New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1868-09-18
Peplu by The Tribune.

I,i1,sf o. 1893 MYsTFIED REPUBLICAN,.
Reply by The Tribune.
The business of banks, in respect to their
circulating notes, consists in disc0untlng, l. e.
in exchanging them for the notes of private
parties, running at from thirty days to fonr
months time They can only afford to do TINS
by making higher interest on the capital they
lend than they pay for it. City banks and
bankers can afford it by using money depos-
tied with them on which they pay no interest.
Interior and country bankers have no such re-
source. Their deposits are too small, and hence
their ability to discount notes of private par
ties, by giving their own cash notes for private
notes running on time, depends on their ability
either TO get double interest from those Tor
whom they discount notes or to get one rate
of interest from them and one upon the secn-
rites they deposit. Obviously, if all banks
were obliged to pay current rates OF interest
10 tide Government on their capital, in order
to enjoy the privilege of lending it ut the same
rates on Individual notes, the business OF bank
ing would he wound up. Our correspondent
would have it that, before banker
should have the privilege of loaning him 800 mt
Government 500 without interest. This, II 1t
were possible, would be very profitable for the
Government and the community, but neither
our correspondent nor any other man would do
banking on those terms.
9 Bankers always have issued their notes on
rheplecge of securities on which they drew inter
est. Their capital being worth one rate of in
tcrest. by getting that on their securities ana
an additional one on their discounts they make
one rate Of interest net, |. G., over ana above
what their capital costs them, and herein lies
the essential profit of banking, without which
it cannot DE done.
Under the old State bank system the banks
invested their whole capital in securities, de-
posted them rs pledge for their circulation,
drew interest thereon, and loaned their cur
rency to their customers in discounting notes.
on which they drew interest again. by draw
ing two interests on capital which cost them
one. they made net interest or profit. They
could not have made profit without 1t.
The question, therefore, resolves itself into
the simpler one-whethcr we shall have any
Banks at all
3. The Government has no power to stop the
interest from running on the bonds held by
the banks, any more than on those held by
private parties. The banks have bought the
bonds with capital which was their own. The
bonds are in no way under control of the
Government. The Government may repeal
the Banking law, or perhaps prohibit all bank
ing from being done; but these steps would
only make it more difficult to borrow money,
and hence increase the rates of interest
~. 4. - hath orf Ia
Government or the banks ought to furnish the
people with a currency. The objection to
having the Government furnish the people
with u currency is that the Government Is not
n bank, cannot discount private notes and hence
that its currency is not flexible, and does not
expand with u demand for money, and contract
with a redundancc Of it, as paper currency
ought to do.
8. The Government wOuld save nothing by
issuing the currency itself instead of issuing
it, as now, through the banks. This is proved
by the following facts. The National Banking
law limits the quantity of notes the banks can
issue To 1000. OF this sum the law
requires them To keep % per cent, or SGO0OO,0OO,
as a reserve. They must also keep Il reserve
equal TO 90 per cent of their deposits, or
sl14.OOOO 900 more These deductions leave of
the $500. 100000 only Sl2GOOO,OOO of circulating
notes on which the banks can draw interest.
The interest on this sum at seven per cent
would amount to $S,s2O,0O0, as the total interest
on the available circulation of the banks.
TO offset this, they pay into the National
Treasury in taxes one per cent on their circu-
lating notes, say $1,000 0O0-one-half of one per
cent on their deposits, or S2,Sjj, 000 A tax on
their capital stock not invested in Government
bonds Of 100000, one-half of one per cent on
net dividends and surplus, which for the year
1867 amounted 10 S3,3O0,0O0 and o license
tax of g on every $1,000 of capital
Their capital being Si2iOOOOO0, this license
tax amounts to SsiS,OOO. The sums above
named, amounting. to SlO,4O3OOO, are paid
into the National Treasury, beside
about $S,OOO,0OO of local and State taxes.
Beside what they pay in State and local taxes,
therefore, the National Banks pay to the Gov
eminent $l,5S3,OOO more in taxes than the in
terest on their circulating notes amounts to.
In other words, they pay one and half
millions per annum for the privilege of doing
business which is indispensable to commerce
and industry.