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THE NATIONAL BANKS OF THE UNITED STATES OF

AMERICA.*

By Mr. ROBERT W. BARNETT. The bill for the renewal of the charters of the National Banks was finally passed by both Houses, and approved by the President, on the 12th of July last. Its fate could hardly at any time be considered doubtful, though the opposition it encountered was both keen and bitter ; but it was by no means certain that in its final shape it might not embody some amendments greatly at variance with the principles of the measure. This form of opposition, however, has been unsuccessful, and the system remains unaltered as to its main features of local issue and central control. Under certain conditions any National Bank may, within the two years next previous to the date of expiry of its present charter, take powers to extend its existence for a further period of twenty years. This must be considered as giving to the system something more than a temporary prolongation. It is obvious that it may, in the case of the banks most recently established, be extended for nearly forty years. But it has been well understood that the struggle was for the acceptance or rejection of the National Banks as a permanent system, and though many of the objections that have been urged have been not without foundation, it has not only proved a great advance upon the state of things by which it was preceded, but has conferred positive advantages upon the country which have been thoroughly appreciated. Doubtless the perception of these advantages has been greatly assisted by the fact of each bank being a separate and local institution, and thus arousing local interests in every town in the Union.

Under the new Act application must be made to the Comptroller for power to amend the articles of association by extending the period of succession, and must be accompanied by a certificate that the amendment has the consent of shareholders owning at least two-thirds of the capital. Before granting the powers asked for, the Comptroller is directed to make a special examination into the affairs of the bank, and to permit its extension only if its condition is quite satisfactory. Any shareholder not assenting to the amendment may give notice to the directors of his desire to withdraw from the association, and is then entitled to receive from the bank the value of his shares, as ascertained by an appraisal to be made by a committee of three persons; one of whom is to be appointed by the shareholder, one by the directors, and the third by the first two. If the shareholder should be dissatisfied with the value fixed, an appeal lies to the Comptroller, who will cause a re-appraisal to be made, which is to be taken as final. The shares so surrendered to the bank are by them to be sold at public sale within thirty days.

* The following remarks are supplementary to the paper on the National Banks of America, which was read by Mr. Barnett before the Institute on the 17th May last (pp. 381-418). It will be remembered that at that time the Bill for the Extension of the National Bank Charters, the provisions of which are here explained, had not passed the Senate.--Ed.

The circulating notes now issued by such National Banks as arrange to extend their charters are to be redeemed at the Treasury of the United States, as prescribed by the Act of 1874, and new notes, bearing new devices, may be obtained in their stead. At the end of three years from the date of extension lawful money must be deposited in the Treasury to redeem the remainder of the old circulation then outstanding.

The old Acts are modified in some particulars as to the amount of bonds to be deposited, and of circulation to be issued. Banks having a circulation of $150,000 or less are not now required to keep in deposit against circulation bonds in excess of one-fourth of their capital, instead of the former minimum of $50,000. Further, in accordance with the recommendations of the Comptroller, the graduated proportion between the capital of the banks and the amount of circulation obtainable by them * has been abolished, and all banks may now obtain circulation to the extent of 90 per cent. of their capital.

Section 9 is an endeavour to prevent the sudden contraction of the circulation by the deposit of lawful money and the withdrawal of bonds on deposit for temporary purposes. provides that any National Bank depositing money in order to withdraw its notes shall not be entitled to receive any increase of circulation for a period of six months thereafter. The amount to be deposited for the above purpose is also limited to three millions of dollars per month. It is specially reserved, however, that neither of these limitations are to apply in the case of bonds that are called for redemption by the Secretary of the Treasury.

Section 13 refers to the over-certification of cheques, and appears to be chiefly aimed at certain banks in New York City, whose practice of discounting a temporary obligation as a means of satisfying or evading the Act of 1869 has been already described. It is now enacted that any officer of any National Bank who shall " resort to any device, or receive any fictitious obligation, direct or collateral, in order to evade the provisions of the law, or who shall certify checks before the amount thereof shall have been regularly entered to the credit of the dealer," shall be liable to be fined five thousand dollars, or im

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* See p. 391 of this volume. + See p. 400 of this volume.

prisoned for five years, or both. It is understood that about onehalf of the banks accustomed to these practices have at once resolved to comply positively and unreservedly with the law; whilst the rest have adopted the plan of stamping cheques “ Accepted, payable through the clearing-house,” which would appear to leave the question very much where it was before.

Two points in the bill, while specially affecting National Banks, possess even a greater interest for wider circles. These are the provisions relating to the issue by the Treasury of gold and silver certiticates, and of 3 per cent. bonds.

As to the latter, the Secretary of the Treasury is authorised to receive any bonds bearing 35 per cent. interest, and to issue in exchange an equal amount of registered bonds bearing 3 per cent. interest. It is provided that these bonds shall not be called in and paid as long as any bonds bearing a higher rate of interest remain uncalled; and that the last of the bonds originally issued under this Act and their substitutes shall be the first called in, and that this order of payment shall be continued until all shall have been paid. This gives to these bonds, or at least to those of them that are earliest issued, a degree of permanence not possessed by any other class of the national securities, and they were expected, therefore, to offer special attractions to the National Banks, whose calculations have been greatly disturbed of late years by the constant changes, threatened or accomplished, in the various classes of government bonds. The operation of this clause has so far been very successful. At the earliest possible moment, at 10 a.m., on the 1st of August, the amount offered for exchange was about two hundred millions of dollars, of which the greater portion was held by National Banks. This result, as compared with the failure to achieve the same ends in a different manner but a few months ago, is an interesting and instructive example of the art of putting things.”

