delivered the opinion of the Court.
The primary question in this case is whether on these facts shareholders of a bank-stock holding company are liable under § 23 of the Federal Reserve Act, 12 U. S. C. *352§ 64, and § 12 of the National Bank Act, 12 U. S. C. § 63, for an assessment on shares of a national bank in the portfolio of the holding company.
The essential facts1 may be briefly stated.
BancoKentueky Company was organized under the laws of Delaware in July, 1929. It had broad charter powers in the field of finance. It was organized by the management of the National Bank of Kentucky and of the Louisville Trust Company—banking houses doing business at Louisville. Banco perfected the desired alliance between them by acquiring most of their shares2 in exchange for its shares. The Bank, the Trust Company, and Banco each had the same directors and certain common officers. Some of the shareholders who made the exchange also purchased additional shares of Banco stock at $25 per share. Banco stock was also sold at that price on the market to those who did not own any shares in the Bank or the Trust Company. All told some $9,900,000 in cash was realized by Banco from the sale of its shares— about $6,000,000 of which was financed on loans from the Bank and from the Trust Company. Banco’s stock certificates stated that the shares were “full-paid and non-assessable.” Its certificate of incorporation provided that the stockholders’ property should “not be subject to the payment of corporate debts to any extent whatever.”
The closing date for the exchange of shares was September 19, 1929. Beginning about September 25, 1929, Banco acquired a majority stock interest in each of five *353banks in Kentucky and two banks in Ohio, and a minority stock interest in another bank in Kentucky. Of these eight banks, two were national. The shares of the state, as well as the national, banks in the group carried a double liability.3 The price paid for the shares in these banks was about $11,500,000—of which some $6,500,000 was paid in cash and $5,000,000 in Banco’s shares. Not all of Banco’s funds were invested in bank shares. It acquired for $2,000,000 a $2,000,000 note of its president.4 It purchased 625 shares of a life insurance company for $25,000 cash. It purchased and retired 106,000 of its own shares at a cost of over $2,300,000—some $275,000 less than Banco received for them. It received dividends of about $1,180,000 on the bank stocks owned by it and paid them out at once as dividends on its own shares. It borrowed $2,600,000 from a New York bank and paid back $1,000,-000. With $600,000 of that loan it purchased from the Bank certain dubious assets5 —a transaction which the *354Kentucky court later set aside. BancoKentucky’s Receiver v. National Bank of Kentucky’s Receiver, 281 Ky. 784, 137 S. W. 2d 357. It was negotiating for the purchase of the shares of an investment banking house when that house, the Bank and the Trust Company failed. That was in November, 1930—a little more than a year after Banco began its financial career. In November, 1930 a receiver was appointed for the Bank and one for Banco. In February, 1931 the Comptroller of the Currency made an assessment on the shareholders of the Bank in the amount of $4,000,000 payable on or before April 1, 1931. And in March, 1931 the receiver of the Bank notified the stockholders of Banco that he had demanded payment of the assessment from the receiver of Banco and that he intended to proceed against them for collection of the assessment to the extent that he was unable to collect from Banco. In October, 1931 the receiver of the Bank brought an action against Banco as holder of substantially all of the Bank’s shares. He obtained a judgment (Keyes v. American Life Ins. Co., 1 F. Supp. 512) which was affirmed on appeal. Laurent v. Anderson, 70 F. 2d 819: Some $90,000 was paid on that judgment. The receiver of the Bank thereupon brought this suit against those stockholders of Banco who resided in the Western District of Kentucky in which he seeks to recover from each his proportionate part of the balance of the assessment. Similar suits against other stockholders were brought in federal district courts in other states. The District Court, after a trial, dismissed the bill. 32 F. Supp. 328. The Circuit Court of Appeals affirmed that judgment. 127 F. 2d 696. The case is here on certiorari.
I.
