this description. If the note would be void, so, likewise, is the certificate. If, however, the bank is empowered to issue promissory notes, subject only to the restriction that it shall issue none which are designed to pass into circulation as currency, but only such as become necessary in the ordinary course and conduct of its affairs, and are strictly business paper, then it may issue certificates of deposit, whether payable on demand or otherwise, subject only to the same restriction. By reason of the ease with which such instruments may be used for circulation, the courts have often been rigid in scrutinizing them, and applying the strict letter of the law to them; but they have never, that we have found, substantially modified or departed from the general principles above laid down.

Business Powers. Par. 63, sec. 9. So far as it is involved in receiving deposits, borrowing is a part of banking, but borrowing stricto sensu, taking a loan for a definite time, instead of one payable on demand, as ordinary deposits are, is not a part of the business of banking, nor a necessary incident thereof as a continuous practice; but (like every other corporation in the United States) a bank has an inherent right to borrow money whenever it is reasonably necessary in the proper conduct of its business, unless specially restricted. The privilege is the child of necessity, and is limited by the same necessity or intrinsic propriety which gives it birth. The borrowing must be incidental to the legitimate banking business of the association, otherwise the act is ultra vires; as if the money is obtained for speculation. Aside from the theory of law, as no one but the bank can well judge whether a loan is reasonably necessary or not, the practical fact is that a bank can borrow money whenever it wishes to, and, if the money is used in its proper business, no fault will be found, and even if wrongly applied, it will not affect the validity of the loan as between the parties ordinarily. * * *

The right to borrow money is also clearly implied in section 5202, which fixes the limit for such borrowing as follows:

No association shall at any time be indebted, or in any way liable, to an amount exceeding the amount of its capital stock at such time actually paid in and remaining undiminished by losses or otherwise, except on account of demands of the nature following:

First. Notes of circulation.

Second. Moneys deposited with or collected by the association.

Third. Bills of exchange or drafts drawn against money actually on deposit to the credit of the association, or due thereto.

Fourth. Liabilities to the stockholders of the association for dividends and reserve profits.

From these it will appear that a bank has undoubted right to borrow money whenever it becomes necessary to do so in the regular course of business, but that it should not make a practice of doing so continuously. Whenever it becomes necessary for a bank to borrow money habitually, in order that it may be able to supply its regular customers with accommodations, it is evident either that its resources are locked up in inconvertible forms, or that its capital is insufficient.

In the former case, every effort should be made to convert its assets into available funds, and in

the latter it should seek to increase its capital stock to the extent of its regular needs, for it is neither safe nor prudent to allow its customers to depend for accommodation upon funds procured frequently from a distance, which may at any time be withdrawn by the lenders; and, further, if a bank can make a profit by regularly lending money for the use of which it has to pay interest, it would seem that it has the ability to make the investment of additional capital stock profitable to those by whom it may be contributed.

In conclusion, this power of a bank to borrow money is one that should be exercised only by the board of directors, or by the managers of the bank with the special sanction and approval of the board. It is a power intended for use in cases of emergency only, and should be carefully held in reserve for such occasions.

Bills Payable Defined.

It is a question with a bank sometimes to determine what items, if any, of its liabilities should be included under the head of "bills payable" on its books, and in its reports of condition. Strictly speaking, all deposits with a bank are loans to it, and the marked distinction between a "deposit"

with a bank and money loaned to, or borrowed by, it seems to consist in the circumstance that a "deposit" usually voluntarily seeks the bank, while a loan to it is money which the bank seeks to borrow for a longer or shorter period. But money may be borrowed by a bank either on the condition that it is returnable to the lender on demand, or at some fixed future date. It would seem that this then should be the dividing line between "deposits," or amounts "due to other banks," and "bills payable," namely, that if the amount borrowed is payable to the lender only at some fixed future date, it should be entered as "bills payable," but if payable on demand, as "deposits" or "due to other banks or bankers." In the latter case it is necessary that reserve should be maintained on the amount borrowed, as is required on all liabilities payable on demand, but no reserve is required on "bills payable." It matters not whether money is borrowed by a bank on promissory note, certificate of deposit, open account, or otherwise; if it is not returnable on demand it should be classed as "bills payable."

Post-Notes Defined.

It has at times been questioned whether the restriction as to issuing "post-notes" contained in

section 5183 did not extend to the issuing of time drafts, time certificates of deposit, and other obligations of the bank conditioned for payment at some future time, but a recent court decision (Riddle vs. National Bank, Butler, Pa., 27 Fed. Rep., 503) has declared that time certificates of deposit are not to be regarded as "post-notes." This decision, considered in connection with the well-settled principle that a bank has the right to borrow money when necessary, would make it appear that the term "post-notes" used in the statutes was intended only to prevent the issue of such notes to circulate as money.

Right to Deal in Stocks and Bonds Denied by the Courts.

With regard to the right of a bank to deal in stocks, the Supreme Court (First National Bank of Charlotte vs. National Exchange Bank of Baltimore, 92 U. S., 122) expressed the following opinion:

Dealing in stocks is not expressly prohibited; but such a prohibition is implied from the failure to grant the power. In the honest exercise of the power to compromise a doubtful debt owing to a bank, it can hardly be doubted that stocks may be accepted in payment and satisfaction, with a view to their subsequent sale or conversion into money, so as to make good or reduce an anticipated loss. Such a transaction would not amount to a dealing in stocks.