After the Secretary of the Treasury had approved the charac ter and amount of the deposited bonds, the applying bank was entitled to receive from the Comptroller notes in blank, not ex ceeding go per cent of the market value and not in excess of the par value of any bonds so deposited. The Treasurer of the United States, with the approval of the Secretary of the Treasury, was to accept, as security for the additional circulating notes, bonds or other interest-bearing obligations of any state of the United States, or any legally authorized bonds issued by any city, town, county, or other legally constituted municipality or district in the United States conforming to certain prescribed conditions as to age, financial record, and condition; the Treasurer was to deter mine the relative proportions of these securities which were ac cepted by him, and he was empowered to require additional securities and substitute securities.
Character of the Emergency Notes The additional circulating notes issued under the Aldrich Vreeland Act were of the same nature, tenor, and use as the circu lating notes of national banks previously issued and secured by the deposit of United States bonds. The total amount of out standing notes of any bank, including the additional issues, was not at any time to exceed the bank's unimpaired capital and sur plus, and the maximum total issue was limited to $5oo,000,000. The additional issues were to be distributed by the Secretary of the Treasury among the states on the basis of the proportion which the unimpaired capital and surplus of the national banks in the state bore to the total amount of these items for all national banks of the United States. Any national bank having circu lating notes secured otherwise than by bonds of the United States was required to pay for the first month a tax at the rate of 5 per cent per annum upon the average amount of such of its notes as were based upon such securities, and afterwards an additional tax of 1 per cent per annum for each month until a To per cent per annum tax was reached, and thereafter a io per cent per annum tax. Reports of such note issues were required from the banks monthly. The taxes were paid into the redemption fund. For the retirement of the additional circulation the issu ing bank was authorized to deposit lawful money or national bank notes.
The Aldrich-Vreeland Act was to expire, by the terms of the act, on June 3o, 1914. Between the crises of 1907 and 1914 there was no unusual demand for currency and therefore no issues of national bank notes on other security than United States bonds. Quite a number of these associations were organized
in these five years, and $5oo,000,000 of the emergency notes were printed and deposited in the sub-treasuries against the day of need.
The Aldrich-Vreeland Act was understood to be only a make shift and temporary arrangement until the National Monetary Commission made its report and a new banking plan was estab lished. When the Federal Reserve Act was passed in December, 1913, provision was made to extend to June 3o, 1915, the time for the expiration of the Aldrich-Vreeland Act, which was retained as the means of an emergency currency until the federal reserve system was well established. Also at this time the taxes on the circulating notes secured otherwise than by bonds of the United States were reduced to 3 per cent per annum for the first three months, with an additional tax of r 2 per cent per annum for each month until a tax of 6 per cent per annum was reached; thereafter a tax of 6 per cent per annum was to prevail.
Effect of War on Emergency Circulation On August 4, 1914, at the opening of the Great War and the consequent disturbance of financial conditions, the Federal Re serve Act and the Aldrich-Vreeland Act were further amended. By these amendments the Secretary of the Treasury was given power to suspend, whenever he deemed it desirable, the limita tions of the law which prescribed that additional circulation, secured otherwise than by bonds of the United States, could be issued only to those national banks which had circulating notes outstanding, secured by the deposit of United States bonds to an amount not less than 4o per cent of the capital stock. He could also suspend the limitation that the total issue of additional notes could not exceed $5oo,000,000, and that the total issue of any bank could not exceed the amount of its unimpaired capital and surplus, the maximum issue of any bank being also fixed at 125 per cent of its unimpaired capital and surplus. The privileges of the amended acts were also extended to state banks and trust companies which were members of the federal reserve system.
The Aldrich-Vreeland Act thus amended was put into imme diate effect. The record is best told by the following statistical statement: The additional circulation authorized and secured by commer cial paper represented 57i2 per cent of the total authorized; by miscellaneous securities, including industrial bonds, and other securities, mainly city and town notes and warrants, 28 per cent; by state, county, and municipal bonds, 14 per cent; and by notes secured by warehouse receipts, I2 per cent.