We are met at the outset with the contention that the decision in Laurent v. Anderson, supra, holding Banco liable on the assessment, is res jv/dicata of the present claim; *355and that petitioner by bringing that suit made an election which bars the present action. We do not agree. Either the record owner or the actual owner of shares of a national bank may be liable on the statutory assessment.6 Richmond v. Irons, 121 U. S. 27, 58; Key ser v. Hitz, 133 U. S. 138, 149; Pauly v. State Loan & Trust Co., 165 U. S. 606; Lantry v. Wallace, 182 U. S. 536; Ohio Valley National Bank v. Hulitt, 204 U. S. 162; Early v. Richardson, 280 U. S. 496; Forrest v. Jack, 294 U. S. 158. A receiver may sue both—partial satisfaction of the judgment against one being a pro tanto discharge of the other. Ericson v. Slomer, 94 F. 2d 437. And see Continental National Bank & Trust Co. v. O’Neil, 82 F. 2d 650. The basis of liability of each is different—apparent or titular ownership in one case, actual or beneficial ownership in the other. Hence the issues involved in each suit are not the same.7 See Reconstruction Finance Corp. v. Pelts, 123 F. 2d 503; Reconstruction Finance Corp. v. Barrett, 131 F. 2d 745, 748. If the receiver were barred from proceeding against one because he had already proceeded against the other, creditors of banks would be deprived of the full benefits of these statutes. The wisdom of the receiver’s first suit rather than the fixed statutory liability would be the measure of their protection. There is no justification for such an impairment of the statutory scheme. The rules of election applicable to suits on contracts made by agents of undisclosed principals *356(Pittsburgh Terminal Coal Corp. v. Bennett, 73 F. 2d 387, 389) have been pressed upon us. But they have no application to suits to enforce a liability which has this statutory origin. Cf. Christopher v. Norvell, 201 U. S. 216, 225.
II.
The District Court found, and the Circuit Court of Appeals agreed, that Banco was organized in good faith and was not a sham; that it was not organized for a fraudulent purpose or to conceal enterprises conducted for the benefit of the Bank; that it was not a mere holding company; that it was not formed as a means for avoiding double liability on the stock of the Bank; and that the soundness of the Bank and its ability to meet the obligations could not be questioned until after the formation of Banco. Some of these findings have been challenged. But we do not stop to examine the evidence. We accept those findings, as they were concurred in by two courts and no clear error is shown. Brewer-Elliott Oil Co. v. United States, 260 U. S. 77, 86; Alabama Power Co. v. Ickes, 302 U. S. 464, 477. We conclude, however, that the courts below erred in dismissing the bill.
It is clear by reason of Early v. Richardson, supra, that if a stockholder of the Bank had transferred his shares to his minor children, he would not have been relieved from liability for this assessment. And see Seabury v. Green, 294 U. S. 165. That follows because of the policy underlying these statutes. One who is legally irresponsible cannot be allowed to serve as an insulator from liability, whether that was the purpose or merely the effect of the arrangement. A father who transfers his shares to his minor children has not found a substitute for his liability. See Weston’s Case, 5 Ch. App. 614. It does not matter that the transfer was in good faith, without purpose of evasion and at a time when the bank was solvent. Early v. Richardson, supra. The vice of the arrangement is *357found in the nature of the transferee and his relationship to the transferor. Cf. Nickalls v. Merry, 7 Eng. & Irish App. 530. The same result will at times obtain where the transferee is financially irresponsible. This does not mean that every stockholder of a national bank who sells his shares remains liable because his transferee turns out to be irresponsible or impecunious. It is clear that he does not. Earle v. Carson, 188 U. S. 42, 54-55. But where after the sale he retains through his transferee an investment position in the bank, including control, he cannot escape the statutory liability if his transferee does not have resources commensurate with the risks of those holdings. In such a case he remains liable as a “stockholder” or “shareholder” within the meaning of these statutes to the extent of his interest in the underlying shares of the bank. For he retains control and the other benefits of ownership without substituting in his stead any one who is responsible for the risks of the banking business. The law has been edging towards that result. See Hansen v. Agnew, 195 Wash. 354, 80 P. 2d 845; Metropolitan Holding Co. v. Snyder, 79 F. 2d 263; Barbour v. Thomas, 86 F. 2d 510; Nettles v. Rhett, 94 F. 2d 42. We think the result is necessary, lest the protection afforded by these double liability provisions be lost through transfers to impecunious or not fully responsible holding or operating companies whose stock is owned by the transferor. Whether the transfer is made in avoidance of the double liability as in Corker v. Soper, 53 F. 2d 190, or for business reasons which may be considered wholly legitimate, the result is the same. Depositors are deprived of the benefit of double liability in either event.
