Year: 1872

August 81 is7s. s7s......... ........... S.ia 4iS $50


1t is generally supposed that the circulation is
sued to the national banks Is a source Of great
profit; but II the premium upon bonds Is considered
as an ultimate loss, the profit upon circulation
does not exceed three per cent per annum. The
chief source OF profit in banking, under this as
under all other systems, is from deposits, and
upon this branch OF business an annual tax is
already fixed by law. II the system has the advan-
tage OF circulation 1t Is also subject to many re-
strctf0ns which are considered burdensome but
which give steadness and strength to the money
transactions Of the country. While the banks
Of the country, they should not, under an imputa-
tion OF extravagant profits, or an unfounded preu-
dice, be taxed to greater degree than other cor
porations which are even less Important to its


A good deal of discussion has arisen during the
recent stringency in the money market in the city
OF New York IN reference to the provisions OF the
National Currency act requiring reserve upon
the nineteen hund ed national banks located else
where than IN the city Of New York are held to
great extent IN that city. For most Of the time
during the past year an amount equal to more
than one-ifth of the capital Of all these national
banks has been held on deposit by the national
banks OF the city Of New York to the credit of their
correspondents. In many cases these credits
amount to twice the capital Of the bank
the a amonHt Of IS tSee four m Usr eases S
times the capital which amount has been attracted
thither largely by the payment Of interest on de-
pOsits The failure OF one OF these New York city
banks in a time OF monetary stringency would EN-
barrass, II not ruin, many banks in the redemption
CltleS anu, In Tile country correspondents OF
these banks would suffer from the imprudence Of
the New York bank which would be responsible for
widespread disaster. 1t Is clear that bank hav-
ing such excessive liabilities has no right even il
there were no law to increase its loans to such an
unreasonable extent as TO lead to embarrassment
If Unexpectedly called upon for the reserves OF its
correspondents. provision OF law prohibiting
banks from extending their loans beyond three
times their capital would seem to be not unreason-
able, but such provision would be much more re-
strictive than the present requirements of the law
In reference to reserve.


the cearnr Mouse n IN New Yo cy win 70
the State banks Of established reputation In times
OF monetary stringency hold sufficient reserve
proportion Of banks not included in the national
system are continually below iudiclous limit.
The truth is that the strong and well-managed
banks do not need any law in reference to reserve
and do not therefore ask for change Of legislation
IN tns respect me weak isn banks X "a ana those al
restrictions. 1t is the constant tendency OF such
banks to increase their liabilities. In times OF
excessive stringency loans are not made by such
associations to business men upon commercial
paper but to dealers In speculative securities upon
Crease Of call loans beyond the proper limit is more
likely to afford facilities for unwarrantable stock
speculations than relief TO legitimate business
transactions. The variations in the liabilities re-
quiring reserve in the banks OF the city OF New
York are very great, The banks outside OF New
means to that city for deposit upon interest to
await the revival OF business. The banks in the
city OF New York; at such periods OF the year, have





fore threatened with loss. The Stock Board
takes advantage OF this condition of affairs. specu-
latiOn is stimulated by the cheapness OF money and
market is found Tor the idle lunds upon doubtful
cOllateralS and the result Is in the increased
transactions at the clearing house, which, during
the past year. exceeded thirty-twO thousand nil
lions OF dollars, or an average OF more than one
hundred millions Of dollars daily, not one-lalf OF
which was the result of legitimate business, the
total amount OF transactions being greater than
that ol the bankers clearing house OF the city OF
London. The evil arises largely from the payment
oh
lishcd custom which cannot easily be changed by
legislation. considerable portion OF these de-
posits would remain at home If they could be used
at q low rate OF interest and made available at
any time upon the return OF the season OF active
business No sure investment OF this kind is, how
ever open to the country banks; and the universal
custom is to end forward the useless dollars from
vaults comparatively insecure to their correspond
ents IN the city, where they are supposed to be
safer, and at the same time earning dividends for
shareholders. Agovernment issue bearing b low
rate OF interest to be counted as certain proper
tion Of the reserve, and increase OF the amount
which the country banks are required to keep on
hand. is the proper remedy lor such state OF
for the currency invested would be in the
possession Of the government. If the currency
interest to the government; but this loss would be
no more than q Just rebate upon the $6,000,000 OF
ment at time When almost every kind of internal
taxation has been discontinue Such reduction
OF taxation should not be grudgngly made If the
result shall be to give elasticity to the currency TO
strengthen and steady tue money market, to give
additional security to $780, 600 belonging to de.
p0sitors by retaining in the vaults OF the banks q
large amount OF FUNDS for legitimate business pur-
poses, which would otherwise be thrown upon the
stock board to unsettle values throughout the
country, and alternately increase and depress the
price Of every commodity.


Charges have been made against several national
banks during the past year Tor receiving usurous
rates OF interest. These complaints have been
made, not only against banks in the South and
West, where high rates OF interest prevail but also
against banks organized in other States, where
the usuriOus rate charged was but slightly in ex-
cess OF the rate OF six per cent, allowed by law.
Section 30 OF the act provides that when the
amount OF interest charged Is greater than the
rate authorized by the State law, twice the interest
ing the same; while section 53 provides
that the franchises of an association
may be forfeited II the directors Of bank
knowingly violate the provisions OF the act. The
original National Currency act OF February IL,
1868, provided as penalty for usury the forfeiture
subjected the rights, privileges and franchises OF
association to forfeiture Tor wiful violations OF
the act. 1t may be doubted, therefore, whether
Congress intended TO impose a specific penalty in
volving the loss OF the whole debt and then, in
addition, subject the same bank to forfeiture Of
BILE to other violations OF law. l am informed by
gentlemen who participated In the framing OF the
present National Currency act that the forfeiture
OF twice the amount OF interest was regarded as
sufficient penalty for such violations OF law and,
at the same tInle a sufficient protection to bor-
T0wers.


These statements are confirmed by the act OF
April ~, 1870 IAN act to amend the Usury Laws OF
tle District OF Columbia which provides "that if
any person or corporation in this District shall
contract to receive greater late OF interest than
ten per cent upon any contract In writing, or six
ar