natural laws of trade and finance. It is not the duty or province of the Government to control or regulate the private affairs of the people, except for certain welldefined purposes, and as the custody and use of funds belonging to depositors are matters which affect only the interests of the immediate parties they should be left to their own judgment and discretion. The duty of the Government, so far as it has any duty in the premises, is simply to provide that all the currency issued under its authority is sufficiently secured to prevent its loss or depreciation in the hands of the people, who are compelled to receive and pay it out in the transaction of business; but a bank is not dependent upon the Government for authority to receive deposits, and its use for that purpose by the public is as purely voluntary as the credit extended to any other corporation or to a private individual. Every prudently managed bank, if left free to conduct its deposit and discount business in the manner most advantageous to its own interests and the interests of its patrons, will undoubtedly keep on hand a reasonable reserve to meet not only all the ordinary demands upon it, but to provide for such emergencies as are liable to occur in the community where it is located; but it ought not to be prohibited by law from using such reserve for the only purposes it was designed to accomplish. The average amount of reserve held by all the national banks does not usually exceed 17 or 18 per cent of their deposits, while the statistics show that the State banks doing a deposit and discount business, and which are not required by law to keep a fixed reserve, have generally kept on hand, in ordinary times, about 20 per cent of their deposits, a fact which conduces strongly to sustain the position that a regulation upon this subject is not really necessary in order to secure the safe management of banking institutions, and therefore ought not to be continued. RETIREMENT OF LEGAL TENDERS. Section 9 of the proposed bill provides that the Secretary of the Treasury may in his discretion use from time to time any surplus revenue in the redemption and retirement of United States legal-tender notes, but the amount of such retired notes shall not in the aggregate exceed an amount equal to 70 per cent of the additional circulation taken out by all of the banks under the proposed bill. This limitation upon the amount of legal tenders to be retired is for the purpose of preventing any forced contraction of the total volume of the circulating medium. Under. the proposed bill an amount of legal tender notes equal to 30 per cent of the circulation would be deposited in the Treasury and thus withdrawn from circulation. The net increase of circulation would be 70 per cent of the total circulation taken out. The amount which the Secretary might retire with the surplus revenues could not therefore contract the total volume. The reasons for providing for the retirement of legal-tender notes may be briefly stated as follows: First. The amount of such notes outstanding at this time is about · $500,000,000, including the notes issued under the act of July 14, 1890. A gold reserve of $100,000,000 is required to be kept in the Treasury for the redemption of legal-tender notes on demand. In the settlement of foreign balances gold is required. A constant drain has been going on for several years in order to settle foreign demands. All persons desiring to ship gold abroad obtain it by applying to the Treasury of the United States. Those paying customs duties pay in silver certificates or legal tender notes. The whole demand for foreign shipment of gold is upon the Treasury of the United States. When the gold reserve is reduced below what is deemed by him a safe limit the Secretary of the Treasury issues bonds to replenish it, and after it is replenished the drain continues, and the gold reserve is again brought below the limit. Another issue of bonds becomes necessary, and thus results a contiuous repetition of bond issues. Second. There is an apprehension in the minds of investors, both in this country and in Europe, that at some time the Government may fail to pay the legal-tender notes in gold on demand. This apprehen sion gives insecurity to investments and prolongs the financial depression. It is believed by your committee that if the volume of legaltender notes could be gradually reduced by applying the surplus revenues for this purpose better financial conditions would prevail. GOVERNMENT LIABILITY. It should be stated in this connection that the proposed bill will exempt the Government of the United States from all liability for the redemption of national-bank notes and place the sole responsibility upon the banks themselves. The banks will be amply able to take care of their own issues, the Government will be released from any liability, and bill holders will be secured under the provisions of the proposed bill from any possible loss. BANK PROFITS. The Secretary of the Treasury submitted to your committee an estimate prepared in the office of the Comptroller of the Currency as to the probable profits of circulation by national banks under the proposed bill as compared with profits under the existing law. The statement of the Secretary of the Treasury upon this subject is as follows: Under the plan proposed a national bank having a capital of $100,000, and being therefore entitled on a deposit of 30 per cent to take out a circulation of $75,000, would make profit for the first year and for all the years up until the point was reached where the safety fund of 5 per cent was complete of $1,972.93. The expenses that are charged to the bank are the annual cost of redemption of its whole circulation, the taxes, the express charges on the whole of its circulation, the cost of plates, and the agents' fees for redemption. Every item of expense has been deducted. The net profit on the $75,000 of currency for the first year is calculated at $1,972.93, and after the first year at $2,722.93. A national bank doing business under the present law on a