The sun. [volume] (New York [N.Y.]) 1833-1916, 1906-11-16

requirements OF commerce. All hanks issu-
fng such notes should be required to maintain
adequate facilities for their prompt redemp-
ton In cities conveniently located in all SEC
lions OF the country. 40 that all notes issued.
however widely they circulate. ran at No
time get beyond a reasonable dlsta nee from
a redemption city.
The commission gave with its report
the following explanation OF the operation
OF the legislation which II proposes:
The plan proposes that national banks
may take out notes in addition to those Au-
thorized by the present law. Those addi-
tional notes may be issued under n tax OF
~ per cent, per annum to the amount of -
per cent. Of the bond secured circulation
Of the issuing bank. but shall not exceed
rs per cent. OF the capital OF the bank. The
provision establishing such a relation be-
tween the bond secured notes authorized
by the present law and the additional notes
proposed ia for the purpose OF preventing
any tendency on the part Of the banks to
sell Government bonds, now held to secure
circulation, In order to avail themselves OF
the new circulation. Such action is taken
because IL II desired that the measure pro-
posed, IL enacted, shall not tend TO depress
the market for Government bonds.
IL is not proposed to have any part Of the
assets OF the bank specially pledged TO secure
the notes nor bypothecated with any out
etuC hutuOIlNNs lHS nOtth VIII, nONtNSIs
be paid by the same legal reserves as are
required by existing law against deposits
in reserve cities rs per cent. , and in country
banks IS per cent.
II was decided that the claim of the notes
Of a failed bank upon the ussets Of the bank
should not be given q priority OF lien to the
lien OF the depositors. IL was felt that as
the guaranty fund In itself. with the addition
OF a pro rata claim upon the assets with the
depositors. would afford adequate protection
for the notes. II was not necessary TO impair
the share OF the depositor in the remaining
assets by giving preference to the holder
of a note.
Another measure of conservatism proposed
in order to prevent the issue of notes by weak
banks when the notes might not be required
by legitimate commercial conditions IL that
no bank shall have the power OF issuing new
notes which has not a surplus Of 20 per cent.
and no bank shall have the power to issue
these notes until it has been in operation for
one year.
The tax upon the new issue OF notes at
the rate Of ~ per cent. per annum is pa yabls
s~emi-annually 20 the Governments and will
form a guaranty fund out of which the Govern
ment will promptly redeem the notes of failed
banks and will pay the cost OF printing and
the expenses Of the current redemption OF
the new notes.
In case OF the failure Of a bank its notes
will be at once redeemed on presentation to
the Government and the Government will have
a lien TO make good the guaranty fund so far
as possible from the assets of the failed bank.
The commission is confident that the tax
proposed win create a fund many times larger
than the demand upon IL to meet the notes Of
failed banks, but II recognizes that In case or
several failures OF issuing banks, Immediately
after the passa &c OF the law and before any
considerable amount had been paid into the
--.N g..--N AZ E-.l ..s-AN - gwa..A laa4as
temporarily, to meet the demands made upon
IL. To guard against such n contin gency it
Ia proposed that a bank shall on applying for
the new currency at once pay into the Treasury
5 per cent. OF the amount applied for. Should
there be q temporary deficiency in the guar
anty fund. that deficiency would be made
good from this special S per cent. fund. The
contribution OF each bank to, this special
fund remains a part Of its assets to such an
extent rs IL is unimpaired by drafts to make
good deficiency in the guaranty fund. As
the guaranty fund grows through the natural
operation of the Il per cent. tax on outstand-
ing circulation the special 5 per cent. con-
tribution will be returned to the contributing
banks.
When the guaranty fund finally reaches an
amount equal to 5 per cent. of the total amount
OF new notes that had been taken out the last
of the 5 per cent. special con tributioD will be
returned and thereafter new circulation can
be taken out with only the payment Of the
regular ~ per cent. tax and without any
initial contribution.
In addition to the right to issue new notes
equal to Is per cent. of the capital of the bank
and related to the outstanding bond secured
circulation by the provision that they shall
not exceed 20 per cent. of the bond secured
notes of the issuing bank. the commission
proposes n further issue up TO i2H per cent.
of the capital Of the bank. such issue to be