to retire the whole or any part of its circulation, the notes to be retired shall be forwarded to the Comptroller of the Currency for cancellation, and thereupon a sum equal to thirty per centum of such canceled notes shall be returned to the association, in lawful money of the United States. Defaced and mutilated notes and notes otherwise unfit for circulation which have been redeemed by any association may be returned to the Comptroller of the Currency for destruction and reissue, as now provided by law.

SEC. 5. That in order to provide a safety fund for the prompt redemption of the circulating notes of failed national banking associations each such association now organized or hereafter organized, and receiving circulation under this act, shall pay to the Treasurer of the United States, in the months of January and July in each year, a tax of one-fourth of one per centum for each half year upon the average amount of its circulating notes outstanding, to be computed as herein before provided, until the said fund amounts to a sum equal to five per centum upon the total amount of such national-bank notes outstanding, and thereupon the collection of said tax shall be suspended. Each association hereafter applying for circulating notes shall, before receiving the same, pay its pro rata share into the said fund; but an association retiring or reducing its circulation shall not be entitled to withdraw any part of said fund. When any such national banking association becomes insolvent, its guaranty fund held on deposit shall be transferred to the safety fund herein provided for, and applied, together with such part of the safety fund as may be necessary, to the redemption of its outstanding notes; and in case the said lastmentioned fund should at any time be impaired by the redemption of the notes of failed national banks, and immediately available assets of said banks are not sufficient to reimburse it, the collection of said tax of one-fourth of one per centum for each half year shall be resumed and continued until the said fund is restored to an amount equal to five per centum upon the total circulation outstanding. All circulating notes of failed national banks taken out under this act not redeemed on presentation to the Treasury of the United States, or an assistant treasurer of the United States, shall bear interest at the rate of six per centum per annum from the date of suspension of the bank until thirty days after public notice has been given that funds are on hand for their redemption, and such notes shall constitute a first lien upon all moneys thereafter received into the safety fund.

SEC. 6. That the Secretary of the Treasury may from time to time invest any money belonging to the safety fund in United States bonds, and the bonds so purchased and the interest accruing thereon shall be held as part of the said fund. Such bonds may be sold when necessary and the proceeds used for the redemption of the circulating notes of failed national banks.

SEC. 7. That every national-banking association heretofore organized and having bonds on deposit to secure circulation may withdraw such bonds upon the deposit of lawful money of the United States, as now provided by law; and thereafter such association may take out circulation under this act and be entitled to all the rights, privileges, and immunities herein.conferred.

SEC. 8. That the whole of section nine and so much of section twelve of the act approved July twelfth, eighteen hundred and eighty-two, entitled "An act to enable national banking associations to extend their corporate existence, and for other purposes," as directs the Secretary of the Treasury to receive deposits of gold and to issue certificates thereon be, and the same are hereby, repealed; and section thirty-one of the act approved June third, eighteen hundred and sixty-four, entitled "An act to provide a national currency secured by a pledge of United States bonds, and to provide for the circulation and redemption thereof," and sections fifty-one hundred and ninety-one and fifty-one hundred and ninety-two of the Revised Statutes of the United States, and all acts and parts of acts amendatory thereof, be, and the same are hereby, repealed: Provided, That no banking association taking out circulation under this act shall retire or cancel any of its bank notes without the written consent of the Secretary of the Treasury (if said notes are national-bank notes) or the proper State officer (if said notes are State notes).

SEC. 9. That the Secretary of the Treasury may, in his discretion, use from time to time any surplus revenue of the United States in the redemption and retirement of United States legal-tender notes and notes issued under the act of July fourteenth, eighteen hundred and ninety, but the amount of such notes retired shall not in the aggregate exceed an amount equal to seventy per centum of the additional circulation taken out by national banks and State banks under the provisions of this act; and hereafter no United States notes, national-bank notes, or Treasury notes authorized by the Act of July fourteenth, eighteen hundred and ninety, entitled "An act directing the purchase of silver bullion and the issue of Treasury notes thereon, and for other purposes," of a less denomination than ten dollars shall be issued, and as rapidly as such notes of denomination less than ten dollars shall be received into the Treasury, otherwise than for redemption and retirement, they shall be canceled, and an equal amount of notes of like character, but in denominations of ten dollars

or multiples thereof, shall be issued in their places; but nothing in this act shall be so construed as to repeal or in any manner affect the second section of the said act of July fourteenth, eighteen hundred and ninety.

