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Banking Law
Wayne State University Law School
Lax, Howard A.

I.             BANKING LAW – SUMMER 2013 – LAX
II.       Chapter 1 – Introduction & Overview
A.                     Introduction
·         Banking: commercial banks, savings banks, savings & loans, credit unions, money market mutual funds
·         Market Changes = legal problems
·         Challenge – keep abreast of feast paced developments in the law & marketplace
·         Opportunity – think creatively about how banking law is evolving in order to help clients protect their interests & avail themselves of new market opportunities
B.                     Historical Overview
·         American banking = quirky, explainable only on historical grounds
·         Also place current controversies in perspective
·          Bank of the United States
·         Before the 1st National Bank:
·         Currency: tangible medium of exchange that all sellers will accept in return for their goods & services
·         Specie: Currency with intrinsic value
·         Constitution of 1787 – several clauses to bring order to nation’s fiscal & monetary affairs
o   Federal Gov’t à “coin money, regulate value thereof, and of foreign coin.”
o   Forbade states to coin money, etc
o   Empowered federal government to regulate interstate & foreign commerce.
o   Silence on chartering a national bank à silence interpreted as implying Congress lacked such power
·         1790 – 4 chartered state banks: Philadelphia, NY, Boston, & Baltimore
·         1790 – Treasury Secretary Andrew Hamilton & Proposal for National Bank
o   Proposed Configuration:
§  Bank raise enough equity to support large circulation of bank notes
§  1/5 of shares purchased by government paying with its own bonds
§  4/5 of shares purchased by public: ¼ in specie and ¾ in government bonds – strengthening government’s credit by increasing demand for government bonds.
§  Private management with government oversight – structured to foster confidence in the bank’s notes
§  Charter good for only 20 years
o   Congressional opposition
§  James Madison regarded bank as unconstitutional
§  Agrarians viewed business corporations as evil instruments of an antidemocratic elit
§  Bank garnered 2/3 majorities in both houses of Congress: Northerners & Federalists in favor & Southerners & Republicans opposed.
o   1791 – George Washington signed the charter in to law
·            Second Bank of the US: 1816-1836
·         National bank died, but banking flourished
·         Operations continued in private hands after 1811
·         New system faltered, bank notes depreciated, note holders incurred losses & commerce suffered.
·         Renewed calls for national bank – Congress granted 20 year charter
·         McCulloch v. Maryland – sustained congressional power to charter the bank and precluded Maryland from taxing the bank.
·         Reprieved the bank from execution at the hands of state governments.
·            Free Banking Era: 1836-1863
·         Banking without a central bank after the fall of the 2nd national bank
·         Free banking – easy entry into banking without having to obtain a special legislative charter
·         Currency consisted largely of bank notes issued by state banks.
·            National Bank Act: 1863-1864
·         Free banking did not lend itself to helping the Treasury manage the federal government’s finances
·         Government withdrew from the banking system altogether in 1846 and established the Independent Treasury System
·         National Currency Act of 1863
·         Refined in National Bank act of 1864
·         1865 – 10% tax on state bank notes à sustained by Supreme Court in 1869
·         Federal government’s power to discriminate for regulatory purposes against an otherwise lawful industry.
·            From the Civil War to the Federal Reserve Act: 1865-1913
a)      Dual Banking System
·         By precluding to issue bank notes – checking accounts were created.
·         Borrower could transfer money to others by giving them checks instead of bank notes
·         Avoided the 10% tax
b)      Unit Banking
·         Unit banking – system of banking in which government restricts or does not permit a bank to open branch offices.  Encourage small, independent banks or banks that are theoretically independent banks or banks that are theoretically independent but are in fact owned by a bank holding company.  Unit banking largely confined to Midwest & southwest.
·         National Bank Act – 2 provisions
                                                                                                                                      i.      National bank to conduct its business at a single location
                                                                                                                                    ii.      Branching prohibited for national banks
                                                                                                                                  iii.      Did not affect state banking
c)      Market Segmentation
·         Thrift institutions arose, serving charitably rather than for profit making purposes
·         Savings Banks – help workers save part of their wages
·         Savings and loan associations – help people save money to buy homes
·            Federal Reserve Act
·         1907 Panic – stock market crash
·         Support for monetary reform
·         Federal Reserve System – Woodrow Wilson
·         12 regional Federal Reserve banks – modeled on bankers’ clearing houses
·            Industry Consolidation: 1914-1933
·         Integrated banks could compete more efficiently than competing unit banks
·         Gave

lels to incorporating business firm, but more.
·         Procedural differences
                                                                                                  i.      Charter from specialized bank regulator vs. secretary of state
                                                                                                ii.      Regulator seeks public comment on application, stringent substantive criteria, discretion exercised in granting/denying application
                                                                                              iii.      Need banking office in chartering state
                                                                                              iv.      Have option of obtaining federal charter
·         6 General Stages
                                                                                                  i.      Form organizing group
                                                                                                ii.      Prefiling meeting
                                                                                              iii.      File application, including the business plan
                                                                                              iv.      Preliminary conditional approval
                                                                                                v.      Follow up on approval by filling with OCC
                                                                                              vi.      Receive final approval
2.      Judicial Review of Chartering Decisions
                                                                                                  i.      In domain of Administrative law
                                                                                                ii.      2 features of administrative action
1.      Procedure the agency uses to reach its decision
2.      Record or factual basis on which the agency basis its decision
                                                                                              iii.      After agency has completed decision process, disappointed party may consider possibility of obtaining judicial review