The Princeton union. [volume] (Princeton, Minn.) 1876-1976, 1892-04-21
NATIONAL BANKS.
Hon. r. G. Horr Discusses the
Subject in the New York
Tribune.

= X Il -f-E -
Tribune.
Government Loans no Money to
Banks -TheProposed: Loan
to Farmers.
SIR: While Mr.. r. G.. Horn
claims to have answered certain
questions concerning National
banks several times, there is one
thing yet that the people of this
community fail to fully under
stand. Does the government al
low said banks to issue any more
than 100000 worth of these
blank bills or promises to pay?
II SO, to what amount?
Second farmers, it appears
to US as if the 2 per cent loan bill
would 40 more toward equalizing
the burdens of the whole people
than any bill which has been men
toned, as an acre of land at fixed
value would be security equal to a
dollar in gold behind dollar in
currency.
| would like to know Mr.. Horr's
ideas on this question, as he
merely made the assertion in. your
issue of March 16, that the govern
ment is not, at present, loaning
money to any one. ~
S. B. DAY.
Lowland Farm, Penn, April 9. =.
1. [ have answered the exact
point made in Mr.. Days first
question more than once, but will
very cheerfully answer it again.
A banks circulation is regulated
by the amount of it's capital stock.
Ii its capital stock is 100000 it
can have 100000 circulation in it's
own bills. lifts capital is S500,0o0
it can have $45o,000 circulation.
That is the rule in the matter. 49,
| do not know that-there is any
limit to the circulation Of any
bank provided that it has govern
ment bonds to deposit as collateral
security for the final payment Of
bills. AS rule, banks seldom
have more than $500, 600 capital.
Pennsylvania (your State) has
about $40 National banks, and $50
of them have only 100000 capital
or less. There are 100 banks
there with from 100000 to
S500,000 capital, and 10 with
capitals of from 100000 to
50, 100000. There is one bank
with 100000 capital, and it can
issue, if it chooses, bank bills to
the amount of 81, 100000. AS a
matter of fact, however, there is
so little profit in circulation now,
that some few banks are actually
retiring their circulation.
When any National bank de-
posts 100000 of government
bonds, for instance, with the
treasurer of the United States to
secure the payment of it's own
bills, it can get from the govern
ment $780, 900 of such bills. Those
bills are not money until they are
signed by the officers of the bank.
Then they become ''promises to
pay by the bank, and not by the
government. II"
So long as the bank is solvent
and redeems it's own bills, the
government has nothing whatever
to do with their redemption. The
government holds the bonds sim
ply as a collateral security, to in
sure the people against any posi-
bic loss by failure of the bank
to redeem its circulation. The
bonds are all the time the property
of the bank, and the bank collects
the interest on them. If the bank
should fail, however, the govern
ment would sell the bonds at the
highest market price and would
deduct from the proceeds of such
sale exactly the amount Of out
standing bills Of that bank. The
balance realized from the sale Of
the bonds would be turned over at
once by the government and
would be used to help pay the
other debts Of the bank.
When a bank has failed, its bills
are all sent, by those who hold