SEC. 10. That section fifty-one hundred and ninety-one of the Revised Statutes of the United States be, and the same is hereby, amended so as to require national banking associations to keep not less than one-half of their reserve (provided for in said section) in legal-tender notes or Treasury notes issued under the act of July fourteenth, eighteen hundred and ninety, entitled "An act to direct the purchase of silver bullion and the issue of Treasury notes thereon, and for other purposes," if required to do so by the Secretary of the Treasury.

SEC. 11. That whenever there shall be received into the Treasury of the United States any legal-tender notes or Treasury notes issued under the act of July fourteenth, eighteen hundred and ninety, of less denomination than ten dollars the same shall be canceled and silver dollars or silver certificates of like denominations shall be issued in amount equal to such notes so canceled; and in order to put the provisions of this act into effect the Secretary of the Treasury shall proceed to coin the silver bullion in the Treasury as rapidly as practicable, and he is hereby directed to issue silver certificates upon the silver bullion now in the Treasury for the purposes hereinabove stated, and he is authorized to coin so much of said bullion as he may deem proper into subsidiary coin, to be used for the purposes set forth in this section. SEC. 12. That the Secretary of the Treasury is hereby empowered and authorized to require any part of the customs dues or duties on imports to be paid in United States legal-tender notes, including Treasury notes issued under the act of July fourteenth, eighteen hundred and ninety, entitled "An act directing the purchase of silver bullion and the issue of Treasury notes thereon, and for other purposes." SEC. 13. That the bonds which may hereafter be issued under the act of January fourteenth, eighteen hundred and seventy-five, and. the act of July fourteenth, eighteen hundred and seventy, shall bear a rate of interest not to exceed four per centum per annum. And full authority is hereby given the Secretary of the Treasury to issue said bonds for the purposes named in said acts without limit as to the time they shall become due and payable, and for the redemption of the notes issued under the act of July fourteenth, eighteen hundred and ninety.

SEC. 14. That the use of circulating notes of and above the denomination of ten dollars issued by a banking corporation duly organized under the laws of any State, and which transacts no other than a banking business, shall be exempt from taxation under the laws of the United States when it is shown to the satisfaction of the Secretary of the Treasury and the Comptroller of the Currency—

First. That such bank has at no time had outstanding its circulating notes in excess of seventy-five per centum of its paid up and unimpaired capital;

Second. That its stockholders are individually liable for the redemption of its circulating notes to an amount equal to the par value of the stock owned by them, but this shall not be required in the case of persons holding stock as executors, administrators, guardians, or trustees, if the assets and funds in their hands are liable in like manner and to the same extent as the testator, intestate, ward, or person interested in such funds would be if living and competent to act and hold the stock in his own name;

Third. That the circulating notes constitute by law a first lien upon all the assets of the bank;

Fourth. That the bank has at all times kept on deposit with an officer of the State, authorized by law to receive and hold the same, a guaranty fund in currency certificates issued under section fifty-one hundred and ninety-three of the Revised Statutes of the United States, or United States legal-tender notes, including Treasury notes of eighteen hundred and ninety, equal to thirty per centum of its outstanding circulating notes; and

Fifth. That it has promptly redeemed its notes at par on demand at its principal office, or at one or more of its branch offices, if it has branches.

Whenever the Secretary of the Treasury and the Comptroller of Currency shall be satisfied that any banking corporation duly organized under the laws of any State, and which transacts no other than a banking business as provided in this section, has been incorporated under the laws of the State in which it is located, and that such laws require

First. That its stockholders shall be individually liable for the redemption of its circulating notes to an amount equal to the par value of the capital stock owned by them;

Second. That the circulating notes thereof shall constitute a first lien upon all the assets of the bank; and

Third. That such bank shall keep on deposit at all times with an official of the State, authorized by law to receive and hold the same, a guaranty fund as required in the fourth paragraph of this section.

