Therefore National Banks, in calculating the possible profit on taking out circulating notes, have the following example to be considered in issuing every one hundred thousand dollars of their notes:
| Bonds purchased: United States | ||
| Registered 2% bonds to be paid at par in 1930. | ||
| Price of bonds 104 | $104,000.00 | |
| Par value of bonds purchased | 100,000.00 | |
| Money worth 6%. | ||
| Income from bonds | $2,000.00 | |
| Income from circulating notes loaned at 6% | 6,000.00 | |
| $8,000.00 | ||
| LESS DEDUCTIONS. | ||
| Annual tax on circulating notes | $500.00 | |
| Sinking Fund to retire premium on bonds at maturity,amount to be charged off each year | 181.00 | |
| Expenses (plates, express charges, etc.) | 75.00 | 756.00 |
| Net Income from Circulating Notes | $7,244.00 | |
| Net Income from loaning $104,000.00 (netcost of bonds purchased) at 6% | 6,240.00 | |
| Net profit on taking out $100,000.00 ofcirculating notes | $1,004.00 | |
Hence the net percentage of profit on taking out National Bank notes on this class of bonds, is about one per cent., based on their present market price.
The profit on taking out circulation on other United States bonds is even less.
Suppose the market price of the 2% bonds purchased was higher, say 108, as it was several years ago, the profit would be even less. Also, if the bonds decline in market value below par (as in case of war, for instance), the bank must stand that loss; and purchase and deposit an additional amount of bonds, so as to make the market value of the bonds deposited equal to the amount of its outstanding circulating notes.
In order to retire its circulating notes and obtain possession of its United States Bonds, deposited as security therefor, the bank must send the Treasury Department an amount of lawful money equal to the amount of the circulating notes it wishes to retire. It can then "withdraw a proportionate amount of the bonds held as security for its circulating notes."
But the law says that not more than nine millions of National Bank Notes can be retired in any one month. Therefore, if the market price of United States bonds goes up to a point where all profit on its circulation is wiped out, the bank may have to wait several months until previous requests for retiring circulation are out of the way. In the meantime United States bonds may have gone down in price.
As has been stated, a National Bank can take out an amount of circulating notes, or National Bank currency, equal to the amount of its capital. But the profit on the operation is so small (leaving out the chances of actual loss) that many banks do not issue notes to the full amount allowed. The following figures relative to the total capital of all the National Banks, and the total circulation of these banks on the dates stated, conclusively prove this fact. (These figures are taken from the annual report of 1907 of the Comptroller of the Currency.)
| November 12, 1906. | January 26, 1907. | March 22, 1907. | |
| Capital Stock | $847,514,653.00 | $860,930,624.00 | $873,669,666.00 |
| Circulating Notes | 536,109,931.00 | 545,481,870.50 | 543,320,375.00 |
| May 20, 1907. | August 22, 1907. | ||
| Capital Stock | $883,690,917.00 | $896,451,314.00 | |
| Circulating Notes | 547,918,696.00 | 551,949,461.50 | |
It can be seen from these figures that the National Banks could have taken out over three hundred millions more of circulating notes than they actually issued during the time stated. And these figures are not exceptional.