Memphis daily appeal. [volume] (Memphis, Tenn.) 1847-1886, 1867-11-13
YEMPHIS APPEAL
OUR NATIONAL BANKS.
LETTER FROM JAY COOKE,
THE BANKER.
The Origin OF the National
Banking System.
The Present Position OF the
Banks.

I
Banks.
| rrI.-sURsrITUT1ON or GREENBAcKs FOR NA'
TI0SAL BANK NOTES.
Your third question touches part of
the subject which most interests the peo-
Die at the present time, and which is
most discussed and least understood by
q certain class Of politicians. Ny answer
is this:
First-Even if it were tFus that the
Government is paying eighteen millions
annual iteo the Golfers OF the National
Banks, which could as well be saved TO
the Deople by a substitution Of greenback
rJrrepcy. vet it would be far better to
nav this sum than to have the greenback
or Treasury note system permanently
fastened upon the country. regard the
issue bv the Government Of legal tender
/ notes. to be used as q circulating me-
dunn. As an anomaly in finance. II was
purely a war measure, justifable because
necessary 10 the life OF the Nation, and,
ike other war measures, sAOuld end
with the return OF a prosperous peace.
It is not desirable that the greanbacks be
Immediately or suddenly Withdrawn,
but they should be gradually and surely
replaced with a currency Whlcn Is leglLl-
mate and permanent.
.SecOHd-It was an important part oI
the contract between the Government
and the Old State banks, when the latter
surrendered their State charters, tnat II
| thew be entitled to 3 certain proportion
Of Circulation. This was also the princi-
psl ipducement offered for the formation
Of new banking institutions. Without
This nIedge of circulation few If any OF
the old banks would have surrendered
/ their state ehartRTs, and it would have
I hsen imposgibls to establish the national
system at all. That circulation cannot
/ now be taken away without pAlpaole
/ breach of faith toward the combined cap
/ itaI of the natiOn-such a breach Of fsith
! as would ever after render capital timid,
cautious and backward in its dealings
| with q government which could thus dis
! regard its pledges. However plausible
| the prOposition may seem the people SRn-
not possiUly be benefited by any hnan-
/ cial measure which practical lyrepudi-
! ates the contract Of their government.
] T7tird-This claim would be equally
good against any system Of banking, for
/ fbe actual point of the argument is chat
40 long as there shall be q national debt
| the Government ought TO supply all 15e
currency Of the country, in order to save
/ interest. Suppose the old Stas nank
I svstem were now in existence, with three
| hundred millions Of comparatively unse-
curad circulation, there would be still
! stronger reasons Why the Government
/ should force the State banks TO retire
/ +bair circulating notes, and itself supply
( tbe needed currency. The people would,
! IN mis- supposed case, save just as much
/ interest Is they would now save by re-
1 firing the National Bank notes. Hence
tine real Question is Shall we have aBy
/ banking system at al? for II the present
/ excellent system be destroyed IL would
1 he impossible TO originate another Whlch
would not be open TO the same OoJec-
tioDs II an exclusively greenoack cur
reucy be adopted, OF course we can nave
no system Of baDKs, either State or Ma
ti0ual, having the privilege OF clreuIA-
ton.
EJl,l-th-But it is not true that the
Government would annually save eigh-
teen millions Of dollars, or any part OF
that sum, by destroying the National
banking system, and issuing green backs
In Mace OF the National Bank currency
now in circulation
This fact. which I shall soon substan-
fi.ta indicates how little this subject is
understood by those VINO are most per
sisteut in their attacks upon the present
system Of banking.
II is not a question whether the Gov
erumeut ought, or ought not to pay 70
the banks the interest on the United
states bonds owned by them and depos'
tied st Washington 10 secure the clrcu-
Iatfng notes These bonds are tne private
,--g,,srt,y of the hanks-the agglOmerated
capital of individuals VINO nave i Iuls
united their means in 8 legitimate busi-
T,ass-aud no matter vine held these
1 Cavern % ent securities, the interest Wonid
have TO be paid all the same me
National Banks are just rs much entitled
4 10 tbe interest on the United STATES
! bonds they have bought and paid for, as
are the farmer, the mechanic ana lDe
merchant, TO the interest on the Oonds
: held by them.
Il being plain, then, that the Govern
Dleut cOnfers 10 special privilege upon
( the banks by simply paying them inter-
| est on the United states bonds they hold,
/ il becomes necessary to look further for
/ the "fsveTitism and loss to Govern
ment Of which We hear complaint. My
/ statement made above being necessarily
admitted, il will be claimed that National
/ Banks are permitted to issue three hum
| dred millions Of circulating notes, which
amount they loan to their customers at
I
| thus in reality receiving a double inter
! est on a single investment of three hun
| dred millions of dollars. Then follows
the additional claim that the Govern
ment may Just as well supply this three
/ hundred millions of circulation, and
with il buy up and cancel an equal
amount Of United States bonds, thus
/ saving to the people the eighteen mil
| lions Of annual interest.
/ This has plausible look and misleads
mary. By this showing the banks stand
! charged with eighteen millions Of an
nual interest derived from their circulat-
! ing notes, which amount, il It really be
| received and no equivalent be rendered
/ by the banks, is virtually gratuity or
| special privilege enjoyed by the National
1 Banks. The interest on Government
/ bonds has nothing TO do with the sub
/ iect-the " favoritIsm," If such there be,
! Is connected exclusively with the circu-
3 .ation Of the banks.
But 1 repIy the National Banks do not
receive anything ike eighteen millions
OF interest on their three hundred mil
| lions Of circulation. What they do re-
| ceive the following facts, which are &C
cessible to ali, will show:
The very law which authorizes the Ma
tional Banks to issue circulating notes
at all also requires and eOmpels them TO
keep constantly in their vaults an aver
age of twenty per cent. twenty-five per
cent. in cities and fifteen per cent. in the
country OF the amount Of that circula-
. ton as a reserve. Here are sixty of the
three hundred millions Of circulation
( wing idle in bank the year round, and
4 he amount on which the banks can re-
/ ceIve interest is thus reduced to two hun
/ dred and iIrty millions.
Z Again, the same law requires and COM
/ pels the banks to keep reserve equal to
/ twenty per cent. twenty five per cent
| in cities and fifteen in the country of
/ the average amount Of their deposits,
/ both public and private; and this re-
serve must be in lawful money. The
average total Of deposits during the last
/ year was S57l ,000, 0C0 ; thus S1l4, ,000, 600
I Of the non n-iutersst bearing legal tender
notes we're carried by the banks during
| the past year, which sum is Just Offset
/ to that amount Of circulating notes re-
ceived from the Government by the
banks This deducted from the $780,
| OG0 600 leaves only Sl26, 900 600 of the
/ $500 coo, 600 Of circulation available TO
| the banks as the result Of balance
| sheet between themselves and the Gov
ernmeut on this question of circulation.
! Six per cent. interest on Sl26 000, 900 is
! 81. $50 600. This latter amount, then, is
| the sum total Of the profit which the
/ banks can derive from their circulation
| so long as the Government has legal ten
/ ders which it wishes to have carried
| without interest.
! Some may object to my thus coupling
! the reserve required TO be held for de-
p0sits with the reserve for circulation.
/ This objection might have some weight
/ if the Government were not itself profit
ing by the issue Of non-interest bearing
notes, a large proportion OF which are
carried by the National Banks with the
very means supplied 10 them by the
gratuitous issue Of their own notes. Thus
this amount of Sll4, ,O00, 900 is a fair de-
| duction from the circulation which the
banks are allowed TO issue.
Rnf fhera still remainH an annarant