New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1880-12-20

latitude of discretion, that SUCH bonds may
be offered as the condition of the worlds
money markets may render expedieDt. But II
Congress insists upon limiting the rate of i'll
terest offered to per cent then it surely
ought to emb0dy in the same bill careful pro-
vision to prevent sudden and disastrous
contraction of the bank circulation.
When the National banks were organized
it was believed that they ought to be re-
quired to deposit United States bonds in the
ratio of 100000 to every 100000 of circu-
lation, in order to make that circulation abso-
lutely safe. But the bonds were then per
cents. The resulting profit on circulation, had
no taxes been imposed. would have been ex-
cessive. There was some reason at that
time. therefore, in imposing the taxes on
capital and deposits as well as on circulation,
so that the requisite security might be gained
for the NOES without giving unreasonable
profits to the banks. But circumstances have
greatly changed. The four per cent bonds now
on deposit yield little more than SO per cent,
instead OF per cent, OF their market value.
Yet not the smallest fraction has been re-
moved from the taxation at first imposed. Ii
all taxation of every kind should be removed
from the banks, they would still be in less
favorable position than when they were first
induced to abandon State organizations for
the National system. Yet it is now proposed
TO compel the banks to deposit three per cent
bonds only, without any abatement Of taxes,
or TO give up their circulation.
Few understand that a reduction in the IN
tercst on the bonds deposited from to per
cent cuts of, not merely half, but nearly
tmee-fourthS of the profits OF circulation.
The expenses remain the same. Depositing
bonds which cost 100000, the bank can
loan in notes only $S5,000 in excess of tie
sum required for the redemption fund, even
if it could keep all It's circulation out con-
stantly. The money invested, but tied mp so
that it cannot be loaned, is $4,000 out
of the 100000 and at per cent the
interest lost on this sum is $50 yearly. Then
the bank has to pay the same taxation
whether its bonds are six or three per cents,
and that taxation of one per cent on its cir
culatiOn amounts to 5000 yearly. The other
expenses incident to circul ition are also the
same. But deduct these two items Of expense,
amounting to $1,770 yearly, from the interest
receivable at different rates on 100000
bonds deposited, and il will appear that the
remaining profit would be Sc, O0O-f1, 10
$3.50 yearly on six per cent bonds but only
SO, 23O on five per cents 81, $50 on four per
cents, and 1920 on 3 per cents. And for
this small profit the bank has to bear all the
risk of a tall in the value of the bonds, and
subject itself TO all the restraints and incOn-
veniences of the National system. Moreover
there are not many banks, especially III the
large commercial cities, which can keep their
whole circulation out constantly. But if
only $4,000 of it remains in hand on an
average, there is another loss of $500 inter-
est on that amount, and the profits shrink TO
So $50 on 6 per cent bonds, and 5000
yearly on per cent bonds.
Congress cannot afford to ignore the facts
here mentioned. The matter ought to be con-
sidered carefully, not for the sake of the
banks, which can retire from the National
system and make as much money, all things
considered, as they make now, but for the
sake of the people. The country is not pre-
pared to face the sudden and enormous con-
traction of the circulation which the bill as
it now stands would almost surely cause. In
dust1es are thriving. Workers are well en-
ployed, at good wages. Business is growing
rapidly. This is no time for Congress to
smash things by an error of judgment.