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BANKING 119 fifths of which may be deposited with banks in the larger few years bank-note circulation steadily decreased, until cities as approved by the Comptroller of the Currency. by October 1890 the outstanding notes were reduced to Banks or associations may own their banking houses but $122,928,084, the lowest point ever reached. In 1885, no other real estate, unless taken for debt, and then only because of a diminishing gold reserve, the New York for five years. Interest rates are charged according to banks on appeal turned over to the U.S. Treasury nearly state laws. Dividends may not be paid to stockholders $6,000,000 gold, in return for fractional silver coin. unless one-tenth of the profits is set aside as surplus, During these years other forms of currency than the though. such surplus need not exceed 20 per cent, of bank notes increased in volume. In 1890 the Treasury the capital stock. Notes of a bank, secured by a deposit legal tender notes, and the form of Government obligaat Washington of U.S. bonds, are receivable in payment tion known as silver certificates, together aggregated of taxes, excises, public lands, and all other debts except $620,000,000. Until this time the Government’s gold custom duties. The average circulation of each bank or reserve had been constantly maintained since 1879 at association is subject to a tax, and a fund amounting above $100,000,000, and the arrangement with the banks to 5 per cent, of such circulation is deposited at the for them to redeem in gold the notes turned in by the Treasury by each bank for the purpose of, redeeming public while exchanging gold at the Sub-Treasury for the mutilated notes. In addition to a possible loss of the same notes had been carried out. In 1890 a law was money invested in the shares of national banks, stock- passed which obliged the U.S. Treasury to purchase holders are personally liable for the debts of such banks 4,500,000 ounces of silver monthly, and to pay for the to the amounts of their respective holdings at par. same, in U.S. notes, which should be redeemed in gold By 1873 the National Banks’ circulation had amounted to $341,320,256. Because of the swollen volume of $100 000 OOQ1' S°ld reserve fell below the country’s paper currency, gold had remained out of The years between 1885 and 1893 were years of activity circulation, the premium working slowly down from the and business prosperity, supported by abundant harvests enormous, war price of $258 of paper money for $100 marketed at high prices. A reaction was the result, and of gold in July 1864, to a rate of only 15 per cent, by 1893 a .memorable panic had set in. Frightened depremium in the same month of 1873. During the panic positors withdrew their money from banks in the west, of 1873 the circulating notes of the banks held good and while increased demands for loans came upon the banks were redeemed. With the “hard times” clamour for east and west alike. The western banks withdrew from more currency, and with the constant outflow of exported the reserve cities the funds which they had left with the gold, the Government’s legal tender obligations could not reserve banks, in order to secure the 2 per cent, interest be met in that coin. In preparation for the resumption allowed on such deposits, with the result of decreasing of specie payments, 1st January 1879, the Government the cash reserve in New York city alone over $41,000,000 sold bonds, depositing large sums in the New York banks. in the space of two months, bringing these reserves, as Under the Bland Bill of 1877 the Government coined was usually the case in times of panic, below the 25 per monthly 2,000,000 to 4,000,000 silver dollars—worth, cent, required by law. Large railroad and industrial internationally, about 90 cents in gold each. The New suspensions resulted, yet, as heretofore, the banks were York Sub-Treasury was admitted to membership in the able to meet all emergencies because of their inherent Clearing House in 1878, and in the same year the Clearing soundness. In that year the New York banks turned House rule was adopted, prohibiting payments of balances over to the Treasury more than $6,000,000 in gold in between members in silver except in small sums. In New exchange for U.S. notes. During this panic a plan was York and Boston it was agreed that deposit accounts kept again successfully employed, which had been tried in the in terms of gold should be abolished. Arrangements were panic of 1873 and again in 1884 and 1890, namely, the made for the maintenance of 40 per cent, of the outstand issue by the New York Clearing House of loan certificates, ing U.S. notes to be held by the Treasury in gold. By having as the basis of their value securities and sound the aid of the banks, which agreed not to demand pay- commercial paper of the banks deposited with the Clearing ment of their legal tender notes in gold from the New House to an amount 25 per cent, above the par of the York Sub-Treasury, a gold standard of value was estab- certificates. These Clearing House certificates passed belished in 1879. tween the banks in lieu of cash settlement for Clearing The regular increase in the volume of money under the House balances. The example of New York was followed Bland Law, and the inability of the U.S. Treasury to get by the Clearing Houses of Boston, Philadelphia, Baltimore, rid of its accumulating stock of silver through the banks, and Pittsburgh. No very important National Bank failures led Congress, in 1882, to stipulate that no national bank resulted, although upwards of 150 banks out of an aggreing association should be a member of any Clearing House gate of 3800 suspended during the year, all but five being in which silver certificates should not be received in settle- in the west and south • nearly 400 state and savings ment of balances; but the banks were only striving to banks and private bankers, however, came to grief. resist the conversion of their banking reserve from gold Imally, the New York banks, by means of increased into silver. Meanwhile, under the stimulus of agricultural Clearing House certificates, arranged to import several and business prosperity, speculation had gone beyond millions of gold. bounds, producing in 1884 a panic, mainly confined to Because of a scarcity of currency, depositors had been New York financial circles. Several important failures compelled to accept certified cheques instead of money for occurred in Wall Street, including the Marine and Metro- all purposes except the most urgent needs. Both gold politan Banks, though the banks in general well sustained and paper money commanded a premium of 4 per cent, the burden of credits. On 1st October 1881 the circula- over bank cheques, and gold was attracted from abroad tion of all the national banks amounted to $320,000,000. and from being hoarded to realize the profit. In February In July 1882 the Government funded its outstanding 1894 the banks subscribed for 80 per cent, of a new issue 5 per cent, war bonds by an issue of 3 per cents. As of Government bonds. In August of the same year, on considerably more than half the bank holdings were of the appeal from the U.S. Treasury, they again exchanged class converted, and as the Government policy of reducing $15,000,000 of gold for U.S. notes called legal tenders. interest also led to the retirement of bonds by the aid of In November the banks again subscribed for a further its now steadily-growing revenue surplus, during the next issue of Government bonds. In January 1895 a syndicate