The Congressional Manual

bearing interests at from 2 1-2 per cent to 5 per cent. had to be deposited to secure circulation, making it necessary for the banks to pay a premium of 12 to 20 per cent. for the bonds purchased for the purpose. Under the new law provision is made for the issue of 2 per cent. refunding bonds, which, when issued, may be used by the banks in depositing bonds to secure the currency.

Sec. 10 provides for the repeal of the tax upon National-bank note circulation and the substitution of a tax of one-fifth of one per cent. upon the franchise of National banks as measured by their capital, surplus, and undivided profit.

The difference in favor of the banks may be ascertained as follows:

Under the old law a bank putting up $100,000 in 3 per cent. bonds as security for its circulation, received $90,000 in national bank notes. The expenses of this circulation are, first, a 1 per cent. annual tax, or $900 per annum, cost of preparing notes, retaining mutilated currency, redemption by the government, etc., $100 per annum; the bonds being at 12 per cent. premium cost the bank $112,000, and at their maturity it gets only $100,000. Average depreciation per annum of the value of the bonds, about $900. Total expenses of circulation per annum, $1,900.

In return for this the bank receives:

3 per cent. on $100,000 in bonds..... 6 per cent on $90,000 currency loaned.

Total ...

.....

Deduct expenses of circulation..

Net profit of circulation...

.$3,000

5,400

.$8,400

1,900

...$6,500

If the bank instead of investing its $112,000 in circulation, should loan that amount at 6 per cent.,its profits would be $6,720, or $220 more than its earnings by issuing bank notes.

These figures explain why the banks have not taken out circulation to the full extent allowed by law and why it is necessary to make the issue of bank notes more profitable in order to enlarge the circulation.

Sec. 11 authorizes the organization of National Banks with a capital stock of $25,000.00 in towns having a population of 2,000 inhabitants or less.

The effect of the law will be if, as is generally believed, the number of National Banks and the aggregate of their circulation be largely increased, to give us lower rates of interest on bank loans. In the first place the banks can afford a lower rate by nearly I per cent. without diminishing their profit on the money invested and in the second place the

competition for good paper will increase with the increase in the number of banks and the amount of currency in circulation.

Some think that this will encourage speculation and inflation of the currency and drive our gold abroad to seek foreign investments. But if money falls in value to the loaner, the tendency to inflate will be checked to correspond. However much of our gold is sent abroad as an investment it cannot long stay abroad while the balance of trade in our favor amounts to a billion a year, or anything like that enormous sum. The balance will have to be paid in gold or its equivalent and there seems to be no'particular danger of a gold famine in the United States.

Aggregate resources, expressed in millions of dollars, of national banks on June 30, 1899, and State, savings, private banks, and loan and trust companies at date of latest returns to this burau.