FINANCES OF THE UNITED STATES. 



291 



such notes should come into his possession. 

 There was nothing to prevent the bank from 

 at once redepositing with the Treasurer of the 

 United States the bonds withdrawn or any 

 portion of them, or depositing other bonds and 

 to receive therefrom from the Comptroller of 

 the Currency new notes in proper proportion; 

 and those transactions could be repeated in- 

 definitely and in an amount to an extent lim- 

 ited only by the capacity of the officers men- 

 tioned to receive the bonds and to issue the 

 new notes. No improper advantage, however, 

 was taken by the banks generally of this privi- 

 lege, and the provisions seemed in every way 

 to be advantageous to the banking interests 

 and not injurious to the Government. A few 

 banks, however, did, from time to time, with- 

 draw their security bonds, upon the deposit of 

 lawful money, as provided, for the evident 

 purpose of disposing of them and replacing 

 them at lower rates upon a turn of the market 

 in their favor. The Treasurer of the United 

 States, in his annual report for 1880, called at- 

 tention to these operations. In the few cases 

 which had occurred, the Government suffered 

 no special injury, but the transactions showed 

 that a combination of banks might, under ex- 

 isting law, suddenly withdraw a large amount 

 of .money from circulation by depositing it in 

 the Treasury on redemption account, thereby 

 causing financial distress and a depression of 

 prices, if not a serious panic. The opponents 

 of the banks in Congress seized upon these re- 

 ported transactions, which, even if much worse, 

 could have been cured by a few lines of addi- 

 tional legislation, and ingrafted upon a bill for 

 refunding the 5 and 6 per cents maturing in 

 1881, such additional, and, for refunding pur- 

 poses, unnecessary legislation, that when the 

 bill was finally perfected the important feat- 

 ures of it were as follows: 



That all existing provisions of law authorizing the 

 refunding of the national debt shall apply to any bonds 

 of the United States bearing a higher rate of interest 

 than 4i per cent per annum, which may hereafter be- 

 come redeemable : Provided, That in lieu of the bonds 

 authorized to be issued by the act of July 14, 1870, 

 entitled " An act to authorize the refunding of the 

 national debt," and the acts amendatory thereto ; and 

 the certificates authorized by the act of February 26, 

 1879, entitled " An act to authorize the issue of cer- 

 tificates of deposit in aid of the refunding of the pub- 

 lic debt," the Secretary of the Treasury is hereby 

 authorized to issue bonds to an amount not exceeding 

 $400,000.000, of denominations of $50, or some mul- 

 tiple of that sum, which shall bear interest at the rate 

 or three per cent per annum ; payable semi-annually, 

 redeemable at the pleasure of the United States after 

 five years, and payable twenty years from the date of 

 issue : and also Treasury notes to an amount not 

 exceeding $300,000,000, in denominations of $10, or 

 some multiple of that sum not exceeding $1,000, 

 either registered or coupon, bearing interest at a rate 

 not exceeding three per cent per annum, payable 

 semi-annually, redeemable at the pleasure of the Unit- 

 ed States after one year, and payable in ten years 

 from the date of issue ; and no Treasury note of a 

 less denomination than $100 shall be registered. The 

 bonds and Treasury notes shall be, in all other re- 

 spectSj of like character, and subject to the same 

 provisions as the bonds authorized to be issued by the 



act of July 14, 1870, entitled "An act to -authorize 

 the refunding of the national debt," and acts amend- 

 atory thereto. 



SECTION 4. That the Secretary of the Treasury is 

 hereby authorized, if in his opinion it shall become 

 necessary, to use temporarily not exceeding $50,000,- 

 000 of the standard gold and silver coin in'the Treas- 

 ury in the redemption of the five and six per cent 

 bonds of the United States authorized to be refunded 

 by the provisions of this act, which shall from time to 

 time be repaid and replaced out of the proceeds of the 

 sale of the bonds or Treasury notes authorized by 

 this act ; and he may at any time apply the surplus 

 money in the Treasury not otherwise appropriated, 

 or so much thereof as he may consider proper, to the 

 purchase or redemption of the United States bonds or 

 Treasury notes authorized by this act : Provided, That 

 the bonds and Treasury notes so purchased or re- 

 deemed shall constitute no part of the sinking fund, 

 but shall be canceled. 



SEC. 5. From and after the 1st day of July, 1881, 

 the three per cent bonds authorized by the first sec- 

 tion of this act shall be the only bonds receivable as 

 security for national-bank circulation, or as security 

 for the safe-keeping and prompt payment of the pub- 

 lic money deposited with sucn banks ; but when any 

 such bonds deposited for the purposes aforesaid shall 

 be designated tor purchase or redemption by the Sec- 

 retary of the Treasury, the banking association de- 

 positing the same shall have the right to substitute 

 other issues of the bonds of the United States in lieu 

 thereof : Provided, That no bond upon which interest 

 has ceased shall be accepted, or shall be continued on 

 deposit as security for circulation or for the safe-keep- 

 ing of the public money : and in case bonds so de- 

 posited shall not be withdrawn, as provided by law, 

 within thirty days after interest has ceased thereon, 

 the banking association depositing the same shall be 

 subject to the liabilities and proceedings on the part 

 of the Comptroller provided for in section 5234 of the 

 Eevised Statutes of the United States : And provided 

 further, That section 4 of the act of June 20, 1874, 

 entitled " An act fixing the amount of United States 

 notes, providing for a redistribution of the national- 

 bank currency, and for other purposes," be and the 

 same is hereby repealed ; and sections 5159 and 5160 

 of the Eevised Statutes of the United States be and 

 the same are hereby re-enacted. . . . 



In anticipation of the bill becoming a law, 

 141 of the banks, located in twenty-four dif- 

 ferent States, deposited lawful money in the 

 amount of $18,764,434 for the purpose of ob- 

 taining possession of their security bonds, the 

 money to be used in redemption of their notes. 

 Considerable stringency in the money market 

 resulted from this action. The President, 

 however, vetoed the bill, on account of the 

 provisions of the fifth section, stating his rea- 

 sons therefor as follows : " . . . Under this sec- 

 tion it is obvious that no additional banks will 

 hereafter be organized, except possibly in a 

 few cities or localities where the prevailing 

 rates of interest in ordinary business are ex- 

 tremely low." (For the remainder of Presi- 

 dent Hayes's veto, see CONGRESS, UNITED 

 STATES, page 172. ED.) 



But against the enactment of such a law, 

 other and perhaps more potent reasons existed. 



Under the provisions of the section in ques- 

 tion, the Government, in redeeming its ma- 

 tured obligations, would have been compelled 

 to discriminate between holders. Thus to 

 other than a national bank holding the ma- 