Thus it is no bar to the present suit that Banco was organized in good faith, that there was no fraudulent intent, that Banco was not a sham, that it was not a mere holding company, or that the shareholders of the Bank had no purpose of avoiding double liability. We are not *358concerned with any question of good intention. The question is whether the parties did what they intended to do and whether what they did contravened the policy of the law. By that test it is clear to us that the old stockholders of the Bank are liable. For they retained through Banco their former investment positions in the Bank, including control, and did not constitute Banco as an adequate financial substitute in their stead. Banco’s asset position immediately after its sales of stock cannot be taken as the measure of its financial responsibility. Its liquid condition was fleeting; the raising of the cash was but an interim step in the planned evolution of Banco as a bank-stock holding company. It is the condition of Banco at the end of the promotion which is significant. Banco emerged as a bank-stock holding company. Technically it was not merely such a holding company as it had other interests and investments. But its main assets were stocks in banks, stocks which carried double liability. Its other assets—apart from the $25,000 of life insurance stock— were always highly suspect and dubious. In substance Banco as a going concern had no free assets which could possibly be said to constitute an adequate reserve against double liability on the bank stocks which it held. It was , in no true sense comparable to an investment trust or holding company which holds bank stock in a diversified portfolio. If the small amount of life insurance stock be left out of account, the situation is in point of fact not materially different from the case where the only assets held were bank stocks carrying double liability. Such an arrangement, if successful, would allow stockholders of banks to retain all of the benefits of ownership without the double liability which Congress had prescribed. The only substitute which depositors of one bank would have for that double liability would be the stock in another bank carrying a like liability. The sensitiveness of one bank in the group to the disaster of another would likely mean *359that at the only time when double liability was needed the financial responsibility of the holding company as stockholder would be lacking. However that may be, the device used here can be so readily utilized in circumvention of the statutory policy of double liability that the stockholders of the holding company rather than the depositors of the subsidiary banks must take the risk of the financial success of the undertaking.8
That is a basis of liability sufficiently broad to include also the stockholders of Banco who had not been stockholders of the Bank. As we have noted, many of them acquired their shares either for cash or for shares in other banks. It must be assumed that in making those purchases or effecting those exchanges they knew what kind of an enterprise Banco was. See Nettles v. Rhett, supra, pp. 48-49; Anderson v. Atkinson, 22 F. Supp. 853, 863. Circulars of the Chicago Stock Exchange, on which Ban-co’s shares were listed, gave a plain indication of the nature *360of the enterprise.9 So did circulars of dealers.10 And there would not seem to be any doubt that the old stockholders of the Bank were given at the time of the exchange a fair *361picture of the nature of the enterprise which Banco was about to launch. Some shareholders of Banco claim the right to rescind their purchases of its shares on the ground of misrepresentations in the sale. But whether or not such relief might be granted in some instances, it seems clear that Banco’s stockholders are bound by the decisions of the directors which determined, within the scope of the corporate charter, the kind and quality of the corporate undertaking. As was stated in Christopher v. Brusselback, 302 U. S. 500, 503, “A stockholder is so far an integral part of the corporation of which he is a member, that he may be bound and his rights foreclosed by authorized corporate action taken without his knowledge or participation. Sanger v. Upton, 91 U. S. 56, 58.” And see Pink v. A. A. A. Highway Express, 314 U. S. 201, 207, and cases cited. The legality of the investments of Ban-co’s funds for the most part is not challenged. It must be assumed that they were not ultra vires. They fall indeed into the category of acts of directors which normally cannot be challenged by stockholders. Cook, Corporations (8th ed.) § 684. These principles, basic in general corporation law, are relevant here as indicating that the stockholders of Banco cannot escape responsibility for the inadequacy of Banco’s resources merely because the choice of its investments was made by the officers and directors— acts in which the stockholders did not participate and of which perhaps they had no actual knowledge. The fact that they may have claims against an officer or director for mismanagement does not relieve them from liability to the depositors of the subsidiary banks. Cf. Scott v. DeWeese, 181 U. S. 202, 213; Lantry v. Wallace, 182 U. S. 536, 548-554.