deposit of 2 per cent bonds would realize under the present system a profit of $434.28 after the same deductions have been made, and a national bank issuing circulation of $75,000 on 4 per cent bonds would have a profit of $611.50. If a bank is issuing currency on a deposit of 5 per cent bonds its net profit on $75,000 circulation is $559.83; and if it is issuing its circulation on 6 per cent currency bonds (which are selling at a less premium, but pay a higher rate of interest) the profit on a circulation of $75,000 is $1,648.17. Statement showing profit accruing to a bank issuing circulation upon the plan proposed by the Secretary of the Treasury. [Under plan proposed by the Secretary.] A bank with $100,000 capital could receive $75,000 in notes, but must deposit $22,500 in legal tenders. $75,000 loaned at 6 per cent would yield.... Deduct expenses, etc., viz: $4,500.00 Loss of interest on $22,500 invested in "legal tenders" deposited at 6 per cent.. $1,350.00 Agent's fees on $75,000 circulation. 5.82 This charge is based on cost of present plan of redemption. 187.50 187.50 1, 777.07 1 per cent tax on $75,000 for "safety fund" first year...... 750.00 2,527.07 Net profit on $75,000 first year. Net profit on $75,000 after first year 1,972.93 2,722.93 Statement showing profit accruing to a bank issuing circulation based upon a deposit of United States 2 per cent bonds October 31, 1894. Amount of bonds necessary to secure $75,000 circulation..... $86,805.55 Interest on $86,805.55 bonds (costing, at 90 per cent, $83,333.33) at 2 per cent... Interest on $75,000 circulation at 6 per cent.. 1,736. 11 4,500.00 Statement showing profit accruing to a bank issuing circulation based upon a deposit of United States 4 per cent bonds, October 31, 1894. Interest on $83,333.33 bonds (worth at 115 $95,833.33) at 4 per cent... $3, 333. 33 Interest on $75,000 circulation at 6 per cent... 4,500.00 Sinking fund (reinvested quarterly) to liquidate premium... 670.00 7,833.33 $750.00 37.50 2.50 6.00 5.83 1, 471. 83 .6, 361.50 5, 750.00 611.50 Statement showing profit accruing to a bank issuing circulation based upon a deposit of United States 5 per cent bonds, October 31, 1894. Interest on $83,333.33 bonds (worth at 119 $99,166.66) at 5 per cent Gross profits $4,166.66 4,500.00 8,666.06 $750.00 37.50 2.50 6.00 5.83 2. 156.83 Sinking fund (reinvested quarterly) to liquidate premium... 1,355.00 Net profits... $99,166.66 (cost of bonds) would yield at 6 per cent Net profit in favor of circulation 6,509.83 5,950.00 559.83 Statement showing profit accruing to a bank issuing circulation based upon a deposit of United States 6 per cent bonds, October 31, 1894. Interest on $83,333.33 bonds (worth at 108 $90,000) at 6 per cent.. $5,000.00 4,500.00 9,500.00 $750.00 37.50 2.50 6.00 5.83 2,451.83 7,048. 17 5, 400.00 Sinking fund (reinvested quarterly) to liquidate premium.. 1,650.00 1, 648. 17 STATE BANKS. Section 10 of the proposed bill provides for repealing the 10 per cent tax upon the circulating notes of State banks on conditions which are set forth in that section. These conditions are: (1) 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. (2) That its stockholders are individually liable for the redemption of its circulating notes to the full extent of their ownership of stock; 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. (3) That the circulating notes constitute by law a first lien upon all the assets of the bank. (4) That the bank has at all times kept on deposit with an official of the State authorized by law to receive and hold the same, a guaranty fund in United States legal-tender notes, including Treasury notes of eighteen hundred and ninety, equal to thirty per centum of its outstanding circulating notes; and (5) 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. It will be seen that these conditions, if observed by the States, will throw around the State-bank circulation the most essential safeguards which are provided for the national currency. If they are not observed, the 10 per cent tax will be imposed, and the notes will thus be suppressed. It is true that some conditions required for national currency are not required for State-bank currency, but, in order that State-bank currency may be made equally safe, the States must provide the additional safeguards, if any, which may be necessary. SUFFICIENCY AND FLEXIBILITY. Your committee are of the opinion that if the proposed bill should become a law it will provide for a safe, sufficient, and flexible currency. One of the chief objections to the present currency system in this country is want of flexibility. The amount of paper currency in circulation in this country, except as to national-bank notes, is fixed by statute. The bond security required for national bank notes makes flexibility very difficult, if not impossible. Such flexibility as is required by the conditions of trade and commerce is absolutely wanting. The proposed bill requires that the Secretary shall keep on hand blank notes, which can be issued at any time to any amount which may be required by business conditions, within the limit of the circulation permitted under the bill. Thus provision is also made for retiring notes promptly when the banks may desire to do so, and as the outstanding notes will be taxed one-half of 1 per cent per annum, and as the banks taking them will be deprived of 30 per cent thereof in legal tender notes, there will be an inducement to retire the circulation when it is not needed, and at the same time an inducement to take out circulation when business conditions require it. The extraordinary conditions which confront the Treasury Department have constrained the members of the majority of the committee, while not agreeing to all the provisions of the bill nor to all the reasoning employed in this report, to concur in reporting the measure to the House for its consideration, each reserving to himself the right to offer such amendments as he may deem proper and to vote on the bill finally as he may determine. All of which is respectfully submitted. |