The Washington herald., 1906-11-16
Bankers Propose Law Au-
thOrizing Issue Of Notes.
ELASTIC CURRENCY IS INSURED
system Proposed by Commission
Provides that "A National Institu-
tfon May Put Ont Paper Not Ex-
ceeding % Per Cent OF Its Capital.
Tax VIII Guarantee Deposits.

ed last month TO study means of none
tary reform
The plan. recommended by 5000 bankers
in all parts Of the United States and the
Chamber of Commerce of New York, viii
be submitted at the approaching session
Of Congress. The commission completed
! it's Iabors yesterday after a four-day ses-
sion.
The scheme. which was unanimously
adopted, proposes that national banks
may take out notes in addition TO those
authorized by the present law. It is stip-
ulated that they be issued under tax of
2lz per cent per annum, to the amount Of
70 per cent of the bond-secured circula-
ton of an institution, but that they shall
not exceed . per cent of the capital
1t is intended to prevent any tendency
on the part OF the banks to sell govern
ment bonds now held. in order to avail
themselves Of the new circulation. Such
action is taken because it Is desired that
the measure proposed shall not tend 10
depress the market for government bonds.
Many Checks Provided.
1t is not proposed TO have any part Of
the assets Of the bank specially pledged
to obtain the notes nor hypothecated
with any outside authority. The notes
Will. however. be protected by the same
/ legal reserves as are required by existing
law against depOsits-in reserve cities. p
/ per cent, and in country banks, Is per
cent
1t was decided that the claim Of the
notes of a failed bank upon the assets
of the bank should not be given prior
/ lien 70 the lien Of the depositors.
Another measure OF conservatism pro-
posed. in order to prevent the issue Of
unnecessary notes by weak banks is that
no bank that lacks a surplus Of 20 per
cent shall have the power Of issuing the
new notes
I The tax upon the new issue Of notes, at
/ the rate of 21-2 per cent per annum. is to
/ be payable sem-annually 10 the govern
ment and viii form q guaranty fund out
! Of which the government viii promptly
redeem the notes OF failed banks.
Plenty of Funds I'm sight.
The commission proposes a further issue
/ up to Z Il per cent Of the capital Of
the bank, to be subject TO a tax Of .
I per cent per anBum On the average
amount outstanding, but to bear no re-
/ lation 10 the amount Of bond-secured cur
rency.
j. is provided. however, that no bank
may issue an amount Of bond-secured and
of additional notes that will in the aggre-
/ gate exceed its capital, so that the total
amount Of bank notes authorized will not
exceed the amount authorized under the
present law. In view Of the high tax
and the reserve required against these
notes, there viii be no prof. in the issue
of this type of notes unless rates for
money are very high
The means for obtaining prompt and
frequent redemption Of the new notes
/ involves provision for redemption bu-
rcaus connected with the clearing houses.
I located at convenient points throughout
/ the country. There will be one near every
national bank While the burden of the
redemption is 10 rest upon the banks
/ themselves, the rules and regulation gov
erning such redemption are to be estab-
Hshed by the Comptroller Of the Cur
rency.
Reform Sadly Needed.
7 The principles Of the proposed currency
reform are embodied IN five typewriter
pages. Here are the essential clauses:
I'VE are UNANIMOUSLY Of the opinion that
changes in the existing bank-note system
are imperatively required. We md that
/ the present volume Of bank notes is Who'll
/ ly unresDonsive to the demands of COM
merce. II does not expand with the need
/ for currency in the cTOp-mOving period
causing stringency. nor contract when the
/ uses for currency are less extensive, caus-
/ ing redundancy.
I'VE find that the banks are under the
/ necessity Of parting with their reserve
money 10 supply the demand for currency
! at certain seasons, although that demand
would be quite as we'll satisfied if banks
could supply their credit notes instead of
depicting their reserves and causing a
contraction. injurious to business.
Adjustment VIII Be Automatic.
ITO meet this situation the national
/ banking act should be so altered as 10
permit. under ample safeguards, the issue
of credit bank notes, which would automa-
ticaIly adjust the volume to the demands
for currency Such notes can be Issued
under provisions which viii insure abso-
lutte safety to the note-holder, an ample
supply Of currency to the public, relief
/ from the disturbed commercial conditions,
and, finally, the certain retirement of the
notes when they have fulfilled their pur-
pose in the hands of the public.
While this matter is one that affects
/ every business interest we believe that
It concerns the public even more deeply
than it does the bankers. 1t is obvious
that borrowers during three or four
| months of the year are forced TO pay a
materially higher rate of interest than
would be necessary if banks could supply
the currency demand by issuing their
/ credit notes instead of depicting their re-
| serves and being forced to demand the
repayment Of loans in order to Teplenish
| their reserves
Borrowers Chiefly Benefited.
when the subject is clearly under
stood we believe She demand for legis-
\ lation which will permit issues of credit
notes will come even more strongly from
borrowers, whom it most benefits, than
from bankers.
THE commission unanimously agreed
upon the following principles. which it
believes undeTlie a correct solution Of the
currency problem. so far as it relates to
the issue of a bank-nOte currency:
"A credit currency should be issued by
the national banks of the country under
II proper restrictions.
1T is important in any plan seeking TO
provide a more flexible currency that no
measures should be taken which would
impair the market value OF United States
bonds
Authority to issue credit notes under
the same regulatinos should be extended
alike to all national banks, but should
not be extended to any national bank
until it has been actively doing business
for one year, nor 10 any national bank
which has not a surplus equal TO 20 per
cent OF its capital.