Evening star. [volume] (Washington, D.C.) 1854-1972, 1896-09-08
The National Banking System Does
Not Afford That.
DEPUTY CONTROLLER COFFIN TALKS
Mr.. EckeIs Plan Based on Safety
Fund Principle.
L A W Full MONEY NOTES

There Is popular belief that the nationa!
banking system of this country is very
considerable element In giving the people a
hex1ble currency" that ideal system that
Will make money plentiful when it is needed
Dy trade and commerce and allow 1t to
shrink naturally when the demand for it
ceases. When this subject was preached by
Star reporter today to Mr.. George NJ
CONN, deputy controller of the currency
mr. Colin at once secuted the idea of fiexi-
plHty being feature Of the national bank
ing system. and declared that that system
tends TO contract the currency when money
Is scarce and greatly needed
'Paradoxical as it may SEEM" said Mr.
Coffin, when bank increases it's circula-
ton under the present system it contracts
its capacity for making loans. Let me il
lustrate this: A bank depositing 81 900, 600 of
TOUR per cent bonds, payable in 1925, must
purchase them at an expense of 81 1870 600
winch Is taken from its 1oanable funds
Upon depositing the bonds it receives $780,
NV in national bank currency which, of
course, replaces like amount of It's funds
invested In the bonds, but the net result of
That bank so taking out circulation is that
It has locked up and permanently invested
$&D,UD OF its loanable funds, which is the
margin 1t has to pay on the bonds and to
get the bank notes.
No Profit ON Bank Notes.
Bankers are through these causes, un-
able to Sc ure a profit by taking out ma
tional bank notes during times Of strin-
gency in the money market. If money is
worth 10 per cent the profit on the bonds
when the various expense attending the is
suance of bank notes Is deducted, Is not
sufficient to overcome the loss Of interest
on S2:IO,GU0. which we have seen is incurred
In the eXa nDle / have given.
During the last ten days there has been
great strir gency in the money market, and
yet there has been rush for national
bank circulation. as there would have been
were such circulation profitable. Up to
August Il we had deposited in the treasury
security tor national bank circulation in
the form Of United States bonds worth, in
GLIDING the pre- MUM, S2lJ,0tO,ND, against
which circulation has been issued
amounting to S210.9N.GtD, SO that in the ag-
gregate the national banks on that day
had slo,0D.oO of their loanable funds lock
ed up by investment in bonds. This fact is
well appreciated by the bankers them
selves for. as have said. money has been
scarce and dear in New York of late, but
there is no demand for more national bank
circulation, and We are on the eve of a
period when about S2:Jo.O0oGeo will be re-
qured to move the cotton crop and $40
to,oo1 more to move the wheat of the
country.
Me-, EekeIs' Plan.
last annual report" said Mr.. Coffin, has
outlined system which he believes will be
a great improvement over that We now
have. 1t is called the safety fund princi-
pie which he heartily recommends in lieu
of the national bank circulation now pro-
vided for. This includes plan for relieving
the general government from the bur-
den and strain OF maintaining current re-
demptioa of its legal tender currency in
gold
two things are needed
I'D Repeal provisions of existing law re-
curing deposit Of United States bonds
security for circulation
.'C2) Require each national bank now or
ganizcd. or to be organized, to deposit with
the treasurer of the United States United
States notes of old issue, legal tender notes
issued under act of July IA. 1880, to an
amount equal to one-half OF it's capital
stock actually paid in and unimpaired. in
lieu of which it shall receive from The con-
troller of the currency circulating notes to
an equal amount of distinctive character,
to be known rs lawful money notes
These notes shall express upon their face
the Obligation of the bank to which issued
to redeem the same in United States legal
tender coin upon presentation either at the
United States treasury at the bank. For
the current redemption of notes of this
class the bank, before receiving the same,
shall deposit with the treasurer of the
United States gold coin or gold cert.fc ates
to the amount Of per cent Of the notes 10
be issued to it. and must promptly reim-
bErse the treasurer of the United States
upon receiving notice for any portion of
this fund disburSed by him in relanp.ion
of its notes of this class. The gold coin SO
deposited with the treasurer Of the United
states may be counted as part of the
banks lawful money reserve against de-
posits. In case of the voluntary or inyol-
untary liquidation Of any bank the treas
urer of the United States shall assume re-
sponslDlity Tor the ultimate redemption Of
notes
fund of United States coin in the treasury
and for every dollar of coin used for suct,
redemption the treasurer of the United
STATES shaL be authorized to reissue one
dollar IN legal tender notes of the same
class as was deposited by the bank in or
change for the notes so redeemed ANY
portion of the D per cent gold redemption
. run. remaining on hand at time of volun-
tary or involuntary liquidation of any hank
shall be applied by the treasurer Of Tho
united states In redemption of it's notes of
the safety fund class.
Lawful Money Notes.
Lawful money notes held by any bank
shall be available as lawful money reserve
against deposits. and the cost of furnishing
and printing these notes. and of maintain
ing wear and tear of same. and Of trans
portatlon OF same to the banks shall be
borne by the United States government.
Amy failure either to redeem these notes
at It's DdHhihS muse IN gold coin. If de-
manded, or promptly to reimburse the
treasurer Of the United States any amount
disbursed by him in redemption of its
notes, shall be deemed an act of fnsoIyen-
cy on the part of the bank
Upon complying with requirements as
to issue of notes of lawful money class.
every bank shall be entitled to receive
from the controller Of the currency circu-
lating notes of another character, to be
known as safety fund notes. to an amount
not exceeding, the amount of notes of the
lawful money class issued to said bank,
The notes Of this safety fund class shall
be issued upon the condition that they
shall be d first and paramount lien upon all
the assets of the bank issuing same, in
event of the liquidation or failure of the
bark.
1.-THE requirement to deposit United
States notes las proposed instead of bonds
under this, system should be mandatory,
so as to force the banks to assume the cur
rent redemption of these notes and relieve
the general. government of this harassing
burden Fifty per cent of capital stock
has been PROPOSED in such measure as to
accomplish the end aimed at. viz, relief to
the general government.
"a banking capital Of 81 .O0a 000. 600 would
furnish the basis for absorbing the entire
issue of United States notes. The national
bar ks along have now $86S 600, 900 of CAPT.
tall and enough surplus and profits be-
sides, II capitalized to make the needed
ono HILTON dollars. to saw nothing If the