The National Banking Act of 1864 required, as a preliminary to the issue of national bank notes, a deposit of United States registered bonds to an amount not less than one-third of the paid-in capital stock of the bank and in a sum not less than $30,000. On these deposited bonds the bank could issue circulating notes, but not to an amount exceeding 90 per cent of the market value of the bonds, nor 90 per cent of their par value, nor to an amount exceeding the bank's paid-in capital. The aggregate limit was fixed at $300,000,000. In the following year the act was amended, limiting the issue of circulation as follows: to banks with capital of $500,000 or less, 90 per cent of the capital; over $500,000 up to $1,000,000, 80 per cent; over $1,000,000 up to $3,000,000, 75 per cent; and over $300,000,000, 60 per cent. It was further provided that of the aggregate amount authorized, one-half should be divided among cities and territories according to population, and the other half should be apportioned by the Secretary of the Treasury among the states according to the banking capital, volume of business, and so forth.
The Act of 1870 authorized the issue of additional circulation to the amount of $54,000,000, but provided that no bank organized thereafter should issue circulation in excess of $500,000. This extra issue was to be divided among the states on the basis of the census of 1870. This act also authorized the organization of banks to issue circulation redeemable in gold, but limited the amount to be issued by each "gold bank" to 80 per cent of the par value of the United States bonds deposited, and to a maximum of $1,000,000; these notes were of different denominations (none less than $5), were payable on demand in gold, and were a legal tender at par in payments to every other such "gold bank." Against these notes the banks were to hold on hand not less than 25 per cent of their outstanding circulation in gold or silver coin.
In 1874 an act was passed establishing the national bank redemption agency and providing for the retirement of circulation and withdrawal of bonds; it also changed in part the provisions of the original law with respect to the bond deposit requirement, in that banks with capital in excess of $150,000 were permitted to reduce their bond deposit to $50,000. This reduction determined the minimum bond deposit required of banks with capital in excess of $150,000. Six months later the limit on the aggregate amount of national bank note circulation was repealed, and every bank was permitted to issue circulation secured by bonds to the extent of 90 per cent of its paid-in capital.
Prior to 1880 it became apparent that there "was no demand for gold banks, only ten having been organized, all in California, and in that year their conversion into currency banks was authorized. Within a short time thereafter all the gold banks were either closed or converted into currency banks. The chief reasons for the failure of the gold banks were: (1) their highly localized distribution, (2) the opposition of the Californians to their notes after the panic of 1873, since they were paper rather than metal money, and (3) the meager profit possible from the note issue privilege inasmuch as the notes issuable were limited to 80 per cent of the par value of the bonds and the market rate of interest was high in the state of California.
The bond deposit requirement was again amended in 1882, to the effect that banks with capital of $150,000 or less were compelled to deposit, as security for circulation, bonds to the amount of one-fourth of their capital only. Those banks having on deposit bonds in excess of that amount were authorized to reduce their circulation by depositing lawful money for redemption of the notes and to withdraw bonds, but no bank reducing its circulation could again receive any increase of its circulation for a period of six months after the time it deposited money for the reduction, nor could more than $3,000,000 lawful money be deposited to retire circulation in any one calendar month.
The circulation franchise was given an added value by the Act of March 14, 1900, which authorized the issue of circulation to the par value of the bonds deposited, reduced the tax on circulation secured by 2 per cent consols to 1/4 per cent semiannually, and repealed the provision of the Act of 1882 forbidding the increase of circulation within six months from date of decrease.