Second: To pay 1 per centum per annum upon all the United States 2 per centum bonds or consuls until their maturity in nineteen hundred and thirty.
Third: To establish and maintain in the American Reserve Bank a bank note redemption fund equal to 5 per centum of the average amount of the notes outstanding each six months preceding the first days of January and July of each year for the purpose of redeeming the notes of failed banks.
Fourth: The balance remaining, if any, shall, on the tenth day of January in each year, be paid into the division of the reserve fund of the United States Treasury in gold coin for the purpose of converting the United States notes into gold certificates.
Section 60. That to any national bank which has complied with section thirty-nine of this Act the United States Government shall return the 5 per centum fund deposited with it for the purpose of redeeming its bond-secured bank notes.
Section 61. That any national bank desiring to wind up its affairs and go out of business shall be entitled to receive back all its advances made upon its deposits and note issue to the American Reserve Bank: Provided, however, That all the liabilities of such bank have been paid in full and satisfied, or any amount of lawful money equal thereto has been paid into the American Reserve Bank for that purpose, and the Comptroller of the Currency approves the repayment of said sum.
Section 62. That from and after the first day of January, nineteen hundred and fourteen, no national bank shall pay out over its counter any bond-secured bank note, but shall send the same to its financial centre, and the financial centre shall forward it to the United States Treasurer for redemption, cancelation and destruction.
Section 63. That any national bank that shall count any national bank note or notes as a part of its reserve shall pay into the American Reserve Bank a penalty of 10 per centum per diem on the amount so counted, and any national bank that shall, after January first, nineteen hundred and fourteen, count any bond-secured bank note as a part of its reserve shall pay into the American Reserve Bank a penalty of 10 per centum per diem upon the amount so counted.
Comment:—If there is one evil that should be crushed out in this country more than any other it is the practice of carrying debts as reserves. No bank should be allowed to carry any other bank's notes, any more than any other check or draft which it thinks is good. It has been this abuse of bank credit that has led to more trouble than almost any other single thing. It was the requirement of coin reserves and current coin redemption that made the banks of Virginia, Louisiana, Kentucky, Ohio, Indiana, Iowa, Missouri and the Suffolk System such perfect successes.
Here is the crux. The very soul of sound banking is current coin redemption. So let us not fool ourselves by putting wind and water into our reserves.
Section 64. That any national bank may and is hereby authorized to accept any note, check, draft, or bill of exchange, with not more than four months to run, for any one of its regular customers: Provided, however, That the instrument of credit so accepted shall be for goods or merchandise sold and actually delivered or in transit to the buyer: And provided also, That the instrument of credit states this fact upon its face: And provided further, That the bank so accepting any such instrument of credit shall keep and maintain against such acceptance identically the same reserve as it is required to keep and maintain against a deposit subject to check, and it shall be subject to the same penalty as provided in section forty-six of this Act.
Comment:—Let us not fool ourselves by supposing that by creating liabilities we are actually creating new capital. By acceptances a class of paper will undoubtedly be created that will in turn create a market for itself. The object therefore of acceptances should be to facilitate the handling of commodities in transit.