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either a person, a company, a corporation, or a firm, any deposit with any such person, company, corporation, or firm is regarded as a loan, or "money borrowed," and is subject to the restriction as to amount, which is prescribed by section 5200. It may be that the courts would not hold that amounts in excess of the limit sent to such banks or bankers for collection are to be regarded as in violation of law, but measures should be taken to reduce such amounts within the limit as soon as it is ascertained that the collections have been made by the bank or banker receiving the same.

Exceptions as to Discounts and Examples Illustrating These.

Coming, then, to the case of "discounts," which are excepted from the restriction as to amount, two exceptions are made, as follows:

"1. The discount of bills of exchange drawn in good faith against actually existing values;" and,

"2. The discount of commercial or business paper actualiy owned by the person negotiating the same."

Such paper as is clearly embraced in these two classes, the law says, "shall not be considered as money borrowed," and is, therefore, to be excepted from the restriction as to amount.

As an illustration under the first exception, if the firm of John Smith & Co., who had already "borrowed money" to the extent of the limit, should offer the same bank bills of exchange drawn against shipments of cotton, wheat, corn, iron, or any other merchandise which is readily convertible into money, it would be lawful for the bank to discount such paper to any limit which it considered safe. Such bills or drafts are generally secured by the attachment of bills of lading for the shipments against which the bills are drawn, but if the bank is satisfied of the actual existence of the values and with the good faith of the parties to the transaction, the security of bills of lading, though desirable, is not absolutely essential.

With regard to the scope of the second exception, it will be assumed, for the sake of example, that the firm of John Smith & Co., who have already "borrowed money" up to the legal limit, offer to the same bank for discount paper which they have taken from their customers either for merchandise sold, money loaned, or other valuable consideration. In such a case, if John Smith & Co. are the bona fide owners of such paper, the

bank may discount it for John Smith & Co. as "commercial or business paper actually owned by the person negotiating the same" to any limit which, in the judgment of the directors of the bank, it may be considered safe to do so.

Again, if the business paper of John Smith & Co. were offered to the bank for discount by any person, firm, company, or corporation actually owning such paper, it would be lawful for the bank to discount the same, although John Smith & Co. had already "borrowed money" of the bank to the legal limit.

It would seem that the intent of the framers of this section was, using a homely phrase, to prevent a bank from putting "all its eggs into one basket" by making direct loans to any one person, firm, or corporation, for even if the borrower were abundantly good, or could lodge with the bank ample, undoubted security for the "money borrowed," the loan of a large amount to any one party able to offer such security might operate to deprive others of their due share of the benefits afforded by a bank, which is established for the accommodation of the public at large.

The exceptions noted were probably made because the transactions covered by them were not only regarded as being generally better secured by reason of the guarantee of both parties to such transactions, but also because in this way the benefits of the bank's resources would be better distributed to the public for whose accommodation it is established.

Overdrafts are Loans.

Overdrafts are temporary direct loans to the parties making them, or "money borrowed" in the least desirable form, and, as such, should be so regarded and treated in computing the total liabilities to the bank of any person, firm, company or cor poration for "money borrowed."

CHAPTER VII.

RESTRICTIONS WITH REGARD TO A BANK'S ACQUIRING AND HOLDING ITS OWN STOCK.

SEC. 5201. No association shall make any loan or discount on the security of the shares of its own capital stock, nor be the purchaser or holder of any such shares, unless such security or purchase shall be necessary to prevent loss upon a debt previously contracted in good faith; and stock so purchased or acquired shall, within six months from the time of its purchase, be sold or disposed of at public or private sale; or, in default thereof, a receiver may be appointed to close up the business of the association, according to section 5234.

Penalty for Holding beyond Time Limit.

It will be observed that the law provides a penalty which may be summarily applied by the Comptroller to any violation of the law in this respect, and the reason for this it is not difficult to find.

Whenever a bank uses any portion of its capital to make a loan on its own shares, or to purchase them, it reduces or impairs its capital stock by such an amount, and, in addition, deprives its creditors of the additional security afforded by the contingent

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