By Section 12 the Secretary of the Treasury is authorised and directed to receive deposits of gold coin in sums of not less than twenty dollars, and to issue therefor certificates which are receivable for customs, taxes, and all public dues. Such certificates, and also the silver-certificates, when held by any National Bank, may be counted part of its lawful money reserve; and “ no national banking association may be a member of any clearing house in which such certificates may not be receivable in the settlement of clearinghouse balances." The introduction of this clause is no doubt regarded by the silver party as a success, but it may be questioned whether the result will at all agree with their expectations. As far as the clearing-houses are concerned it will probably be inoperative. The New York Clearing House Association have promptly rescinded their resolution of November 12th, 1878, prohibiting the payment of balances in silver-certificates, but it by no means follows that they will be used by them for that purpose, or that they would continue in association with any bank that did so, On the other hand, the resumption of the issue of gold-certificates, which was discontinued about four years ago, will not improbably lead to the substitution of these for a large part of the silver-certificates now in use; and will, in any case, be a great benefit and assistance to such clearing-houses as have not yet established any gold deposits, and also to some others of them whose vaults are full to overflowing

But in its relation to the public generally, the above clause will prove of greater importance, and may, likely enough, lead to the reopening

of the whole silver question. The silver dollars decreed by the Act of 1878 are not generally liked by the people, and have not attained any large circulation. Of the whole amount yet coined nearly three-fourths remain in the Treasury, and though certificates representing a large part of this amount have

been put into circulation, they have been taken as government notes, and without reference to the fact that they are payable only in silver dollars. The want of gold-certificates has no doubt been the cause of the circulation of the silver-certificates, and most probably, when the former are again obtainable, the others will fall into disuse. Whether, then, they continue to be used as a sort of fiat money for government payments only, or are withdrawn altogether, they will present an economic problem not easy of solution.

NATIONAL DEBT. A PARLIAMENTARY Return (No. 367, of Session 1882) recently issued, and which is reprinted below, contains an extremely interesting record of the progress that has been made in the reduction of the National Debt during the past quarter of a century.

The creations of debt are separated under three headings, and with the aid of the foot-notes it is possible to distinguish between the debt incurred for re-productive and that for non-productive expenditure. On the other side of the account the reduction of debt due to the decreased capital of Terminable Annuities is stated separately, and special transactions included in the accounts are explained in notes. The amount of new taxation imposed or of old remitted in each year is also appended.

It shows that the debt of all descriptions has been reduced from £838,918,443 in 1857-1858 to £763,045,940 in 1882, or by an amount of £75,872,503. The transactions leading to this result may be traced as follows:

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1857–1882 Debt paid off and cancelled by means of various Sinking Funds, &c.

£55,757,930 1857-1882 Debt created

for Re-productive Expenditure £29,899,272
for Non-productive

£20,683,069

50,582,341

£5,175,589

1857-1882 Excess of Debts cancelled over debts created
1857-1882 Decrease of Capital value of Terminable

Annuities, i.e., the amount of debt re-
deemed by such Annuities

70,696,914

$75,872,503

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In a general view of the subject it should be borne in mind that this direct reduction of debt has been effected not only out of ordinary resources, but concurrently with an aggregate remission of taxation on balance, as shown in the return under consideration, of nearly £31,000,000 and that nearly £30,000,000 of the debt created has been invested in the purchase of the Telegraphs and Suez Canal shares, and in loans for Public Works, all of which yield a fair return to the exchequer, and are valuable assets for at least the amount expended on them. The Terminable Annuities are moreover capitalised in an equivalent of consols at 92-3 per cent., or at an interest of 34 per cent., while the price of 3 per cent. stock has been for some time at and even above par. As pointed out by Mr. Hubbard, this excessive valuation causes the balance of debt outstanding in 1882 to appear larger by some £2,000,000 than it might fairly have been shown.

The national balance sheet may thus be said to show an improvement of more than £136,000,000, as the result of the financial transactions of the period over which this return extends.

In 1885 a very large amount (£6,062,964. 7s. 3d.) of Terminable Annuities will expire, and, under existing arrangements, the funds thus released will be applicable to the reduction of debt. duction would, of course, be in addition to the amount that may be redeemed by the action of the various existing sinking funds and to the sums of stock that may be cancelled on account of the purchase of Life and other Terminable Annuities and of the Redemption of Land Tax-probably not less than about £2,000,000 per annum.

Attention may here be directed to the advantage, when dealing with such large reductions of debt, of the system lately advocated by Mr. Hubbard * with a view to avoiding the inconvenience now caused by the setting free at distant periods of so large an amount of the annual charge for debt. Under the plan proposed by Mr. Hubbard successive short annuities, terminating in successive years, would be created, each annuity to be replaced on expiry by another annuity of like amount and term. By this means he urges that the reduction of debt thus effected would be continuous, and would oporate, unless interfered with, until the whole debt were redeemed.

* Times, 26th and 28th September, and Economist, 14th October.

Such re

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