The Wichita daily eagle. [volume] (Wichita, Kan.) 1890-1906, 1900-03-21
WONT GET RICH QUICK
New Banking Law no Harvest
for Bankers.
HOW 1T WILL WORK
Wichita Banks Have Bushels
of Explanatory Circulars.

The banks Of Wichita have been re-
ceiving whole baskets Of circulars in the
last week from the treasury department
explaining the details Of the new cur
rency law and also advising how bankers
can change their bonds into the per
cent bonds that will be issued April 1.
That the new law will increase the cir
culation of the country at least 10 per
cent there is no doubt, but that the in
crease will be as much more as has been
estimated by the more confident hnan-
ciers Wichita bankers do not believe.
There is not the inducement for the
organization of national banks under the
new act that was anticipated during the
debates in congress. After the financial
bill had been passed by both houses and
its approval assured, hundreds of appli-
cations were sent in to the treasury de-
partment for the organization Of national
banks, most Of these applications being
from country towns and desiring to take
advantage Of the minimum capital Of
s25, 900 necessary for the organization of a
national bank under the new law. The
smaller bankers were attracted by the
privilege of issuing currency by deposit
ing with the treasury of the United
States government bonds as security, such
bonds so deposited drawing interest at
the rateof per cent. The law has at
tracted the widest attention among bank
ers and as a consequence several phases
have been developed that prove there
will not be the profit in banking under
the new law as was at first supposed.
81 do not look for nearly so many new
banks as most people" said a local
banker yesterday There will be very
little In the banking business more than
there has been heretofore. l can explain |
better by an illustration. We will sup
pose that some man in Kansas wants to /
start national bank on a capital of /
800, O00 Now. the first thing to be done |
is the purchase of government bonds to /
the full amount of the capital. These |
bonds being worth per cent premium, |
the bonds would be worth sos 900. The |
money thus invested would give the bank /
the privilege of issuing circulation to the .
full amount of the 100000. The interest /
On this circulation as loaned out by the :
bank would be about per cent per an
mum. The interest on the government
bonds would be per cent per annum,
thus giving the bank a total interest Of
5000 per annum.
But there are expenses connected with
he issuing Of circulation. The heaviest
TEN is the tax of one-half Of one per
cent which, on 100000, would be $500.
There is the expense of registration, etc.
which would be So so The bonds run
thirty years, but there must be sum
set aside each year to Iquidate the pre-
mum Of 5000 originally paid on the
ponds. This sinking fund would amount
o s104.3 3 per year.
''The above account Of Expenses
amounts to $666.SS. Deduct this sum from
he interest that the bank gets from the
ponds and the circulation, which is
Der cent and per cent, and there is left
], 093.17. This represents every cent of
early profit that bank with a capital
# 100000 can get under the new law
Now, all of these small Kansas banks
hat have made application for organiza-
ion under the new law with a capital
f $4,000 will have just one-fourth of the
early profit of a bank of 100000, or
273 %. This profit is so insignificant as
o not attract monied men to even a
mall proposition
There is another phase of the new law
hat will prove barrier to the taking
ut of circulation by many banks This
ha nd ha
aw the government requires a reserve
f ten per cent of the capital to be kept
n the vaults of the bank and this reserve
must be in legal tender. Bank notes
hat are issued by the banks themselves
re not legal tender and therefore they
re not available for reserve purposes.
Vow for bank with a capital of $780,
20 there should be at least $4,000 in de-
osits. This means that the bank must
eep within its vaults $4,000 or one-half
+ its capital This money does not draw
interest. The bank notes of the bank
annot be heldsas reserve and the conse-
uence is that the banks will force their .
onk notes into circula ton. Most OF the
eneral circulation in time, according to
ne banker, will be in bank notes, and
hen a bank in New York gets loaded
own with bank notes they Will be sent
, the United States treasury for redemp-
on into legal tender, and the treasurer
ill send them to the bank of issue and
ne latter banks will have to send gold
, the treasurer 10 keep up their treasury
eposit, which is per cent of the capt. 7