Daily Los Angeles herald., 1882-05-26
Rechartering the National Banks.
[san Francisco Call.

| loan fFdHclhCo Odii.
A very interesting discussion is going
on in the House on the proposition to
recharter the National Banks. There
are now in existence over twenty-one
hundred of these banks, and their origi-
nal charters, running for twenty years,
are beginning to expire. About four
hundred reach their limit before the
present Congress goes out of existence.
The paper currency of the United
States is composed of Treasury notes,
more commonly spoken of as legal ten
der or greenbacks, and National Bank
notes, in nearly even proportions. The
legal tenders are part of the national
debt, but bear no interest. The Govern
ment has been prepared since 1879 to re-
deem all that might be presented, and
for that purpose keeps large supply of
coin in the Treasury, but the people
prefer the notes to the coin. The only
cost to the Government is the interest
on the coin kept ON hand for redemption
purposes, and this is partially met by
losses of notes in the hands of the pub
lie. On the National Banks half of the
currency the Government substantially
pays interest Government bonds bear
ing interest are held by the banks and
serve as security for the currency of the
banks. The banks purchase these
bonds, deposit them with the Treasurer,
and draw interest on them precisely as
other holders of Government securities
do. By the present law the banks are
allowed to issue notes only for 80 per
cent. of the value of bonds held, but a
proposition is now before the House re-
quiring the banks to keep only an ex-
cess of bonds over currency of $4,000.
The peculiar feature of the National
Banking system is that the banks earn
two interests on their money, with the
exception of the ton per cent. excess of
bonds over currency they are required
by law to deposit. An association buys
500, 600 in bonds, deposits them with
the United States Treasurer receives in
terest on the full amount of bonds, and
Is authorized to issue $4,000 in curren-
cy. For purposes of revenue, therefore,
the bank has $l90,0OO in place of its
original 100000 For this privilege
they are required to pay tax of one
halt OF one per cent. on their circula-
tion, but even this is regarded as an ex-
action to be got rid of as soon as possi-
BILE. The National Bank notes, as we
have said, to the extent of their circula-
ton, are represented by bonds in the
Treasurys with ten per cent. excess of
bonds over circulation. If the Govern
ment issued these notes directly, it
could pay 90 per cent. of the bonds it
holds and pay interest ON account of the
National Banks. The interest-bearing
debt would be reduced by precisely that
amount if the Government should issue
its own notes in place of the
bank notes, without adding one
dollar to the volume Of the
currency. But it is urged against this
proposition that Congress might add to
the currency at will if the banks were
out of the way. 1t is quite true that
both Houses of Congress, with the Pres
ident's approval, could expand the cur
rency. They could not do so without
letting the country know what they
were doing and without being held re-
sponsible for what they had done. But
dozen bank presidents may decide in
their parlors whether to contract or ex-
pand the currency, without being called
upon to give any account of their action.
They are business men handling their
own money, and bound only by existing
laws. If they determine to withdraw
notes from circulation and take up bonds
deposited with the treasurer, there is no
law forbidding them to do SO. Some of
the journals friendly to the banking sys-
tenn say that the currency is safer in the
hands of the experienced bank presi-
dents than it would be with Congress.
This is hardly compliment to our ma
tional Legislature. The banks are con-
Quoted confessedly in their own interest.
They are not sworn to do the best they
can for the country at large. They
have not been elected to any office by
the people, and have not to go to the
people to give an account of their stew
ardship. If they make money for their
stockholders they have done all that is
required of them. To urge that these
irresponsible bank officials are more safe
custodians than Congress of interests so
important as the expansion or contrac-
tion OF the currency, is to put Congress
on very low level