CONGRESS, UNITED STATES. (BANK CIRCULATION AND COINAGE.) 



217 



ficient. Compulsory redemption in deposit 

 binks in commercial cities is equally insecure. 

 Mortgages on real estate, State bonds, and 

 commercial paper have over and over again 

 been found an inadequate security. No secu- 

 rity for the noteholder in the custody of banks 

 or bankers is safe against failures and panics. 

 No law or threat of punishment can prevent 

 other creditors of a bank from obtaining a 

 preference over the noteholder, who, in all 

 former systems of banking, is the last to be 

 protected' and the first to suffer loss. The 

 highest form of security, that of the Govern- 

 ment itself, safely deposited in the custody of 

 the Government, is the only one that has 

 proved effective in favor of the noteholder. 

 This fundamental principle of safe banking is 

 now practically recognized by the chief com- 

 mercial nations, who alone have the established 

 credit to support and maintain paper money at 

 par with coin, and all other paper money is a 

 forced loan by a government, only justified by 

 extreme necessity. 



"The problem we are dealing with grows 

 out of the fact that our Government bonds 

 bear so high a price or yield so low a rate of 

 interest that banking institutions are in doubt 

 whether it is best for them to purchase the 

 bonds necessary to be deposited as security for 

 their circulating notes, or to abandon the issue 

 of such notes. In point of fact it is shown by 

 the Comptroller of the Currency in his last re- 

 port that the amount of bonds deposited for 

 circulation within one year has diminished 

 $9,583,350, and that this threatens contrac- 

 tion of the national-bank circulation of $60,- 

 000,000 per annum (page 10). It appears from 

 the report (page 12) that of the $354,000,000 

 of bonds deposited by the national banks, 

 $202,000,000 are liable to be paid by the Gov- 

 ernment on call. The uncertainty and danger 

 of a disturbance and contraction of our cur- 

 rency from this cause are apparent. When any 

 of these bonds are callad and paid by the Gov- 

 ernment they must be replaced by others, or 

 the currency basad upon them must be paid 

 and canceled. It is true there are other bonds 

 of the Unitsd States outstanding to the amount 

 of over a thousand millions, which are redeem- 

 able in from seven to twenty-three years, as 

 follows: 



Four per cents, payable July 1, 1907 $737,946,550 



Four and a half per cents, payable Sept. 1, 1891 250,000,000 

 Pacific Railway sixes, payable Sept 



1, 1895 $3,002,000 



Pacific Railway sixes, payable Sept. 



1,1396 8,000,000 



Pacific Railway sixes, payable Sept. 



1, 1897 9,712,000 



Pacific Railway sixes, payable Sept. 



1,1393 



Pacific Railway sixes, payable Sept 



1, 1899 14,526,512 



64,623,512 



Total $1,052,570,062 



" These bonds are to-day in market value as 

 follows : 



United States four and a halfs, 1S91, registered. 113$; 

 United States four and a halfs, 1S91, coupons, 114; United 

 States fours, 1907, registered, 123*; United States fours, 1907, 



coupons, 123|; United States currency sixes, 1895, 129$; 

 United States currency sixes, 1896, 181$ ; United States cur- 

 rency sixes, 1897, 133$ ; United States currency sixes. 1&98, 

 135$; Uuited States currency sixes, 1899, 137$. 



"Under existing law, upon the deposit of 

 any of these bonds with the Treasury by a 

 banking association, it may receive circulating 

 notes to the amount of 90 per cent, of the par 

 value of the bonds, and no more. Upon this 

 state of facts it is a matter of doubt depending 

 upon close computation whether a bank, which 

 must be governed by the interest of its stock- 

 holders, would be justified in investing $125 

 in bonds yielding an interest of $4, in order to 

 procure $90 in circulating notes burdened with 

 taxes, redemption in coin, and the certain loss 

 in a few years of $25 of the sum paid for the 

 bonds. It can without circulating notes exer- 

 cise and enjoy all the business of banking ex- 

 cept the issue of notes. Still, the advantages 

 of credit which attach to national banks from 

 the close supervision to which they are sub- 

 jected, will always induce prudent men to pre- 

 fer this system of banking even if the circula- 

 tion gives them no profit, but it is not good 

 policy to make the restraints upon banking or 

 any other business more than enough to secure 

 the certain and prompt payment in coin of its 

 notes on demand. 



"The question we have to deal with is 

 whether the present law does not demand of 

 the bank an excess of security, in view of the 

 changed value of the bonds and the reduced 

 interest they bear. When the law limited the 

 issue of circulating notes to 90 per cent, of the 

 par value of bonds deposited, they bore interest 

 at the rate of 5 and 6 per cent., and were 

 sometimes below par in market value. It was 

 at that time the interest of the Government to 

 induce the banks to take and hold as large an 

 amount of bonds as possible. All this is great- 

 ly changed. The current interest on bonds is 

 now 3 per cent, or less, and they are sold in 

 the market at rates yielding the investor 2 '66 

 per cent. It is now a matter of indifference 

 to the Government who buys or holds its 

 bonds. The only interest it has in the matter 

 is to hold in its vaults ample security for the 

 redemption of the notes issued. To require 

 security of $125 to pay $90 is unnecessary, and 

 is a questioning by the Government of its own 

 credit and solvency. Upon this I believe we 

 are all agreed. To continue the old limitation 

 wouTd not only be unjust, but would tend to 

 break down the system of national banks and 

 punish our people by unnecessary contraction 

 of their currency." 



The vote on the passage of the bill was as 

 follows : 



YEAS Aldrich, Allison, Bayard, Beck, Blair, 

 Brown, Butler, Call, Carnden, Colquitt, Conger, Cul- 

 lom, Dawes, Dolph, Gibson, Groome, Hale, Hamp- 

 ton, Harris, Harrison, Hawley, Jackson, Jones of 

 Florida, Lamar, Logan, McPherson, Mahoue, Miller 

 of California, Miller of New York, Morgan, Morrili, 

 Palmer, Pendlcton, Pike, Platt, Pugh, Ransom, Kld- 

 dleberger, Sabin, Sawyer, Van "Wyck, Williams, Wil- 

 son 43. 