Normally the corporation is an insulator from liability on claims of creditors. The fact that incorporation was desired in order to obtain limited liability does not defeat that purpose. Elenkrieg v. Siebrecht, 238 N. Y. 254, 144 *362N. E. 519. See 7 Harv. Bus. Rev. 496. Limited liability is the rule, not the exception; and on that assumption large undertakings are rested, vast enterprises are launched, and huge sums of capital attracted. But there are occasions when the limited liability sought to be obtained through the corporation will be qualified or denied. Mr. Justice Cardozo stated that a surrender of that principle of limited liability would be made “when the sacrifice is essential to the end that some accepted public policy may be defended or upheld.” Berkey v. Third Ave. Ry. Co., 244 N. Y. 84, 95, 155 N. E. 58, 61; United States v. Milwaukee Refrigerator Transit Co., 142 F. 247. See Powell, Parent & Subsidiary Corporations (1931) pp. 77-81. The cases of fraud make up part of that exception. Linn & Lane Timber Co. v. United States, 236 U. S. 574; Rice v. Sanger Brothers, 27 Ariz. 15, 229 P. 397; Donovan v. Purtell, 216 Ill. 629, 640, 75 N. E. 334; George v. Rollins, 176 Mich. 144, 142 N. W. 337; Higgins v. California Petroleum Co., 147 Cal. 363, 81 P. 1070. But they do not exhaust it. An obvious inadequacy of capital, measured by the nature and magnitude of the corporate undertaking, has frequently been an important factor in cases denying stockholders their defense of limited liability. Luckenbach S. S. Co. v. Grace & Co., 267 F. 676, 681; Oriental Investment Co. v. Barclay, 25 Tex. Civ. App. 543, 559, 64 S. W. 80, 88. And see Weisser v. Mursam Shoe Corp., 127 F. 2d 344. Cf. Pepper v. Litton, 308 U. S. 295, 310; Albert Richards Co. v. Mayfair, Inc., 287 Mass. 280, 288, 191 N. E. 430; Erickson v. Minnesota & Ontario Power Co., 134 Minn. 209, 158 N. W. 979. That rule has been invoked even in absence of a legislative policy which undercapitalization would defeat. It becomes more important in a situation such as the present one where the statutory policy of double liability will be defeated if impecunious bank-stock holding companies are allowed to be interposed as non-conductors of- liability. It has often *363been held that the interposition of a corporation will not be allowed to defeat a legislative policy, whether that was the aim or only the result of the arrangement. United States v. Lehigh Valley R. Co., 220 U. S. 257; Chicago, M. & St. P. Ry. Co. v. Minneapolis Civic & Commerce Assn., 247 U. S. 490; United States v. Reading Co., 253 U. S. 26. The Court stated in Chicago, M. & St. P. Ry. Co. v. Minneapolis Civic & Commerce Assn., supra, p. 501, that “the courts will not permit themselves to be blinded or deceived by mere forms or law” but will deal “with the substance of the transaction involved as if the corporate agency did not exist and as the justice of the case may require.” We are dealing here with a principle of liability which is concerned with realities not forms. As we have said, the net practical effect of the organization and management of Banco was the same as though the shares of the Bank were held in trust for beneficiaries who were in point of substance its only owners. Those who acquired shares of Banco did not enter upon an enterprise distinct from the banking business. Their investment in Banco was in substance little more than an investment in the shares of the Bank. They were as much in the banking business as any stockholder of the Bank had ever been. And they continued in that business through Banco which as a going concern lacked assets adequate as a reserve against the contingent statutory liability. Its stockholders were in point of substance the only source of funds available to satisfy the assessments. For these reasons the old group of stockholders must be held to have retained and the new group of stockholders must be held to have acquired liability as stockholders of the Bank.
To allow this holding company device to succeed would be to put the policy of double liability at the mercy of corporation finance. The fact that Congress did not outlaw holding companies from the national bank field nor undertake to regulate them during the period of Banco’s *364existence can hardly imply that Congress sanctioned their use to defeat the policy of double liability. It is true that Congress later addressed itself to this problem and in the Banking Act of 1933 (48 Stat. 186,12 U. S. C. § 61) established certain controls over them. In general, the Board of Governors of the Federal Reserve System was authorized to issue a voting permit entitling a holding company to vote the stock controlled by it on certain conditions. Apart from requirements for examination and non-affiliation with securities companies, § 19 (a) and (e), certain standards for financial responsibility were established and holding companies seeking such permits were granted a specified period of time within which to meet those standards. Where the stockholders of the holding company were liable for the statutory liability, a specified reserve of readily marketable assets was required. § 19 (c). Otherwise, the holding company was required to maintain free of any lien “readily marketable assets other than bank stock” in an amount equal to a larger percentage of the par value of the bank stocks owned. § 19 (b). It is apparent that Congress in that Act protected its policy of double liability by prescribing one standard of financial responsibility for holding companies whose shares were assessable by their terms and another for those whose shares were non-assessable.11 We need not stop to consider what would be the measure of liability in cases arising under that Act where there had been no compliance with it. But if that Act had been *365applicable to Banco and Banco had complied with it, Banco would then have met the standards of financial responsibility which Congress had prescribed as adequate for the depositors. Yet the fact that Congress later wrote specific standards into the law means no more than a recognition on its part of an evil and a fashioning by it of a specific remedy. It can hardly mean that Congress by its earlier silence had sanctioned the use of the holding company to defeat the protection which it had provided for depositors of national banks. The legislative policy which Congress had long announced was the policy of double liability. It is that policy with which we are here concerned. It is that policy, declared by Congress, which the judicial power may appropriately protect in the way we have indicated, in absence of a choice by Congress of another method.
It is of course true that Delaware created this corporation. But the question of liability for these assessments is a federal question. The policy underlying a federal statute may not be defeated by such an assertion of state power. Northern Securities Co. v. United States, 193 U. S. 197, 349; Seabury v. Green, supra. The spectre of unlimited liability for stockholders has been raised. But there is no cause for alarm. Barring conflicting federal incorporation statutes, Delaware may choose such rules of limitation on the liability of stockholders of her corporations as she desires. And those laws are enforceable in federal courts under the rule of Erie R. Co. v. Tompkins, 304 U. S. 64. But no State may endow its corporate creatures with the power to place themselves above the Congress of the United States and defeat the federal policy concerning national banks which Congress has announced. We are concerned here with that problem and with that problem alone.
The result which we reach may be harsh to some of the stockholders of Banco. But rules of liability are usually *366harsh especially where they are not bottomed on fault. Thus private investors have frequently found contrary to their expectation or understanding that they purchased with their investment an unlimited liability for the debts of the enterprise. Thompson v. Schmitt, 115 Tex. 53, 274 S. W. 554; Frost v. Thompson, 219 Mass. 360, 106 N. E. 1009; Weber Engine Co. v. Alter, 120 Kan. 557, 245 P. 143; Rand v. Morse, 289 F. 339. It has never been supposed, however, that the innocence and good faith of investors were barriers to such suits. Horgan v. Morgan, 233 Mass. 381, 385, 124 N. E. 32. Nor can we accede to the suggestion that those defenses should be available here. The policy underlying double liability is an exacting one. Its defeat cannot be encouraged through the utilization of financial devices which put a premium on ignorance.
The suggestion that there should be no liability without fault unless a statute establishes it denies the whole history of the judicial process in shaping the rules of vicarious liability. The liability of a master for the torts of his servant certainly started from no such foundation. And the rules which made those who purchased shares in Massachusetts business trusts responsible for the debts of the enterprise were evolved, with few exceptions, on a common law, not a statutory, basis. Magruder, The Position of Shareholders in Business Trusts, 23 Col. L. Rev. 423. In the field in which we are presently concerned, judicial power hardly oversteps the bounds when it refuses to lend its aid to a promotional project which would circumvent or undermine a legislative policy. To deny it that function would be to make it impotent in situations where historically it has made some of its most notable contributions. If the judicial power is helpless to protect a legislative program from schemes for easy avoidance, then indeed it has become a handy implement of high finance. Judicial interference to cripple or defeat a legislative policy is one thing; judicial interference with *367the plans of those whose corporate or other devices would circumvent that policy is quite another. Once the purpose or effect of the scheme is clear, once the legislative policy is plain, we would indeed forsake a great tradition to say we were helpless to fashion the instruments for appropriate relief.
In summary, we see no difference between the various classes of stockholders of Banco which would support a difference in their liability. Those who purchased stock of Banco for cash were as much participants in the banking business as those who acquired their stock in exchange for shares of the Bank. Together they shared the benefits of ownership of the subsidiary banks, including control. Certainly a sale of shares of Banco by the old stockholders of the Bank did not give those shares an immunity bath. To draw distinctions between the classes of stockholders of Banco would be to make the protection afforded by these statutes turn on accidents of acquisition quite irrelevant to the concept of “stockholders” or “shareholders” on whom Congress placed this liability. One simple illustration will make that plain. A purchases shares of an underlying bank for $10,000 in cash and exchanges those shares for shares of Banco. B hands over to Banco $10,000, Banco purchases the shares of the underlying bank, and then issues its shares to B. From the practical point of view A and B are investors of the same class. To say that A is liable and B not liable when both start with cash and end with identical investments is to make the difference between liability and no liability turn on distinctions which have no apparent relevancy to the legislative policy which the rule of double liability was designed to protect. And to say that courts may hold A liable but not B is to make the occasions for the assertion of judicial power turn on whimsical circumstances.
The final suggestion is that the old stockholders of the Bank remain liable for the full assessment on the shares *368of the Bank which they exchanged for shares of Banco. But that overlooks the fact that their interest in those underlying shares was diluted by the issuance of Banco’s shares to others.12 Double liability is an incidence of ownership. It has long been held that a stockholder who in good faith parts with all his interest in the shares rids himself of that double liability, even though his transferee is not responsible. Earle v. Carson, supra. We could hardly adhere to that principle and still hold the old stockholders of the Bank liable for the full assessment on the shares which they exchanged for shares of Banco. The other stockholders of Banco acquired through their investment in it an interest in the shares of the Bank. To the extent of that interest the beneficial ownership of the old stockholders of the Bank in its shares was as definitely reduced as if they had made a transfer of that part of their holdings.
Certain stockholders of Banco claim that they are entitled to rescind their purchases of Banco’s shares because of misrepresentations made to them when they acquired the shares. We do not reach those questions. Nor do we stop to determine whether such a defense would avoid liability on the assessment (cf. Oppenheimer v. Harriman National Bank & Trust Co., 301 U. S. 206) and, unlike the case where some shareholders are insolvent (United States v. Knox, 102 U. S. 422, 425), increase the pro rata liability of the other shareholders of Banco. It is sufficient at this time to state that the liability of the shareholders of Banco would be measured by the number of *369shares of stock of the Bank, whether several or only fractional, represented by each share of stock of Banco; and that the assessment liability of each share of stock of Banco would be a like proportion of the assessment liability of the shares of the Bank represented by the former.
The judgment of the Circuit Court of Appeals is reversed and the cause is remanded to the District Court for proceedings in conformity with this opinion.
Reversed.
Further details concerning the financial transactions indirectly involved in this litigation may be found in Atherton v. Anderson, 86 F. 2d 518, 99 F. 2d 883; BancoKentueky’s Receiver v. Louisville Trust Co.’s Receiver, 263 Ky. 155, 92 S. W. 2d 19.
The shares of the Bank and the Trust Company had been earlier transferred to trustees who issued Trustees’ Participation Certificates. It was these certificates which Banco received from the shareholders of the two banks in exchange for its shares. The command which Banco had over the underlying shares is described in Laurent v. Anderson, 70 F. 2d 819.
See Ky. Rev. Stat. 1942, § 287.360; Ohio Code Ann. 1940, § 710-75. At or about the time of Banco’s failure the shares in the other banks were sold or disposed of at rather nominal prices. It appears that the closing of the Bank was followed by heavy runs on these other banks; and the local interests in most of the cities where the banks were located were willing to support the banks to keep them open if Banco would surrender control. Banco, it seems, was also anxious to avoid double liability on those shares.
The president of Banco was also president of the Bank. This note was acquired in November, 1929, from Wakefield & Co. It was secured by 60,000 shares of Banco stock and 22,500 shares of stock of Standard Oil of Kentucky. Nothing was ever paid on the note. Nothing was realized on the Banco stock. Some $440,000 was realized on the Standard Oil stock. In December 1930 the president of Banco and maker of the note filed a voluntary petition in bankruptcy. He was discharged. Wakefield & Co. made an assignment for the benefit of creditors in 1931 and apparently no dividends have yet been paid its creditors.
These were a Murray Rubber note in the amount of $580,000 and a note of Lewis C. Humphrey for $20,000—of which the bank examiner had been quite critical for some time.
Provisions for the termination of double liability on shares of national banks are contained in the Act of June 16,1933, 48 Stat. 189, and the Act of August 23,1935,49 Stat. 708, 12 U. S. C. § 64a.
It is true that the court in Laurent v. Anderson, supra, stated that Banco was “in every sense the true and beneficial owner” of the shares of the Bank. 70 F. 2d p. 824. But it is apparent from the opinion that the court was answering the contention that the trustees of the participation certificates were responsible for the assessment. Banco’s defense was based on § 63 of the National Bank Act. It argued that under that section only funds in the hands of the trustees were liable That argument was rejected by the court.
The history of bank-stock holding companies shows that their organizers were acutely aware of this problem and at times took steps to protect the depositors of the subsidiary banks on possible assessments on the bank stocks. One holding company is said to have kept “at all times an amount in cash or its equivalent equal to our aggregate stockholders’ liability on the bank stocks owned by us.” Branch, Chain, and Group Banking, Hearings under H. Res. 141, 71st Cong., 2d Sess. (1930) p. 1181. A similar method was for the holding company “to carry in its treasury a large reserve of readily marketable securities which may be liquidated in order to make good any shareholders’ liability that may be imposed upon the holding company.” Bonbright & Means, The Holding Company (1932), p. 331. Cf. Nineteenth Annual Report, Superintendent of Banks of California (1928), p. 21. Another method of safeguarding the depositors was to make express provision in the charter of the holding company that its stockholders were ratably liable for any statutory liability imposed on it by reason of its ownership of bank stocks. Branch, Chain, and Group Banking, op. cit., pp. 1042-1043; Barbour v. Thomas, 86 F. 2d 510, 513-514. Wisconsin provided for such a liability by statute. Wis. Stat. 1941, § 221.56,.......................
“The BaneoKentucky Company was organized under the laws of the State of Delaware on July 16, 1929, with an authorized capital of 2,000,000 shares of $10 par value. The Company was organized for the purpose of owning a controlling interest in state and national banks located primarily in Kentucky, Ohio and Indiana. Its charter gives it broad powers entitling it to engage in a wide range of investment and other activities.
“The BaneoKentucky Company has acquired, through an exchange of stock, nearly 100% of the shares of the National Bank of Kentucky-Louisville Trust Company, and in addition its stockholders have subscribed to 480,000 shares of its stock for cash. This cash will be used for acquiring majority interests in other banks and for other corporate purposes.”
In listing its shares on the Chicago Stock Exchange it gave the Exchange the following description of its business:
“(b) Primary purpose: To acquire control and operate Banks and Trust Companies.
“(c) Nature of Business: This company has not engaged in the business of investing and reinvesting in a diversified list of securities of other corporations for revenue and profit, but has limited its activities to acquiring control of Banks and Trust Companies and the operation of same.”
Thus a circular of Blyth & Co. stated:
“The BaneoKentucky Company was recently formed to acquire and hold controlling interests in commercial banks throughout the Middle West. By charter, broad powers are conferred upon the Company, so that all types of operations in the financial field are permitted but no investments are contemplated other than controlling interests in financial institutions.
“Upon completion of present transactions the Company will control the National Bank of Kentucky, organized in 1834, the Louisville National Bank and Trust Co., organized in 1884 as Louisville Trust Company, both of Louisville, Ky., the Pearl Market Bank & Trust Co., organized 1907, and the Brighton Bank & Trust Co., organized 1898, both of Cincinnati, Ohio, and the Central Savings Bank and Trust Company, organized 1906, of Covington, Ky. In addition, the Company has funds of approximately $6,000,000, which are expected to be used for the acquiring of additional banking institutions.”
As stated in S. Rep. No. 77, 73d Cong., 1st Sess., p. 11: “The affiliates of this type (holding companies) are prohibited from voting the stocks of national banks unless they are willing to undertake to accept examination by the Federal Reserve Board, divest themselves of ownership of stock and bond financing concerns, and comply with regulations designed to insure their ownership of sufficient free assets to make sure that they can satisfy the double liability of their shareholders in case any of the banks owned by such a company should go into the hands of receivers or be closed.”
The old stockholders of the Bank have a lesser interest in the shares of the Bank than they had prior to the exchange. Their interest in the shares of the Bank decreased proportionately with the increase in the outstanding stock of Banco. That resulted in a pro rata reduction in their liability. The other group of stockholders of Banco acquired that portion of the liability of which the old stockholders of the Bank were relieved.