The herald., 1897-08-14
Profits in National Bank Circulation

Profits in National Bank Circulation
To the Editor of the Los Angeles Her
aid: note with interest the criticisms
! of "A. S. E." on my previous articles on
the above subject and am glad to have
chance to make the matter clear to
him and others that might be interested
in the subject, although have tried to
do this before. The following extracts
from the National Bank act Q3 statutes
at large, page 99) will help make the
matter clear. 1t says:
l. Any number of persons, not less
than five, may form an association for
the purpose Of carrying on the business
of banking, under the national banking
law.
q The capital shall not be less than
$50
g. The association shall transfer and
deliver to the treasurer of the United
States any United States registered
! bonds, bearing interest, and shall re-
ceive in return from the comptroller of
the currency ninety per cent of the par
value of the bonds 80 transferred and
delivered, circulating notes of different
denominations, in blank. and such asso-
citation is authorized to circulate them
the same as money.
L. The notes so issued shall be re-
ceived at par in all parts of the United
States in payment of taxes, excuses, pub
lie lands and all other dues to the United
States, except for duties on imports; and
also for all salaries and other debts and
demands owing by the United States to
| individuals, corporations and associa-
tions within the United States, except for
interest on the public debt.
5. The banking association shall pay
a tax of one per cent on the average
amount of it's notes in circulation.
A. S. E. claims that have at different
times asserted that the banks made IL.
20 and 30 per cent respectively, thereby
-contradicting myself, but will explain,
| think, to his satisfaction how he is mis-
taken.
If the bank buys 100000 worth Of gov
ernment bonds at a premium of 10 per
cent they cost $4,000, and if they get
back 500, 900 worth of bank notes Gas
they do according to the law quoted
above) they have really only made an in
vestment of $4,000 and drawing 4 per
cent interest on the bonds, they receive
"a 900. and $4,000 is 20 per cent interest on
the money they have actually invested or
left in the hands of the government, after
deducting what they have received.
Now, if the bank loans out the $4,000
worth of notes they receive from the
government at per cent net to their
customers, this would give them $4,000
more interest or a total Of $4,000 in all
on the 100000 worth of bonds. Deduct
ing 5000 for / per cent tax on circulation,
$46i for the sinking fund to return pre-
MUM and $1O0 for other incidental eX-
penses, it reduces their net income to
| So, ,S36, but to this should be added 1884
for accrued interest received from the
government when they purchase the
bonds, making a final total of $9,170 for
their profits in the transaction. That
this is correct there can be no question,
for it has been admitted to me by
number of leading bankers. The banks
| do not receive 20 per cent interest on the
entire amount they invest, but they do
receive this interest on the money actual
~ left on deposit with the government.
Hon. William J. Bryan says in his
measures advocated by the Indiana polls
convention OF bankers, Grover Cleveland
ex-Secretary Carlisle and the present
secretary of the treasury, Lyman I.
| Gage, speaking of the interest paid by
the government:
IF the proposed law was adopted 5000
will be taken from the expense column
by the repeal of the tax on circulation.
4e~<
of investment, so that the profits would
amount to $3,436 on an investment of
80, 666, or more than SO per cent. If how
ever, the increased demand for bonds
raised the premium to Is per cent we
could only calculate little less than
SO, 436 on an investment of $14,666, or
nearly rs per cent. This they would
probably call fair divide. The bond
holder would receive IN advantage of an
Increased premium Of say $4,000, 900 and
the national bank would be able to make
about double on its investment what it
does now"
The reason the banks claim that their
profits are so small is because they fail
10 count in the interest they receive
| from their customers on loans made with
the $780, 900 worth of bank notes returned
to them and deduct many other expenses
! from the interest received from the gov
ernment SO as to reduce their showing
of profits. If bank chooses to count
in its office rent, cost of fixtures, salary
Of employees, and everything else they
can think of and deduct these from the
interest paid on the bonds by the gov
| ernment. then | suppose they can show
tha; they are losing money in the trans
action and doing it solely for the benefit
of the dear people" So far as the re-
port our friend quotes, l believe it to
be far more correct to take the law as it
exists and then figure out the profits on
a fair basis.
1t is largely to the interests of the
banks to make money scarce, for when
money is plentiful and easily obtained,
then the people do not have to borrow
to pay their debts and in consequence of
this fact their interests are against the
public's, for it is by loaning money that
they make their profits.
Funny, isn't it. that the United States
the people--have the power to issue
money, make it receivable in all pay
ments and give it to the bank to circulate
al cost Of one cent for each dollar. and
then when the people who have issued 1t
and made it the best money we ever
| had" want to use it, they must borrow it