There shall thereupon issue to said bank a certificate to that effect. Said bank

may then issue its notes of and above the denomination of ten dollars, as provided in this act, and thereafter the tax of ten per centum heretofore imposed by law upon the circulation of the notes of State banks shall not be assessed or collected upon the notes of such bank unless it appears that said bank has issued circulating notes in excess of seventy-five per centum of its paid-up and unimpaired capital, or that its capital is impaired and has remained so for thirty days, or that the bank has not kept on deposit with the State official authorized by law to receive and hold the same a guaranty fund as required in the fourth paragraph of this section, or that said bank has not promptly redeemed its notes in lawful money at par on demand at its principal office, or at one or more of its branch offices, if it has branch offices, or that such State has repealed any of such laws; and no person or corporation, other than the bank issuing such notes in violation of the provisions of this act, shall be liable to pay the said tax of ten per centum for any use of the circulating notes of such bank after such bank has taken out circulation under this act.

SEC. 15. That any national banking association and any banking association organized under the laws of any State may deposit with the Treasurer of the United States legal-tender notes and Treasury notes issued under the act of July fourteenth, eighteen hundred and ninety, and receive certificates therefor in the manner provided in section fifty-one hundred and ninety-three of Revised Statutes of the United States. And the Secretary of the Treasury may, under proper rules and regulations to be established by him, permit the State banks to procure and use in the preparation of their notes the distinctive paper used in printing United States securities; but no State bank shall print or engrave its notes in similitude of a United States note, or certificate, or national-bank note.

The CHAIRMAN. Let me say one word further. It is not quite fair to ask the Comptroller to come up here again, and I hope there will be no interruptions. We will ask him questions after we all get through, after Mr. Hill, Mr. Fowler, etc., and I think if we pursue that method we may get through to-day.

CIRCULATION SECURED BY BONDS.

Mr. Cox. The first thing I want to direct your attention to is the first section of the bill as I understand it, to see that we get started right, and that is, the idea of making a deposit of United States bonds for the security of the circulation?

Mr. ECKELS. Yes.

Mr. Cox. And the second section. the important one, is the basis upon which circulation is issued?

Mr. ECKELS. Yes.

Mr. Cox. That is 30 per cent?

Mr. ECKELS. The second section provides the manner in which notes of the banks organizing under the provisions of this act may be issued, and leaves it discretionary with the bank whether it shall organize.

Mr. Cox. I was going to refer to that when going through that section. Now, under the provision of the second section they can take out 75 per cent of their paid-up capital stock?

Mr. ECKELS. Yes.

Mr. Cox. Of that 75 per cent, 30 per cent is based upon the Treasury notes and greenback notes?

Mr. ECKELS. Yes; which would stand in the nature of a security. Mr. Cox. Now, let me call attention to that section. Under any plan which you have examined, or the one you have suggested yourself, does it not involve the idea that the Government must in some way stand as a guarantor for the circulating notes, either by a guarantee of bonds or in some other way?

Mr. ECKELS. In all of the plans which have been suggested so far the notes to be issued by the national banks are guaranteed by the Government.

Mr. Cox. The Government standing good for their ultimate redemption?

Mr. ECKELS. Yes.

ISSUE OF CIRCULATING NOTES.

Mr. Cox. In this section, as presented here, the 30 per cent that is issued on the greenbacks or Treasury notes-I treat them all the same-would be the guarantee of the Government for that amount of the circulation. The remainder of the circulation, if taken out, would be secured by the assets of the bank, a first lien, etc.

Mr. ECKELS. In so far as the 30 per cent notes are concerned, they are absolutely secured to the note holder by a deposit security, and the Government is absolutely secured against loss. The balance of the notes are secured by the assets, the Government guaranteeing the payment of the notes, recouping itself from the assets, together with the guarantee fund, which is to be provided by a tax.

SAFETY-FUND PROVISION.

Mr. Cox. A safety fund, I think the Secretary calls it here, so that if the Government should be compelled to pay the 45 per cent issued upon the assets of the bank there will be no danger of the Goverment losing anything, because it has all the assets of the bank, first, and the stockholders' liability, and, in addition to that, has the safety fund of 5 per cent which has accumulated in the hands of the Treasury?

