River Falls journal. [volume] (River Falls, Pierce County, Wis.) 1872-2019, 1875-12-09
Extracts from Report of John Jay
Knox, Comptroller of the Currency
rue NATIONAL BANKING SYSTEM.

to the amount Of the profit derived by
the national banks from their circulation:
but to show that the profit from this
source is not nearly so great as is sup.
posed by many persons it is only neces-
sary to take into consideration the
amount Of capital the banks necessarily
invest in the United States bonds requir.
cd to secure their circulation with the
legal restrictions that govern their bust
ness, and then to compare the combined
income received by them on their bonds
and circulation with that which would
be received on the same capital loaned
on bond and mortgage security, but free
from the restrictions governing national
banks.
On November /, 1875, there was on de-
post with the Treasurer as security for
the circulation of the national banks,
1857 ,549,4l2 in the various classes of
bonds Of the United States. If from this
sum be deducted the amount held us Sc
curity for the notes Of the national gold
banks, and also the amount deposited in
excess Of that required by law to secure
the circulation ISSUED upon them there
will remain 1851. 49S.1l2 Of bonds, worth
in currency on the day named 1926, $780,
533.
1t is true that some national banks
which have accumulated large surplus,
or are organized in localities where the
proportion Of deposits to capital is large,
or at rates OF interest as high as in the
Western and Southern States, do declare
large dividends, but it is well known that,
as a rule, the rates OF interest charged
on commercial paper by the national
banks in their respective localities are
less than those charged by State banks,
private bankers and individuals, bnt the
dividends and earnings of the national
banks do not, as rule, exceed by more
than two per cent. the current rates of
interest authorized by Law in the re.
spectivc States, and this additional
amount of profit is surely not too great
a compensation for the risks and expenses
incident to the business Of banking, and
to which capital loaned directly on mort
gage security is not subject.
1t has been proposed to withdraw the
national bank notes from circulation, and
to authorize an additional issue of $780,
100000 Of "greenbacks," the latter to be
interchangeable, in sums of $50, for
treasury notes bearing interest at the
rate of 1865 per cent. per annum, or one
cent per day on each 500, and to repeal
all acts tending to resumption of pay.
ment in specie. The greenbacks received
by the treasury in exchange for the 1865
notes are to be used for purchase of six
nor cont hva.f,vnpf,y bond. for tba 49,.
pose of saving interest to the govern.
ment. The act Of February 24, 1915, as
has been seen, authorized the issue OF
treasury notes of the denomination of
500, bearing interest, "to be computed
at the rate of one cent and one half
cent per day." and it also authorized the
issue Of small treasury notes which were
exchangeable in sums Of 800 for certifi-
Gates of funded stock, bearing interest at
seven per cent, but Secretary Dallas, as
before stated, says ut was soon ascer-
tanned that the small treasury notes
fundable at an interest Of seven per cent,
though of convenient denomination for
common use, would be converted into
stock almost as soon as issued"
The experience of 1915 will be repeated
with the issue Of additional greenbacks
interchangeable for 1865 notes. These
interest bearing notes are not at present
Of standard sufficiently high for fund.
ing purposes, the law now being
in force authorizing the issue Of ID and
also per cent. bonds, and are, therefore,
in this respect unlike the notes which
were issued in 1915, but the principle Of
interchangeability will cause the non.in.
terest bearing notes to be exchanged for
them almost as soon as issued The
non-interest bearing certificates of deposit,
now held by the banks, and amounting
to $50,SS0,000, will at once be converted
into "greenbacks, and these. together
with the Sl50,000,000 Of cash reserve.
also held by the different banks and bank.
ers Of the country, will be speedily ex.
changed for 365 notes. These latter
notes will be used by every clearing
house in the country for the payment of
balances, and large proportion Of the
circulation will then consist Of the new
inconvertible interest bearing notes, so
that the whole authorized issue Of these
bonds will soon be in demand. IL the
amount of the interest bearing notes be
limited TO S400,000,000 and reserve Of
twenty-five per cent. in legal tender
notes be held in the Treasury, the amount
Of the latter which may be invested in
United States six per cent. bonds will be
$500 100000. This sum will purchase
S250000,000 OF six per cent bonds, as.
suming that the average premium is not
greater than at present-twenty per
cent.
THE GoyERNMESr WOULD LOSE.
The amount Of interest saved upon the
S2j0,000.000 Of iive.twenty bonds retired !
will be Sl5,000.000, while the interest
paid by the government on the 100000. !
coo Of 3.65 nots out landing will be Sl4..
100000, the net saving TO the govern.
ment being 100000.
But through this process the present
tax on bank circulation amounting to 49,. |
100000 will be lost, so that instead of !
saving 100000 the government will. by |
this experiment., be actually the loser Of |
S2,Sj0,00O Irhoweyer, the issue Of sos |
notes shall be increased 20 an amount |
equal TO that Of the legal tender and ma.
tional bank notes combined the loss in !
interest TO the government would be |