New-York tribune., 1874-07-06
4 yRW INTERPRETATION or THE BANK

amended, require of the country banks in the
shape of legal tender cash reservesf This
question already begins to agitate the COM
munity. and we contribute the following
attempt at a solution of the problem. The
legal provisions bearing on the subject OF
reserves are three in number, and here they
are in full. We call attention to the words in
Italic:
l. SECTION 81 OP THE NATIONAL BANK ACT" OF JUNE
8, 1s6i.-Every association in the cities hereinafter
named shall at all times have hand In lawful money
Of the United States equal to at least 70 per
centum OF aggregate amount Of fits notes IN crcu
laton and Its deposits and every other association
sba at ali times have on hand In lawful money OF the
United States equal TO at least Is per cenum
OF [the aggregate of s notes in circulation and
on its deposits PROVIDED, that three
afths OF said IS per centum may con-
sst OF balances due TO an association araiabe for The
rsepption of its circulating notes from associations ap-
proved 6y the Controller Of the Currency, organize
under this act In the cities Of st. Louis Louisville.
Chicago, Detroit Milwaukee, New-Oreans, Cincinnati
Cleveland, Pittsburgh. Baltimore Philadelphia, Boston,
NewYork, Albany San Francisco and Washington CITY
And econ 3 each association organized in any of the
cities named may keep one-haf Of its lawful
money reserve In cash deposits In the City OF NewYork.
a. SECTION 2 OF THE ACT APPROVED JOSE %. 1874
That Section 81 Of the National Bank Act be so amended
that the several associations therein provided for shall
not hereafter be required to keep hand amount
OF money whatever by Of the amount Of their
respective crculations but the moneys required by
said section to be kept at all times hand shall be
determined the amount Of deposits In all respects as
provided for in the said section.
g. SECTION OF THB ACT JUNE %, 1s74-That
every association organized. to be organized under
the provisions Of the said act and OF the several acts
amendatory thereof shall at all times keep and have
deposit in the Treasury OF the United States, sum
equal ye per centum OF its circulation, to be held
and used the redemption of such circulation, which
shall be counted as part OF Its lawful reserve, as
provided in Section OF this Act
The above provisions, however absurd they
may be, are perfectly clear. Let us now
examine the Interpretation which Mr. John
Jay Knox, Controller of the Currency. has
given to them. We reprint his letter in full
from last Mondays TRIBUNE:
SIR have your letter OF the oath inst. MY
construction Of the Act Of June co. 1874 in reference TO
the Of the National banks is that the reserve
upon circulation is abolished, but that the National
banks required to keep reserve upon deposits,
provided in Sections 81 and 80 Of the National Bank Act
a certain proportion Of which must be kept haud and
certain other proportion Uiik their agents
In me cities enumerated in The sections referred 10.
The banks are also required keep equal
five per cent Of their circulation deposit with the
Treasurer Of the United States, which amount may be
deducted from the aggregate of reserve
Qulred to be kept on deposits. Very respectfully,
JOHN JAY KNOX, Controller.
Geo L. Otis, cashier Commercial National Bank,
Chicago. III.
1t seems not to have occurred to Mr.. Knox,
or to any one else, that the recent law abol-
ishes redemption cities. Its language is :" that
$50 much of Section 80 of said National Bank
"Act, requiring or permitting the redemption
"of its (any bank's) circulating notes else
"where than az its own counter, except as
"provided for in this section, is hereby re-
"pealed." There are, then, no longer any
redemption cities. The purpose for which the
National Bank Act of 1864 permitted the coun-
try banks to count as part of their reserves
the deposits standing to their credit in the
banks which.were their redeeming agents is now
accomplished in another way. There are now
no deposits which answer the description
given in the law. There are no balances
available for the redemption of circulating
"notes,n except in the Treasury of the United
States, and III the vaults of the bank which
has issued the note. We therefore maintain
that the proviso in Section 81 of the National
Bank Act which permitted Is per centum of
the reserves of country banks to consist of
balances due to an association available for
"the redemption of its circulating notes from
associations &C., in redemption cities, is
no longer operative, because there are no
longer any balances in such cities which can
be possibly applied to that purpose. What
follows theni Clearly the country banks must
hereafter keep their ffteon per cent reserve
on deposits in their own vaults, except that
they may deduct from it the five per cent
deposited on circulation with the United States
Treasurer.
The banks in the redemption cities, how
ever, would seem, through an oversight, to be
on different footing from the country banks.
The corresponding provision of the Act of
1854, applying to them, reads as follows:
SECTION 80. Each association organized any of the
cities named the foregoing section shall select sub
ect to the approval of the Controller OF the Currency
an association In the City Of NewYork, which 1t will
redeem its circulating notes at par And each OF such
associations may keep one-haf OF Its lawful money re-
serve in cash deposits In the City OF New-York
The sole purpose of the old law in pro-
viding for redemption cities and for the keen
ing of large balances therein by the country
banks was to secure the c0nvertibility of bank
notes into specie on demand. When that law
was passed it was supposed that the people
OF the United States would have the common
sense to gets back to a metallic standard of
value as soon as possible. But 1t has turned
out otherwise. Redemption has been, and
still is, word without a meaning No pri-
vate citizen cares an iota whether the money
in his pocket is issued by the United States
Treasury or by National Bank No. 1850. The
law requires bank reserves to consist of green
backs but National bank notes would answer
just as well, The distinction Is purely arbi-