This section is from the "The Science Of Wealth" book, by Amasa Walker.
The national-bank system being in its infancy, but little can be said of its actual operations.
We have, however, the first Report of the present Comptroller of the Currency (Freeman Clarke, Esq.), from which we can learn its condition on the 1st October, 1865: —
Bonds deposited for circulation.......272,634,200
Other bonds held........... 155,097,100
Total securities....... . . $913,045,329
On this last sum the banks were drawing interest at the rate of from 6 per cent in gold to 7.30 in currency. The average rate of interest cannot be less than 7.30; for on the gold interest bonds they get (at 40 per cent premium) 8.40, and they have few securities that pay less than 7.30, to say nothing of the exchange charged in making discounts. We call the rate, however, 7.30 on the whole amount.
$913,045,329 at 7.30.........$66,652,309.01
This amount of income is equivalent to a little over twenty per cent per annum on the entire capital invested. It will thus be seen that the system is at least a "paying one" to the stockholders. It is estimated that the net earnings of the banks for 1866 will be twenty-five per cent.
How it affects the quality of the currency (if it can be said to have any quality when wholly inconvertible) may be seen in the following statement.
Immediate liabilities of the national banks: —
Public deposits............ 58,032,720
Total immediate liabilities.........$583,119,711
Total specie............. 14,966,144
Excess Oct. 1, 1865.......$568,153,567
Specie to credit equal to 2½ cents on the dollar. The banks hold $193,094,364 in "lawful money " (greenbacks, compound-interest notes, &c.). The excess of immediate liabilities over specie and lawful money is three hundred and seventy-five millions. This excess is some forty millions larger than ever known under the State-bank system.
These statistics only show the condition of the national banks at the date mentioned (Oct. 1, 1865). Since that time, they have been rapidly increasing in number,* capital, circulation, and deposits; yet the general character of the currency they furnish will not essentially differ from what it now is until the government withdraws its own note circulation. Then specie must be had to sustain the circulation and deposits in the same manner, and at least to an equal extent, as under the old system. When that is done, the character of the new system will be developed, and its operations and effects made manifest. What they will be, no one who knows the nature of a mixed currency can have any doubt.
* There were over one thousand six hundred, April 1, 1866; and it is expected the number will be increased to two thousand one hundred,
As a further illustration, we give the operations of an individual bank in Massachusetts, as shown in the Comptroller's first Report.
The capital of this bank is $300,000. As it is a converted one, it has, of its old capital, a "surplus" of $106,000. It has also $33,000 of "profits" on hand; total, $409,000. This is the amount of capital it actually had to loan. Let us see how much it has loaned: —
Loans (on private securities)......... $155,000
Loans on public securities, "United-States bonds" . . 334,000 Loans on "other United-States bonds and securities" . 266,000
Total amount on which the bank draws interest . . $755,000
The immediate liabilities and immediate resources of the bank are,—
Private deposits . 105,000 Lawful money . . 52,000 Public deposits . . 212,000 Total means in hand $52,755 Old circulation . . 33,000
This is equal to about one mill of specie and ten cents of lawful money to each dollar of immediate liabilities; but it has about $233,000 of bank balances, and, if these balances are sound, they furnish so much of additional immediate resources to this bank, though they do not change the character of the whole currency, because what one bank has due to it another must owe, leaving the result as if neither existed, except that, as both are liable to be instantly called for, they greatly endanger the whole system.
Statistics might be multiplied indefinitely; but enough has been given to indicate the nature of the new currency, and the manner in which the new system is likely to be carried on. Being wholly in the power of Congress, it can be made whatever the people will.
The process, as we have already indicated, is very simple, by which the national currency can be made a convertible or mercantile one; viz., by enacting, from time to time, that the banks shall keep a larger and larger proportion of specie, until the end is finally attained, and the currency made safe and reliable. This is the more feasible, because the government, by making its deposits in these banks, will enable them, with their other privileges, to make good dividends without issuing any notes for which they do not hold an equal amount of specie.
The new system, then, is in so far to be regarded with complacency, as that it is more susceptible of reform, and of being made what a currency should be, — an unalloyed blessing to the public.