The Indianapolis journal. [volume] (Indianapolis [Ind.]) 1867-1904, 1886-10-10
The President of the Garfield National Bank
Explains Why That Institution Retired
Three-FOurths Of It's Circulation.
Clara Belle Describes the Shape of the
Coming Winters Society Woman,
And Tells How She Will Carefully Initiate
the English Article-Notes About PrOmi-
nent Writers and Their DOings.
BONDS AND CIRCULATION.
A President Explains Why His Bank Retired
Three-FOurths of It's Notes.

President Explains Why His Bank Retired
Three FOurths of It's Notes.
Special to the INDIANAPOLIS journal.
NEW YORK, Oct. 9-The Garfield National
Bank, of which am president, has voluntarily
retired three quarters of it's circulation, and for
reasons that will try to clearly set forth. We
had capital of 5000, 900, and it was put into
bonds in this way: $50, 900 was in per cents. of
1901, and the the rest was in threes. On this
we issued our full circulation of $3.50 000 But
presently began to notice that the per cent.
bonds were being quoted in the market any
where from q to per cent premium, and
asked myself what it meant. Here was a call
loan at a low rate of interest commanding
premium. Now, if it had oeen 3 per cent, to
mature twenty years hence, there might have
been some sense in the premium for people al
ways prefer the long investment; or if it had
been call loan at high rate it would have been
reasonable, for in that case people would be will
ing to risk speedy call for the sake of big profit
while the money should be out The more /
thought of it the less reason could l see for
premium on the bouds. and so I went to some
of our ablest fnanciers and asked them about
it, They could not give me any
reason either; so I said if there was no reason
we had better sell our bonds at profit and re-
tirS our circulation. This was our situation.
We had the interest of per cent from $3.50, 900
bonds, which is 81, 500 Our circulation Speak
ing now of that based upon the per cents J
was $l35, 900, of which 5 per cent. was locked up
in the treasury as a redemption fund. That
left us $l2S, $50 from which to get an income of
6 per cent, or 81, sos. But from this we had to
deduct tax of per cent upon our circulation,
and half of l per cent. charge made by
the treasury for expenses of reissuing old notes.
etc. The total deduction was So ops. and that
made our total income from the investment
SOTO Now, as the bonds were above par,
could make, If we sold them, not only the
profit of the sale, but a certain annual income
from the profit at per cent Without counting
that, our profit on our circulation equaled the
enormous sum of $l,170, the difference between
the income our investment and what 1t
might have been had we put our $3.50, 900 out at
3 per cent. That is we profited about four hfths
OF per cent. on our circulation. My impression
is that the actual figures considerably less,
but no matter, that is small enough.
l placed the matter before directors, and
it was some time before / could bring them all
to see it as did. But finally succeeded and
the bonds were left with me to dispose of accord
ing to my Judgment ] gave orders that they
should be- sold at once if the price should touch
could get rid of the whole lot for 81 premium.
/ closed at once. That gave me a profit of
$5.625, the interest of which at 6 per cent. is
1887 So This added to the income derived at
per cent from the money representing the par
value of the bonds. makes SO, 337 so, which, sub
tracted from $10,370 brings us nearer to our
real profit on circulation, 1892 so, little over
of per cent. 1t would have taken US more
than eight years to make at that rate as much
l made by selling the bonds in an
hour. But more than this; two weeks
after the sale OF our bonds there came the
first call from the Treasury of the per
cents and bang! down went the price of bonds.
They are now Quoted below par. SO that if we
thought it worth while to nave circulation
could buy in the same bonds at profit and con-
tinue our money making atthe rate of half Of
one per cent. But it isn't and we shall not DO
it, There is another little thing to notice in this
case. If we had not sold the bonds as we did,
they might have been called ten times over be-
fore we conld have made the profit on the sale.
think it likely that more banks will take
steps to retire their circulation voluntarily; I'M
less the laws are SO changed by tie abolition of
tax on circulation, and the granting of the priv
ilege of issuing up to the full amount of bonds
held, with other changes so as to give the banks
a reasonable profit from this feature of their
business. ALBERT G. CHENEY.