on loans. It is as follows:

The attention of your officers and directors is called to the oath which was signed by each director upon his qualification in which he solemnly swore as follows:

“* * * I will, so far as the duty devolves on me, diligently and honestly administer the affairs of said association; that I will not knowingly violate, or willingly permit to be violated, any of the provisions of the statutes of the United States under which this association has been organized. ✶✶ ✶”

Your attention is called to section 5197 of the Revised Statutes of the United States, being part of the National Bank Act, which provides that a National bank

"May take, receive, reserve and charge on any loan or discount made, or upon any note, bill of exchange, or other evidences of debt, interest at the rate allowed by the laws of the State, territory or district where the bank is located, and no more, except that where, by the laws of any State, a different rate is limited for banks of issue organized under State laws, the rate so limited shall be allowed for associations organized or existing in any such State under this title.

"When no rate is fixed by the laws of the State or territory, or dis

trict, the bank may take, receive, reserve, or charge a rate not exceeding seven per cent., and such interest may be taken in advance, reckoning the days for which the note, bill, or other evidence of debt has to

This office regrets to report that the sworn statements of condition of a great many National banks show that section 5197, U. S. R. S. against usury, has been grossly violated by these banks.

You are respectfully advised and admonished that this provision of the National Bank Act should be faithfully observed by all National banks, their officers and directors, in accordance with the solemn oaths taken by the directors.

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You are requested to read this letter at the next meeting of your board of directors, and to have it inscribed upon the minutes, and to send a copy of this letter to every member of your board who may be present at such meeting, with the request that he promptly acknowledge its receipt to you.

Within thirty days after your next board meeting, and not later than December 20, 1915, you are requested to send to this office letters from all members of your board who may not have been present at the meeting at which this letter is read, acknowledging the receipt by each absent director of a copy hereof, together with a certified extract from your minutes, showing that this letter has been read to your board and giving the names of the directors present at the meeting at which it is read.

HOW NATIONAL BANKS MAY RETAIN BRANCHES

November 1, 1915, confusion existed as to the methods by which State banks entering the National system retain their branches or how National banks affiliating with the State banks accomplish the same result. The process as generally understood is exactly in reverse of the real method. A communication from the comptroller's department written in response to a request for an explanation of the exact legal steps which precede and accompany such consolidation explains the matter in detail.

The letter is as follows:

The receipt is acknowledged of your recent communication, and in reply you are advised that the only National banks that are permitted to operate branches are those that were State banks converted to the National system under section 5154 U. S. Revised Statutes, and authorized to retain their branches which they conducted as State banks under the provisions of section 5155 U. S. Revised Statutes, which reads as follows: