Gale Encyclopedia Of American Law 3Rd Edition Volume 1 P53 docx

gave something in exchange for the forged
check. If the depositor’s NEGLIGENCE was a factor
in the forgery, the bank can be excused from the
liability.
A bank is also responsible for determining the
genuineness of the endorsement when a deposi-
tor presents a check for payment. A bank is liable
if it pays a check that has been materially altered,
unless the alteration was due to the drawer’sfault
or negligence. If a bank pays a check that has a
forged endorsement, it is liable for the loss if it is
promptly notified by the customer. In both cases,
the bank is entitled to recover the amount of its
loss from the thief or forger.
A drawee bank that is ordered to pay a
check drawn on it is usually not entitled to
recover payment it has made on a forged check.
If, however, the drawee bank can demonstrate
that the collecting bank was negligent in its
collection duties, the drawee bank may be able
to establish a right of recovery.
A bank can also be liable for the wrongful
dishonor or refusal to pay of a check that it has
certified, because by definition of certification it
has agreed to become absolutely liable to the
payee or holder of the check. If a bank has paid
a check that has been properly revoked by
its drawer, it must reimburse the drawer for
the loss.
Drawer Liabilities A drawer who writes a
check for an amount greater than the funds on

deposit in his or her checking account is liable
to the bank. Such a check, called an overdraft,
sometimes results in a loan from the bank to the
drawer’s account for the amount by which the
account is deficient, depending on the terms
of the account. In this case, the drawer must
repay the bank the amount lent plus interest.
The bank can also dec ide not to provide
the deficient funds and can refuse to pay the
check, in which case the check is considered
“bounced.” The drawer then becomes liable to
the bank for a handling fee for the check, as well
as remaining liable to the payee or subsequent
holder of the check for the amount due. Many
times, the holder of a returned, or bounced,
check will impose another fee on the drawer.
Loans and Discounts A major function of a
bank is the issuance of loans to applicants
who meet certain qualifications. In a loan
transaction, the bank and the debtor execute a
PROMISSORY NOTE and a separate agreement in
which the terms and conditions of the loan are
detailed. The interest charged on the amount
lent can differ based on many variables. One
variable is a benchmark interest rate established
by the Federal Reserve Bank Board of Gover-
nors, also known as the prim e rate, at the time
the loan is made. Another variable is the length
of repayment. The collateral provided to secure
the loan, in case the borrower defaults, can also

affect the interest rate. In any case, the interes t
rate must not exceed that permitted by law. The
loan must be repaid according to the terms
specified in the loan agreement. In case of
default, the agreement determines the proce-
dures to be followed.
Banks also purchase commercial papers,
which are commercial loans, at a discount from
creditors who have entered into long-term
contracts with debtors. A creditor sells a
COMMER-
CIAL PAPER
to a bank for less than its face value
because it seeks immediate payment. The bank
profits from the difference between the discount
price it paid and the face value of the bond, which
it will receive when the debtor has finished
repaying the loan. Types of commercial paper are
educational loans and home mortgages.
Electronic Banking
Many banks are replacing traditional checks and
deposit slips with electronic fund transfer (EFT)
systems, which use sophisticated computer tech-
nology to facilitate banking and payment needs.
Routine banking by means of EFT is considered
safer, easier, and more convenient for customers.
Many types of EFT systems are available,
including automated teller machines; pay-by-
phone systems; automatic deposits of regularly
received checks such as paychecks; automated

payment of recurring bills; point-of-sale transfers
or debit cards, where a customer gives a merchant
a card and the amount is automatically trans-
ferred from the customer’s account; and transfer
and payment by customers’ home computers.
When an EFT service is arranged, the cus-
tomer receives an EFT card that activates the
system and the bank is legally required to
disclose the terms and conditions of the ac-
count. These terms and conditions include the
customer’s liability and the notification process
to follow if an EFT card is lost or stolen; the
type of transactions in which a customer can
take part; the procedure for correction of errors;
and the extent of information that can be
disclosed to a third party witho ut improper
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
508 BANKS AND BANKING
infringement on the customer’s privacy. If a
bank is planning to change the terms of an
account—for e xample, b y i mposing a fee for trans-
actions previously conducted free of charge—the
customer must receive written notice before the
change goes into effect.
Banks must send account statements for EFT
transactions on a monthly basis. The statements
must have the amount, date, and type of trans-
action; the customer’s account number; the
account’s opening and closing balances; charges
for the transfers or for continuation of the service;

and an address and telephone number for referral
of account questions or mistakes.
EFT transactions have become a highly
competitive area of banking, with banks offering
various bonuses such as no fee for the use of a card
when the account holder meets certain provisions
such as maintaining a minimum balance. Also,
the rapid growth of personal and home office
computing has increased pressure on banks to
provide services online. Several computer soft-
ware companies produce technology that can
complete many routine banking services, such as
automatic bill paying, at a customer’shome.
Banks have a wide range of options available
for notifying a customer that a check has been
directly deposited into her or his account. If a
customer has arranged for automatic payment
of regularly recurring bills such as mortgage or
utility bills, the customer has a limited period of
time, usually up to three days before the
payment is made, in which to order the bank
to stop payment. When the amounts of such
bills vary, as with utility bills, the bank must
notify the customer of the payment date in
sufficient time so that there is enough funds in
the account to cover the debt.
If the customer discovers a mistake in an
account, the bank must be notified orally or in
writing after the erroneous statement is re-
ceived. The bank must investigate the claim.

Often, after several days, the customer’s account
will be temporarily recredited with the disputed
amount. After the investigation is complete, the
bank is required to notify the customer in
writing if it concludes that no error occurred. It
must provide copies of its decision and explain
how it reached its findings. Then the customer
must return the amount of the error if it was
recredited to his or her account.
A customer is liable if an unauthorized
transfer is made because an EFT card or other
device is stolen, lost, or used without permission.
This liability can be limited if the customer
notifies the bank within two business days of the
discovery of the misdeed; it is extended to $500 if
the customer fails to comply with the notice
requirement. A customer can assume unlimited
liability if she or he fails to report any unautho-
rized charges to an account within a specified
period after receiving the monthly statement.
A cust omer is entitled to sue a bank for
COMPENSATORY DAMAGES caused by the bank’s
wrongful failure to perform the terms and
conditions of an EFT account, such as refusing
to pay a charge if the customer’s account has
more than adequate funds to do so. The
customer can also recov er a maximum penalty
of $1,000, attorneys’ fees, and costs in an action
based upon violation of this law.
The expansion of the

INTERNET in the mid-
1990s allowed banks to offer many more
electronic services to their customers. Although
this form of business with banks is certainly
convenient, it has caused a considerable concern
regarding the security of transactions conducted
in this manner. Although laws designed to
prevent
FRAUD in traditional banking also apply
to electronic banking, identifying individuals
engaged in fraud can be more difficult where
electronic transactions are concerned. On the
federal level, the Electronic Funds Transfers Act,
15 U.S.C.A. §§ 1693a et seq., provides protection
to consumers who are the subject of an unautho-
rized electronic funds transfer.
The Gramm-Leach-Bliley Financial Modern-
ization Act, PL 106-102 (S 900) November 12,
1999, also modified federal statutory provisions
related to electronic banking. Under this act,
banks must disclose the fees they charge for use of
their automated teller machines. If the consumer
is not provided with proper fee disclosure, an
ATM operator cannot impose a service fee
concerning any electronic fund transfer initiated
by the consumer. Furthermore, the act requires
that possible fees be disclosed to a consumer when
an ATM card is issued.
Interstate Banking and Branching
In late 1994 the 103d Congress authorized

significant reforms to interstate banking and
branching law. The Interstate Banking Law
(Pub. L. No. 103-328), also referred to as the
Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994, provided the banking
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
BANKS AND BANKING 509
industry with major legislative changes. The
Interstate Banking Act was expected to acceler-
ate the trend of bank mergers. These mergers
are a benefit to the nation’s largest banks, which
were expected to see savings of millions of
dollars resulting from streamli ning.
FURTHER READINGS
Adler, Joseph. 1995. “Banking without Glass-Steagall? Look
Overseas.” American Banking Association Journal
(May).
Bunditz, Mark. 2006. Consumer Banking and Payments Law.
Boston: National Computer Law Center.
The Bank Bailout Plan of 2008
S
ince the creation of the Federal
Reserve System in 1913, the U.S.
government has played a significant role
in regulating banks and promoting the
stability of the financial sector. Besides
overseeing the activities of banks, the
government created the
FEDERAL DEPOSIT
INSURANCE CORPORATION

, which insures the
money of depositors. However, the credit
squeeze of 2008 and the accompanying
collapse of major banks and other
financial instructions led to what has
been called “the bank bailout plan.”
Congress enacted and President
GEORGE
W
. BUSH signed the Emergency Economic
Stabilization Act of 2008 (EESA), Pub. L.
110-334. EESA established a program
called the Troubled Asset Relief Program
(TARP), which gave the
TREASURY DEPART-
MENT
the authority to purchase or insure
up to $700 billion of troubled assets. By
the end of 2009, many of the affected
banks had regained their financial foot-
ing and were paying back the TARPP
funds to the Treasury. Despite this ap-
parent success, critics of TARP argued
that it had overpaid for the troubled
assets. Moreover, the Obama adminis-
tration had failed to make meaningful
reforms of the financial industry.
The source of the 2008 financial
meltdown, which government officials
claimed almost brought the U.S. and

world economies to collapse, was the
decision by the
FEDERAL RESERVE BOARD
following September 11, 2001, to lower
interest rates on the money it lends
major banks. The U.S. economy had
slipped into a mild recession following
the terrorist attacks, and the Fed hoped
to stimulate it by making money more
available. The Fed’s hopes came true when
the cheap money led to low home-mortgage
rates. Low interest rates, combined with
sub-prime, adjustable mortgages, allowed
individuals who could never qualify for
financing to own a home. Many indivi-
duals bought houses with little or no down
payments and bought houses that were
more than they could truly afford. The
subprime mortgages in turn were pack-
aged and “securitized” by investment
banks; mortgage-backed
SECURITIES be-
came lucrative financial instruments,
though the worth of them was tied to
the ability of homeowners to make their
payments.
The dramatic growth in the value of
homes suggested to some economists that
the United States was experiencing a
REAL

ESTATE
bubble rather than a period of
solid, sustained expansion. They feared
thatanytypeofeconomiccontraction
would lead to higher interest rates for
subprime adjustable
MORTGAGE holders
and a high number of home foreclosures.
As the economy started to tighten in 2006,
the fears of these economists began to be
realized. Many new homeowners could
not pay skyrocketing monthly payments
and foreclosures increased. Even long-
time homeowners were affected because
they had refinanced their homes for the
low interest rates but took adjustable
rate rather than fixed rate mortgages. Des-
pite these signs, banks continued to sell these
risky mortgages and financial products.
When investment bank Bear Stearns
moved towards
BANKRUPTCY in early 2008
because of the shrinking value of the
mortgage-backed securities, the Federal
Reserve stepped in, assumed $30 billion
of its debts and forced a sale of the bank
to JPMorgan Chase for a price that was
less than the value of the Bear Stearns’
Manhattan skyscraper. In August the
federally sponsored entities Freddie Mac

and Fannie Mae raced towards insol-
vency. Freddie and Fannie were central
to the U.S housing market, holding mort-
gages that diminished in value every day.
On Sep tember 7, the Treasury Department
took control of both entities.
The long-respected investment bank
Lehman Brothers was next. Unlike Bear
Stearns, the government refused to step
in, forcing it into bankruptcy on Septem-
ber 12. On September 16, the American
International Group (AIG), one of the
world’s largest insurance companies, re-
vealed it was teetering on financial ruin.
AIG had insured risky securities that
were tied to securitized mortgages. The
federal government feared that if AIG col-
lapsed, it would produce a domino effect
as banks that had insured its securitized
mortgages would be left with toxic assets
that had little value. The government
essentially bought AIG for $85 billion.
As these events unfolded, the
STOCK MARKET
dropped almost 500 points and individuals
withdrew about $140 billion from their
money-market funds, sparking fears that
there would be a run on the banks.
On September 18, Treasury Secretary
Henry Paulson, a former Wall Street

investment banker, announced a three-
page, $700 billion proposal to bail out
the banks. He proposed that the govern-
ment buy the toxic assets from the largest
banks, which could stabilize their finan-
cial position. Members of Congress were
skeptical, in part because the three-page
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
510 BANKS AND BANKING
Carnell, Richard Scott, Jonathan R. Macey, and Geoffrey P.
Miller. 2006. The Law of Banking and Financial
Institutions. New York: Aspen.
Farrell, Cathlyn. 2008. Law and Banking. Washington, D.C.:
American Bankers Association.
Lovett, William A. 2005. Banking and Financial Institutions
Law in a Nutshell. St. Paul: West.
Timberlake, Richard H., Jr. 1993. Monetary Policy in the
United States: An Intellectual and Institutional History.
Chicago: University of Chicago Press.
CROSS REFERENCES
Bank of the United States; Federal Deposit Insurance Corpora-
tion; Federal Reserve Board; Glass-Steagall Act; Securities.
proposal was scant on details and gave
Paulson total, unreviewable control over
how he spent the $700 billion. Because
these events occurred during the 2008
presidential campaign, politics also fac-
tored into the debate on the proposal.
On September 29, the House of Repre-
sentatives voted down a modified version

of Paulson’s plan. The stock market lost
nearly 9 percent of its value after the vote
was taken, the worst decline since 1987.
Congress took note of Wall Street’s
reaction and reached a compromise. The
House passed the bill on October 3 and
sent EESA to President Bush for signing.
As the United States began to confront its
problems, the banks of Europe and Asia
were forced to deal with the crisis as it
played out around the world.
The TARP program was set up to
handle the disbursement of the $700
billion. The law defined “troubled assets”
to include residential or commercial mort-
gages and any “securities, obligations, or
other instruments that are based on or
related to such mortgages” originated
or issued before March 14, 2008. The secu-
ritized mortgages clearly were the prime
“toxic assets” that burdened the balance
sheets of the major banks. EESA released
$250 billion to the Treasury immediately,
with the president authorized to release
$100 billion more. For the remaining
$350 billion, the Treasury had to notify
Congress of its intent to use the money.
Congress had 15 days to pass a resolution
denying the Treasury the authority to do so.
Paulson originally intended to hold

AUCTIONS for the trouble assets but finally
decided it would be better for the gov-
ernment to loan the money. TARP man-
dated that the Treasury receive non-voting
stock f rom the banks in return for the
TARP funds. Congress also was outraged at
the enormous bonuses paid to bank execu-
tives for acquiring these toxic assets. The
TARP contained language that banned
banks that a ccepted TARP money from
offering incentives that encouraged “un-
necessary and excessive risks” to its top
executives. For senior executives hired in
the future, the banks were banned from
offering lucrative
SEVERANCE packages.
TARP also was intended to help
homeowners avoid
FORECLOSURE. The
Treasury was required to set up a
program to achieve this objective but
details were sketchy. Secretary Paulson
had no interest in implementing this
provision, telling Congress that TARP
“was not intended to be an economic
stimulus or an economic recovery pack-
age.” Congress was concerned with how
the Treasury would run TARP, so it
established the Financial Stability Over-
sight Board and a Congressional Over-

sight Panel. A February 2009 report from
the panel claimed that the government
had greatly overpaid for the toxic assets.
It had paid $254 billion for assets valued
at $176 billon.
As TARP got off the ground, the U.S
economy had taken a drubbing. It is
estimated that $8 trillion of wealth was
wiped out in the stock when measured
from its highest point in the decade.
Though TARP did stabilize the problem
banks (nine banks took TARP money in
return for stock), it was rumored that the
incoming Obama administration might
nationalize some of the troubled banks.
That was not the case. Instead, Treasury
secretary Timothy Geithner, who as head
of the Federal Reserve Bank of New York
played a key role in the fall 2008 with the
bailout program, announced that it
would perform “stress tests” on the 19
largest U.S. banks. The government
wanted to know whether the banks were
sufficiently capitalized to weather more
declines in the economy. The results of
the tests were promising. Ten of the 19
banks needed additional capital totaling
$75 billion.
Starting in March 2009, some of the
banks returned to profitability. Then in

June, 10 banks were allowed to return
their portion of the $700 billon TARP
funds. They paid back to the government
a total of $68 billion. The zeal with which
the banks returned the money was
primarily based on extricating them from
government oversight and restrictions on
executive pay. By September, Geithner
reported to Congress that the TARP
program was winding down and that
more banks would likely repay their
bailout funds. Though the bank bailout
appeared to be successful in stabilizing
the largest banks, financial reform regu-
lation legislation was having a slow and
difficult journey through Congress.
Moreover, though the public came to
the rescue of these private banks, credit
remained tight in late 2009 for businesses
and individuals alike.
FURTHER READINGS
Gasparino, Charles. 2009. The Sellout: How
Three Decades of Wall Street Greed and
Government Mismanagement Destroyed
the Global Financial System. New York:
HarperBusiness.
Goodman, Peter. 2008. “Taking Hard New
Look at a Greenspan Legacy.” New York
Times. October 8.
Morris, Charles. 2009. The Two Trillion Dollar

Meltdown: Easy Money, High Rollers, and
the Great Credit Crash. New York: Public
Affairs.
Phillips, Kevin. 2008. Bad Money: Reckless
Finance, Failed Politics, and the Global
Crisis of American Capitalism. New York:
Viking.
Sorkin, Andrew Ross. 2009. Too Big to Fail: The
Inside Story of How Wall Street and
Washington Fought to Save the Financial
System and Themselves. New York: Viking.
Varchaver, Nicholas, and Katie Benner. 2008.
“The $55 Trillion Question.” Fortune.
September 30.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
BANKS AND BANKING 511
v
BANKS, DENNIS J.
Native American activist, organizer, and protest
leader Dennis Banks (Nowacumig) helped found
the influential
AMERICAN INDIAN MOVEMENT (AIM).
Under his passionate leadership in the late 1960s
and early 1970s, AIM championed Native Ameri-
can self-sufficiency, traditions, and values. How-
ever, its demand for federal recognition of
century-old treaty rights led to violent clashes
with authorities, and the
FEDERAL BUREAU OF
INVESTIGATION

(FBI) branded AIM an extremist
group. In turn, illegal actions by the FBI led to
Banks’s acquittal on charges stemming from his
role in AIM’s occupation of Wounded Knee,
South Dakota, in 1973. While heightening nation-
al awareness of Native American issues, Banks
faced prosecution several times. He spent nearly
a decade as a criminal fugitive, receiving a form
of political
ASYLUM in California from then
governor Jerry Brown before surrendering in
1984 and serving a shortened prison term. Since
1978, Banks has led a Native American spiritual
organization in Kentucky called Sacred Run.
Banks was born April 12, 1937, in Leech
Lake, Minnesota. His difficult early life began
during one of many periods of upheaval in
federal policy regarding Native Americans. Like
many Anishinabe Ojibwa, or Chip pewa, chil-
dren, he was sent at the age of five to schools
operated by the federal Bureau of Indian Affairs
(BIA), and he spent part of his childhood being
shuttled between boarding schools in North and
South Dakota. The BIA mana ged such schools
in accordance with a landmark change in
federal policy kno wn as the Indian Reorganiza-
tion Ac t of 1934 (25 U.S.C.A. § 461 et seq.).
Under the terms of this so-called
NEW DEAL
for Indians—a plan for tribal government

that many traditional Native Americans had
resisted—schools were to have been improved
over those in previous decades that sought to
Christianize or “civilize” their pupils. But the
schools still deemphasized Native American
culture by forbidding the speaking of the
Ojibwa language, Lakota. Thus, like many of
his generation, Banks lost his nativ e tongue.
At the age of 16, Banks joined the U.S. Air
Force and served in Japan. Discharged in the
late 1950s, he returned to Minnesota, where
he faced the same problems as young Native
American men continued to face in the 1990s
and the 2000s: alienation from his culture,
Dennis Banks.
AP PHOTOS.
▼▼
▼▼
Dennis Banks 1937–
1930
2000
1975
1950
◆◆◆◆◆
◆
❖
Indian
Reorganization
Act of 1934
1937 Born,

Leech Lake,
Minn.
1939–45
World War II
1950–53
Korean War
1953–59 Served
in U.S. Air Force
1961–73
Vietnam War
1968 Founded American Indian
Movement (AIM) with Clyde Bellecourt
1969–71 Occupation of Alcatraz
Island by AIM members
1966
Convicted for
buglary, sent
to Stillwater
State Prison
1973 Riot at Custer County
courthouse; AIM takeover
of Wounded Knee
1978 Formed
Sacred Run, a
Native
American
spiritual
organization
1975–83 Lived as criminal fugitive;
given political asylum in California

1984–85 Served
sentence for 1973 riot
1992 Appeared as Mohawk
warrior in the film The Last
of the Mohicans
◆
2004 Ojibwa
Warrior
published
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
512 BANKS, DENNIS J.
unemployment, poverty, alcoholism, and crime.
“I was heading down a road that was filled with
wine, whiskey and booze,” Banks later recalled.
“Then I landed in prison.” In 1966 he was
convicted for burglarizing a grocery store and
began serving 31 months of a three-and-a-half-
year sentence in Stillwater State Penitentiary, in
Minnesota. In prison, Banks met fellow convict
Clyde Bellecourt, also an Ojibwa. The two men
and others founded AIM in July 1968 with
several goals in mind. They wanted to address
the problems that beset their people and find
solutions to basic needs such as housing and
employment. To help Native Americans live
successfully off reservations, they would start
so-called survival schools. But fundamentally,
they wanted to preserve their vanishing culture.
AIM’s emblem was an upside-down U.S. flag,
what Banks called the international distress

signal for people in trouble.
When the first AIM chapter started in
Minneapolis in 1968, Banks would often use a
police radio to guide him to the scene when
officers were arresting Native Americans.
Intending to prevent police abuses, he was
frequently arrested on charges of interference.
This kind of tough, streetwise advo cacy helped
spread the movement, making Banks, Belle-
court, and another AIM leader, Russell Means,
heroes to many of their generation.
Over the next four years, the movement
spread to all 50 states and to Canada. The
organization’s political message had widespread
appeal for Native Americans who felt betrayed
by the federal government’s Indian Reorganiza-
tion Act. Not only was this new deal perceived
as no deal, but many believed that it opened the
way for massive federal land grabs of Indian
territory on which valuable minerals were
located. Banks and his fellow leaders decided
to reclaim former Indian territory, announcing
that they would symbolically “retake the
country from west to east” like the “wagon
train in reverse.”
The militancy of their claims was soon
demonstrated. In its first act of protest, on
November 4, 1969, AIM seized the abandoned
federal prison on Alcatraz Island, in San
Francisco Bay, California. Two hundred acti-

vists claimed the island as free Indian land and
demanded that an educational and cultural
center be established there. In ironic press
statements, they announced the establishment
of a Bureau of Caucasian Affairs and offered to
pay the U.S. government $24, in mockery of the
1626 purchase of Manhattan Island from
Indians by Dutch settlers. The occupation,
which lasted 19 months, stirred up considerable
publicity. The U.S. House of Representatives
passed a
JOINT RESOLUTION directing President
RICHARD M. NIXON to negotiate with the activists,
but his administration’s offer to build a park on
the island was laughed off. U.S. marshals
ultimately arrested the activists still on the
island in June 1971.
In April 1971 Banks led several AIM members
in a week-long takeover of the Fort Snelling
Military Base, in St. Paul. Seizing an abandoned
building, the group announced that it intended
to start an Indian survival school there. Senator
Walter F. Mondale agreed to negotiate with Banks,
but before he could, a federal Special
WEAPONS
and Tactics (SWAT) unit arrested the protesters.
Around the United States, other occupations of
government property took place as AIM chapters
demonstrated against broken treaties. As a white
backlash against the protests began, several

Indians were beaten or shot. Charges of
MAN-
SLAUGHTER
brought against white attackers usually
ended in acquittal, inflaming the Indian move-
ment. It maintained that little or no help was
forthcoming from the BIA or the FBI.
In response, car caravans converged on
Washington, D.C., on November 2, 1972, in a
protest rally dubbed the Trail of Broken Treaties.
AIM presented a 20-point proposal demanding
that the government revamp the BIA, recognize
Indian sovereignty, restore the power of Indians
to negotiate treaties, and create a review board to
study treaty violations. A group of 400 protesters
seized the BIA building; clashed with riot squads;
and, renaming the facility the Native American
Embassy, ransacked files that Banks said con-
tained evidence of federal mistreatment of
Indians. Banks told reporters, “We are trying to
bring about some meaningful change for the
Indian community. If this is the only action that
will bring change, then you can count on demons-
trations like this 365 days a year.” On November 6,
the Nixon White House agreed to negotiate. After
two days, Banks’s followers departed in return
for the appointment of a special panel to investi-
gate conditions on Indian reservations. But within
a wee k after the takeover, federal funding was cut
offforthreeofAIM’s survival schools.

In early 1973, a turning point occurred in
Banks’s life and the direction of AIM. On
WHAT WE HAVE
DONE
, WE DID FOR
THE SEVENTH
GENERATION TO
COME
. WE
DID NOT DO THESE
THINGS FOR
OURSELVES

[
BUT] SO THAT
THE SEVENTH
GENERATION MAY
BE BORN FREE
.
—DENNIS BANKS
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
BANKS, DENNIS J. 513
February 6, he led an AIM protest 200 strong in
Custer, South Dakota , after a white man
accused of killing an Indian in a barroom brawl
was charged with
INVOLUNTARY MANSLAUGHTER.
Banks met with local officials, but when the
slain man’s mother, Sarah Bad Heart Bull, tried
to enter the courthouse, she and other Native

Americans were beaten by the police. A riot
ensued, in which AIM members set fire to
police cars and the chamber of commerce
office. For his role in the Custer incident, Banks
was charged with
ARSON, BURGLARY, and mali-
cious damage to a public building, all of which
he denied. But his radicalization was complete.
“We had reached a point in history where we
could not tolerate the abuse any longer,” Banks
later explained, “where mothers could not
tolerate the mistreatment that goes on on the
reservations any longer, they could not see
another Indian youngster die.”
Three weeks later, Banks, Means, and other
AIM members took over the town of Wounded
Knee on the Pine Ridge Reservation in South
Dakota. For Native Americans, the town has a
bitter place in history: it is the site where, in
1890, 300 unarmed Sioux men, women, and
children were massacred by the Seventh Cavalry
of the U.S. Army. Banks and Means hoped to
invoke this symbolism by seizing the town by
armed force and issuing new demands. They
wanted the federal government to investigate
the BIA and to address treaty violations, and
they denounced recent tribal elections as
corrupt manipulations by white U.S . citizens.
As national attention focused on the growing
army of some three hundred FBI agents and

U.S. marshals, and the armored personnel car-
riers surrounding the militants’ fortifications,
gunfire was frequ ently exchanged. Over 71 days,
while the government ordered surrender without
AMNESTY, the town was held. “We laid down our
weapons at Wounded Knee,” Banks told the
press from within the stronghold, recalling the
1890 massacre. “Those weapons weren’t just
bows and guns, but also a sense of pride.”
The takeover ended on May 9, 1973. Penta-
gon documents later revealed that the U.S. Army
had readied a vast military arsenal to clear out
AIM members, including more than 170,000
rounds of ammunition, grenade launchers,
explosives, gas, helicopters, and jets. In the end,
however, casualties were limited: two Native
Americans were killed and several wounded;
three members of the government forces were
wounded, including one agent who was para-
lyzed. As a condition of surrendering, AIM was
once again promised a federal investigation of its
demands, but none was forthcoming.
Banks and Means were prosecuted on ten
felony counts each in a dramatic eight-month
trial in St. Paul, during which federal marshals
used mace on courtroom spectators. The
defendants alleged that their takeover of
Wounded Knee was justified by the govern-
ment’s violations of the 1868 Treaty of Fort
Laramie—a pact in which the Sioux Indians had

been promised government protection for
ending their armed resistance. But the case
against Means and Banks foundered on revela-
tions that the FBI had used illegal wiretaps and
had chan ged documents, among other illegal-
ities, in mounting its prosecution. On Septem-
ber 16, 1974, all charges were dismissed.
Although Banks acted as a negotiator during
the mid-1970s, settling disputes between Native
Americans and authorities, other aspects of his
life soon changed for the worse. In July 1975 a
South Dakota jury convicted him on charges of
riot and assault with a deadly weapon for his
role in the 1973 riot at the Custer County
Courthouse. The conviction carried a maxi-
mum sentence of 15 years in prison. Before
sentencing, Banks heard prison guards say he
would not last 20 minutes in the South Dakota
State Penitentiary. He fled , only to be arrested
by FBI agents on January 23, 1976, in northern
California. A massive petition movement sup-
ported by the actors Jane Fonda and Marlon
Brando appealed to Governor Brown on Banks’s
behalf. Brown reduced Banks’s bail, refused
EXTRADITION requests from South Dakota, and
informed authorities there that he was protect-
ing Banks because of sworn statements that
Banks’s life would be endangered if he were
imprisoned. Banks lived freely in California,
serving as chancellor of the two-year Indian

college Deganawidah-Quetzalcoatl University,
until the 1983 inauguration of Republican gover-
nor George Deukmejian ended his asylum.
Banks then took sanctuary on the Onondaga
Reservation in New York. Because reservations
in the state are not under federal jurisdiction,
the FBI chose not to arrest him as long as he
remained there.
After nine years as a fugitive, Banks gave
himself up to state authorities in South Dakota in
fall 1984. His request for clemency was denied,
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
514 BANKS, DENNIS J.
and he was sentenced to three years in prison.
After his PAROLE on December 9, 1985, he spent
time on the Pine Ridge Reservation, where,
through his success at persuading Honeywell
and other companies to locate factories there,
employment doubled. But his legal troubles
continued. Banks had been charged with illegal
POSSESSION of dynamite stemming from the 1975
arrest of his wife, Kamook Nichols. A lower court
dismissed the charges in 1983 on the ground that
Banks and three other defendants had been
denied their
SIXTH AMENDMENT right to a SPEEDY
TRIAL
, and a second federal court upheld the
ruling. But on January 21, 1986, the members of
the U.S. Supreme Court, in a 5–4 vote, held that

their rights had not been violated, because they
were free without bail and not under indictment
during the 90-month delay in their prosecution.
Banks pleaded guilty on March 8, 1988, and
received five years’ probation. Also in 1988,
Banks’s autobiography Sacred Soul was published.
In 1994 Banks led the four-month “Walk
for Justice.” The purpose of the trek from
Alcatraz Island in San Francisco to Washington,
D.C., was to publicize current issues regarding
Native Americans.
Banks continued to serve as director of
Sacred Run, an organization he founded in 1978
to address Native American spiritual concerns.
Since then the Run has become an international,
multicultural event that carries the message of
the sacredness of life and of humankind’s
relationship to the earth. By 1996 Banks had
led runners over 58,000 miles through the
United States, Canada, Europe, Japan, Australia,
and New Zealand.
Banks has had roles in movies including
War Party, The Last of the Mohicans, and
Thunderheart. A musical cassette, Still Strong,
featuring Banks’s original work as well as
traditional Native American songs, was com-
pleted in 1993 and a music video with the same
name was released in 1995.
As of 2009, Banks continues working toward
the release of Leonard Peltier. Peltier, an Ojibwa

whom Banks considers to be a political prisoner,
was convicted in 1977 of the
MURDER of two FBI
agents during a gunfight in Oglala, North
Dakota. In addition to supporting the Peltier
defense and other issues concerning Native
Americans, Banks sits on the board of directors
for the Nowa Cumig Institute and travels and
lectures in the United States and abroad.
FURTHER READINGS
Banks, Dennis J., with Richard Erdoes. 2004. Ojibwa
Warrior: Dennis Banks and the Rise of the American
Indian Movement. Norman, Oklahoma: University of
Oklahoma Press.
Churchill, Ward. 1988. Agents of Repression: The FBI’s Secret
Wars against the Black Panther Party and the American
Indian Movement. Boston: South End Press.
Sayer, John William. 1997. Ghost Dancing the Law: The
Wounded Knee Trials. Cambridge: Harvard Univ. Press.
Smith, Paul, and Robert Warrior. 1997. Like a Hurricane:
The Indian Movement from Alcatraz to Wounded Knee.
New York: New Press.
Weyler, Rex. 1982. Blood of the Land: The Government and
Corporate War against the American Indian Movement.
New York: Everest House.
CROSS REFERENCE
Native American Rights.
BAR ASSOCIATION
An organization of lawyers established to promote
professional competence, enforce standards of

ethical conduct, and encourage a spirit of public
service among members of the legal profession.
The mission of a bar association is fre-
quently described in the words of
ROSCOE POUND,
legal scholar and dean of Harvard Law School
from 1916 to 1936: “[To] promote and maintain
the
PRACTICE OF LAW as a profession, that is, as a
learned art pursued in the spirit of a public
service—in the spirit of a service of furthering
the administration of justice through and
according to law.”
Bar associations accomplish these objectives
by offering continuing education for lawyers in
the form of publications and seminars. This
education includes instruction on recent devel-
opments in the law and managing a law practice
successfully as a business. Bar associations en-
courage members to offer
PRO BONO legal services
(to provide legal services at no cost to members
of society who cannot afford them). The asso-
ciations develop guidelines and rules relating to
ethics and
PROFESSIONAL RESPONSIBILITY and enforce
sanctions for violation of rules governing lawyer
conduct. They also offer attorneys the opportu-
nity to meet socially to discuss employment
prospects and legal theories.

The International Bar Association, based in
London, is for lawyers and law firms involved in
the practice of
INTERNATIONAL LAW. In the United
States, bar associations exist on the national,
state, and local levels. Examples are the
AMERI-
CAN BAR ASSOCIATION
(ABA) and the FEDERAL BAR
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
BAR ASSOCIATION 515
ASSOCIATION on the national level, the New Jersey
State Bar Association and the Florida Bar
Association on the state level, and the New
York City Bar Association on the local level.
Some law schools have student bar associations
for the student body as a whole, and distinct,
smaller bar associations for students with a
common ethnic background or an interest in a
specific area of practice.
In a majority of states, membership in the
state bar association is mandatory for those
licensed to practice law. When lawyers are
required to join the bar in order to practice law,
the bar is said to be integrated, or unified.
Integration is generally accomplished by the
enactment of a statute giving the highest court
of the state the authority to integrate the bar, or
by rule of that court in the exercise of its
inherent power. In effect, lawyers are not free to

resign from an
INTEGRATED BAR, because by doing
so, they lose the privilege to practice law.
The modern U.S. bar association traces its
beginnings to the mid-nineteenth century. At
that time, the practice of law was largely
unregulated. People in need of legal services
had no assurance that the lawyers they hired had
had even minimum legal training. To address
this situation, leaders of the legal profession
began to organize self-governing bar associations
to establish standards of education and of
professional conduct. The first Code of Profes-
sional Ethics was formulated by the Alabama
State Bar Association in 1887. The ABA Canons
of Professional Ethics followed in 1908, and
were subsequently adopted in whole or in part
throughout the United States. These canons were
revised and expanded in 1969, as the Model
Code of Professional Responsibility, and again
in 1983, as the Model Rules of Professional
Conduct. The ABA amends the Model Rules
periodically as necessary, and states are free to
determine whether to adopt these amendments.
In addition to the rules, both the ABA and
state bar associations issue ethics opinions,
which are advisory statements regarding the
application of an ethical rule. Although these
opinions are not binding as law, they are often
persuasive when reviewed by a court.

Major issues of concern to bar associations
in the 2000s included:
n
A perceived decline in professionalism
among lawyers, manifested by a decline in
civility and professional courtesy.
n
The preservation of due process and other
constitutional rights in light of the wave of
international anti-terrorism sentiment.
n
A conflict between lawyers’ ethical respon-
sibilities and their business interests. Critics
within and outside the legal profession
complain that some lawyers seek out clients
using unethical methods, and engage in
LITIGATION of questionable merit i n the
pursuit of personal profit rather than in
the interests of justice.
n
The politicization of bar associations and the
preservation of judicial independence. On
some occasions, bar associations have taken
positions on hotly contested social and
political issues. Critics argue that the conflict
within the membership over these issues
distracts bar associations from their primary
duty of regulating the practice of law.
n
Tort law reform. Bar associations continue

to oppose any en actment of federal legisla-
tion that would preempt state tort law
in such areas as
PRODUCT LIABILITY,medical
LIABILITY, and automobile liability, includ-
ing federal initiatives aimed at creating
maximum allowable damages in tort cases.
FURTHER READINGS
American Bar Association. Available online at https://www.
abanet.org/home.html (accessed May 16, 2009).
Hamilton, Bruce. 1995. “What Makes a Great Bar Associa-
tion.” Arizona Attorney (January).
Martin, Peter A. 1989. “A Reassessment of Mandatory State
Bar Membership in Light of Levine v. Heffernan.”
Marquette Law Review 73 (fall).
Pound, Roscoe. 1953. The Lawyer from Antiquity to Modern
Times. St. Paul, MN: West.
Warren, Kenneth J. 2003. “Multijurisdictional Practices Call
for New Mo delRules.” TheLegal Intelli genc er (F ebr uary2 0 ).
Young, Don J., and Louise L. Hill. 1988. “Professionalism:
The Necessity for Internal Control.” Temple Law Review
61 (spring).
CROSS REFERENCE
Continuing Legal Education.
BAR EXAMINATION
The bar examination is a written test that an
individual must pass before becoming licensed to
practice law a s an attorney. A license to practice
law within a state or federal jurisdiction is gene-
rally premised upon admission to that jurisdic-

tion’s bar (a collective professional association
of attorneys and counselors) by meeting its
criteria, including passing that jurisdiction’s bar
examination.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
516 BAR EXAMINATION
Bar examinations are regulated by states,
and their specific requirements vary from state
to state. Generally, they cover numerous legal
topics and consist of multiple-choice questions
and/or essay questions; many jurisdictions addi-
tionally require a test designed to assess an
examinee’s fundam ental lawyering skills in a
hypothetical situation.
Each state has an interest in protecting its
citizens by ensuring the quality and competency
of lawyers who receive licenses to practice in the
state. In addition to requiring bar candidates to
pass a difficult and comprehensive test of subs-
tantive lega l knowledge, most jurisdictions also
require proof of graduation from an
ACCREDITED
LAW SCHOOL
and successful completion of a
character background review. With few excep-
tions, only people who satisfy these strict
requirements and are licensed by a state bar
may practice law in the licensing state. Critics of
this system of
ATTORNEY licensure argue that its

true purpose is to reduce competition between
lawyers by regulating the number of lawyers
admitted to the bar.
Historically, lawyers have played an active
role in determining who, and how many, would
join their ranks as members of the bar. This
tradition predates the U.S. Constitution by
more than six centuries, when Eng lish courts
governed who would be allowed to practice law.
Courts have long relied on the rationale that the
integrity and competency of practicing atto r-
neys directly affect the quality of justice
dispensed.
The U.S. legal system has adopted this
rationale. Before 1828, states allowed practicing
attorneys to determine the competency of
prospective attorneys. Strict rules developed by
lawyers at that time typically required an
individual to obtain a college degree and work
several years as an attorney’s apprentice before
being admitted to the
PRACTICE OF LAW. Because
attorneys controlled who would get apprentice-
ships, the general public perceived the system as
catering to the elite.
A decline of elitist attitudes surrounding the
election of President
ANDREW JACKSON in 1828
prompted a change in the attorney licensing
system. State legislatures divested the authority

granted attorneys and reclaimed control of
bar admission standards, which became far less
stringent and far less exclusive. Apprenticeships
remained the most common form of legal
study, but by 1860, only nine states required any
form of
LEGAL EDUCATION for ADMISSION TO THE
BAR
. Written bar examinations, when required,
were cursory.
By the late 1800s, a surge in formal law
schools spurred a decline in legal apprenticeship
programs. A new wave of interest in improving
standards of legal education and bar admission
prompted the founding of the
AMERICAN BAR
ASSOCIATION
in 1878 and the American As socia-
tion of Law Schools in 1900. These groups
encouraged tougher bar admission standards,
including the requirement that all bar candi-
dates compl ete a written examination used to
assess their fitness to practice law. In the early
2000s, every state offers a bar examination.
Administrative bodies established in each
state generally govern the standards and parti-
cularities of the bar examination. In keeping
with the tradition of attorney self-regulation,
these boards usually are made up, at least in
part, of licensed attorneys. The boards deter-

mine what legal topics will be covered; what
types of questions will be asked; what grading
methods will be applied; and the locations,
dates, and times of examinations. Nearly every
state requires, as one component of the exami-
nation, the Multistate Bar Examination.
The Multistate Bar Examination contains
200 multiple-choice questions covering six legal
topics: contracts,
CONSTITUTIONAL LAW, CRIMINAL
LAW
and procedure, evidence, real property, and
torts. Examinees have six hours to complete the
exam, or 1.8 minutes for each question. This
computer-graded test is offered twice per year,
usually in February and July. The test questions
change each time the examination is given, and
score results from the multistate examination
taken in one state may be transferred to other
states’ bar admissions committees. According to
the National Conference of Bar Examiners
(NCBE), as of 2008, only Louisiana and Washington
did not include the multistate examination
as part of their respective bar examinations. The
average raw score, according to the NCBE, has
hovered between 125 and 130 out of 200.
Most states al so require bar candidates to
complete a test of their knowledge of state
laws. Examinees usually take this portion of the
exam on the day before or after the Multistate

Bar Examination. This state-specific examina-
tion often contains essay questions or multiple-
choice questions or a combination of the two.
GALE ENCYCLOPEDIA OF AMERICAN LAW, 3RD E DITION
BAR EXAMINATION 517