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" allow banks to issue currency to the par of bonds,” and to allow national banks with as little as $25,000 capital in places of 4,000 people or less," as the bankers have been asking to have done for twenty years?
First, under the present law banks of small capital, orof $100,000 capi. tal, for that matter, can not exist where there are now no banking facili. ties, and the three amendments proposed would in no way improve present conditions, so as to permit them to exist.
On the other hand, to "repeal half the taxes on circulation," and " allow banks to issue currency up to the par of bonds,” would still further reduce interest where it is now lowest and iucrease interest where interest is now the highest. It would have exactly the opposite effect of the rational amendment of the law provided in the Walker bill, viz, to halve the present rates in strictly country districts while not materially reducing or increasing interest rates in city districts.
INTEREST DOUBLE NORMAL RATE.
To-day interest on bank loans in country districts is nearly double the normal rate, and made so by the law, while they are at the same time made a small fraction lower to borrowers of city banks by the law. Under the present law, the normal rate of interest on the same security on the same time and on the same amount would be about 2.98+ per cent in the three central reserve cities, were no interest paid on deposits, as compared with 7.34 per cent in country districts, and these relative rates are compelled by the law; that is to say, they would be were there any strictly country banks, but there is not one strictly country bank” to-day. They can not exist under the law as it stands. Under the Walker bill, with the currency provided therein, the rate would be 4.55 per cent in the country as compared with 2.98 per cent in the central reserve cities.
Persons will hardly put their capital into a bank unless they are reasonably certain of receiving 6 per cent dividends on the bank stock. In order to show the rates of interest banks must charge under the present law, under the Hill-Fowler bill, and under the Walker bill to pay 6 per cent on the bank stock, I have worked out the following examples of the practical working of the three systems:
In the case of No. 1, formed under the present law, a country bank would be compelled to charge 7.34 per cent on its loans to pay 6 per cent dividends on its stock, or 1.34 per cent more than the stockholders could individually loan their money for and get 6 per cent, while a city bank could loan for 2.98+ per cent and pay 6 per cent dividends.
In the case of No.2 a Hill-Fowler bank in a central reserve city could pay 6 per cent dividends on its stock and loan money at 3.03+ per cent.
But it is shown in the case of No. 3 that a Hill-Fowler country bank must charge 6.0+ per cent to pay 6 per cent on its stock. A rate of interest of 6 per cent would not make it an object to form a bank.
But No. 4, a Walker country bank, could loan money at 4.55 per cent and pay 6 per cent dividends.
No. 5 shows a central reserve city bank can loan money at 2.98 per cent or at less rates under the Walker bill than under the Hill-Fowler bill.
PRESENT LAW, COUNTRY BANK.
57, 143.00 33, 750.00
Paid for $37,500 bonds, at $113.55. $42, 581.25
8, 571. 45
59, 590. 20
Possible loanable funds....
181, 302. 80
Interest on $42,581.45 paid for bonds, at 2.4 per cent..
1, 021.95 13, 315. 55 1,000.00
Tax on circulation, 1 per cent..
$337.50 6,000.00 9,000.00
PRESENT LAW, CENTRAL RESERVE CITIES.
United States bonds, or 2.4 per cent capital,
$4, 087. 80
Possible loanable funds...
633, 412. 20
Interest on cost of bonds $4,087.80, at 2.4 per cent...
98. 11 18, 901. 89 2,000.00
HILL-FOWLER, CENTRAL RESERVE CITY BANK.
$150,000.00 650, 000.00
Total ..... Deductions:
United States bonds required, equal to 2.4
per cent of capital, or $3,600; market
$4, 087.80 12.8 per cent of capital, or $19,200 of
United States notes exchanged for “re-
Possible loanable funds
632, 452. 20
1 per cent paid on reserve notes taken....
98.11 19, 180. 89 2,000.00
Tax, 4 per cent on $150,000 capital..
$375.00 12,000.00 9,000.00
HILL-FOWLER COUNTRY BANK. Capital.
$150,000.00 Deposits ..
57, 143.00 Circulation
150,000.00 Total ...
357, 143.00 Deductions:
5 per cent on $60,000 “reserve notes" $3,000.00
8,571.00 Redemption fund on $90,000
1,000.00 20 per cent currency not in circulation.... 30,000.00
118. 201.00 Possible loanable funds....
3 per cent paid on reserve notes taken ...
$187.50 1, 635.12 14, 352.38 1,000.00
Tax of 6 per cent on $30,000 currency notes. $1,800.00
6,000.00 6 per cent dividend on $150,000 stock.. 9,000.00
WALKER COUNTRY BANK. Capital....
$150,000.00 Deposits Circulation
150, 000.00 Total....
357, 143.00 Deductions:
5 per cent redemption fund, $120,000 cur-
8, 571. 45 20 per cent currency out of circulation 30,000.00
44, 571. 45
Possible loanable funds....
INTEREST ON $312,571.55 LOANS, AT 4.55+ PER CENT.
14, 240.00 1,000.00
Tax on $120,000 in actual circulation 0.2 per
6,000.00 6 per cent dividends on $150,000 capital .. 9,000.00
INTEREST ON $637,500 LOANS, AT 2.98— PER CENT.. $19,000.00
2,000.00 Expenditures: Salaries, etc..
$12,000.00 6 per cent dividends on $150,000 stock... 9,000.00
21,000.00 These examples of six banks show that country banks can be formed under the Walker bill and loan money at half to two-thirds the rates of interest charged by banks on loans at the present time, namely, at 4.55 per cent. They show also that the interest rates by country banks formed under the Hill-Fowler bill must be 31 per cent higher than under the Walker bill. It will be noticed in example No. 2 of a Hill-Fowler city bank,
that the “reserve” required in cash in city banks is..... $162, 500 The “reserve notes” the city bank must pay for in
United States notes are about one-half what the country bank must buy, or.
$19, 200 The gold the bank must have in its own vaults is... 81, 250
100, 450 Balance .. Thus the city bank can keep all its reserve notes” in its own vaults and with its gold still use any lawful money for....
62, 050 It would not be possible for any one to make a demand upon this city bank for one dollar of gold. So it would be with every reserve city bank in the country under the Hill-Fowler bill.
Take example No. 3 of a Hill-Fowler country bank and the situation is reversed. It will be seen that the reserve” required is $8,571, while the bank must buy double the “reserve notes” the city bank buys. Only two-fifths of this reserve is required to be in cash; the other three-fifths may be in amounts due the bank from other banks, and only one-fifth or $1,714.20 in gold.
It figures out as follows:
$3,428.40 $1,714,20 to be in gold. The “reserve notes” the bank must pay for in United States notes are
$37,500.00 The gold the bank must have in its own vaults is 1, 714.20
Its reserve notes” in excess of those it can use in its cash
35, 785. 80
It will also be observed that the country bank must invest $68,130 in United States bonds and take out bank notes more than sixteen times as much as the city bank with the same capital. The city ban
is only required to invest $4,087.80 in bonds. The city bank will not bother with any currency. It cuts no figure in its business. But the country bank must pay out this $35,785.80 “reserve notes” and also its $37,500 “bank notes," a total of $73,500. This paper money always finds its way into the city banks to be by. them exchanged for the gold of the country banks in redemption and then returned to the country banks.