Mr. ECKELS. I do not think there would be any danger of the Government losing anything, although there might be a possibility of its doing so. There certainly would be no danger to the note holder, because he has the Government guaranty.

Mr. Cox. That is, as I regard it, a very important section of the bill. It makes a radical change in the present law, with this safety fund of 5 per cent in the hands of the Government, and liability, etc. We have spoken of the assets of the bank; has it not been already demonstrated by the present banking system that the amount of money which is held in the Treasury as a protection against the outstanding notes-this same thing might be called a safety fund-has not that proven beyond any dispute adequate for the protection of the Government?

Mr. ECKELS. Yes; the 5 per cent has been ample to make current redemption.

Mr. Cox. One more idea upon this section. It further conveys or carries the idea that in the redemption of notes the banks are their own redeemers.

Mr. ECKELS. They are for current redemption; they provide a redemption fund for the purpose of making current redemption. Mr. Cox. Either over their own counters

Mr. ECKELS. Or through such agencies as the Comptroller may establish.

Mr. Cox. Passing from that section to this general question, have you been able to find any serious objection contained in the first section, outside of one to which I want to call your attention in a minute-that is, putting the discretionary power in the bank; I want to call your attention specially to that. Here is a banking system, there is no doubt about the solvency of it, there is no doubt about the notes being good, and the Government is not paying to the banks interest upon bonds at the same time it is furnishing that circulation, and I think that is the one thing that makes the system now most unpopular.

SECURITY OF THE CIRCULATION.

Mr. ECKELS. I think that for the security of the note that section is ample, and its provision makes the note absolutely secure.

Mr. Cox. That covers the most important question, in my judgment, of all of these bills. As you remarked the other day, any banking system has to be so framed that it will induce men of sound judgment to take hold of it and go into it. Now, in this section there is nothing compulsory about it that I can see.

Mr. ECKELS. The bill as first prepared, as I remember, made it absolutely incumbent upon the bank to go into the system, but afterwards it was modified so it was left discretionary with it. If a bank wished to issue notes against bonded securities it could do so, and if it did not wish to do so it could issue them under this plan.

ELASTICITY.

Mr. Cox. As my memory serves me, in the first preparation of the bill the tax upon the circulation taken out on the bonded circulation was increased so as to drive them into this system. That was modified afterwards. Now the practical part of it is under this system, with the power of the bank to take out 75 per cent of circulation and 45 per cent on the basis of their assets, etc. Would not that give the currency of the country at least such elasticity

Mr. ECKELS. Within the limit allowed of notes to be issued against assets you would probably find all the necessary elasticity desired in the currency. The point in this bill, which it seems to me is of a good deal of moment, is that as at present drawn it accomplishes only the temporarily impounding of the legal tenders, instead of their complete destruction. It is provided that the banks shall deposit with the Treasury in legal tenders and Treasury issues an amount equal to 30 per cent of the circulating notes applied for, which are to remain with the Treasurer until the bank ceases to do business or until the circulation of the bank is reduced, whereupon they are released and returned to the bank. Such a course would result in simply putting them out again for the purpose of being currently redeemed by the Treasury. The provision should be, instead, that when the bank ceases doing business the legal tenders and Treasury notes deposited shall thereupon be redeemed and canceled by the Government, or when the bank reduces its circulation so much of the legal tenders which are thereby released shall be paid and canceled.

Mr. Cox. That, of course, would be a gradual way of taking them up. Mr. ECKELS. That would get them out of the way.

ISSUING BONDS TO RETIRE GREENBACKS.

Mr. Cox. Eventually that is getting them out of the way. On that point you are perfectly aware of the strong opposition there is in the country against the issue of bonds-I do not care how low the rate of interest is with which to take up these greenback notes and destroy them. Now, would it not be better-somewhat of a compromise, I admit-to take up this idea in this bill and make that deposit of 30 per cent of the capital stock of these notes, and then as the banks went out, or as they undertook to redeem or take up those greenbacks-I think the word "redeem" is not proper-but to take them up and cancel