The Tax on National Bank Notes National banks taking out circulation are subject to a tax on the average amount outstanding. This tax is payable semi annually, and is at the rate of rz per cent per annum on such notes as are secured by 2 per cent bonds, and r per cent per annum on the notes secured by bonds bearing higher interest rates. The Treasurer, when levying the tax, takes as the basis the average amount of notes that the bank has had in circulation during the six months previous to the assessment date. This estimate must be made by each bank and submitted, under the oath of the president or cashier, within to days from the first of January and to days from the first of July. If a bank fails to make a proper report on the average amount of circulation it has had outstand ing for a period of six months, it is liable to a fine of $200, and the tax which must be paid by the bank is then assessed upon the amount of notes that have been delivered by the Comptroller instead of upon the average amount in circulation. A bank cal culates the average amount outstanding during a period by taking the amount it has outstanding each day for the period and divid ing by the exact number of days. Should a bank not keep a daily record of outstanding notes, but obtain its averages from weekly statements, it adds together the amounts outstanding weekly and divides by the number of weeks. If there is any fraction of a week, the amount that should be added for each day of such fraction is one-seventh of the balance for the week immediately preceding the odd number of days.
A bank may pay the amount of tax assessed on its circulating notes to the Treasurer of the United States, or to a federal reserve bank or to national bank depositories. When payments are so made, certificates are issued in triplicate, the original being for warded to the Secretary of the Treasury, the duplicate to the Treasurer, and the triplicate being held by the paying bank as a voucher. If there is not a depository convenient, payment may be made by draft on New York, payable through the clearing house, to the order of the federal reserve bank, or by direct remit tance to the Treasurer in lawful money or national bank notes.
Public Advantages of National Bank Notes By means of national bank notes several advantages are acquired by the public.
The national bank system was formed to provide a uniform bank note currency, and this purpose has been thoroughly real ized. By conferring the printing, issue, and redemption of the bank notes upon the Comptroller of the Currency, requiring the ample pledge of government bonds as security and requiring every national bank to accept the bank notes of every other na tional bank, the system provides a currency uniform in style, issue, redemption, security, and acceptability. The notes are national
in a geographical sense, for they circulate freely at par in any part of the Union, however far from their issuing bank, and travel and domestic exchange are thereby greatly facilitated. Their uniformity also makes counterfeiting more easy to detect and cheaper to prosecute.
Again, the safety of national bank notes up to the present has been unquestioned. The security is twofold. Certain gov ernment bonds, among the best of the assets of the bank, are segregated and pledged specifically to secure the notes. The government guarantees the redemption of the notes, retaining a prior lien on all the assets of the issuing bank. The ultimate security is therefore the government credit, represented both in the bonds and in the guaranty of redemption, and only to a small degree does that security lie in the strength of the commercial banks. The io per cent margin of security required until 19oo between the par value of the bonds and the amount of notes issued to the banks, the present limitation that the amount of notes may not exceed the par value or, in the discretion of the Comptroller of the Currency, the market value of the bonds, and the confidence of the people in the financial omnipotence and fair dealing of our government, have sufficed to give the bank notes an unquestioned safety.
Secretary Chase and others holding the Hamiltonian idea of the political value of a public debt, believed that banks would have a more favorable attitude toward the government and would support it more willingly and fully if the value of their assets and the acceptability of their note issues depended upon the financial prosperity of the government—a theory which has since been borne out by the facts.
Banking Advantages of the National Bank Notes The establishment of a safe and uniform bank note system has undoubtedly proved a direct benefit to banking by creating confidence in banking institutions. The National Banking Act stemmed the rising tide of hostile public opinion, which in its most radical phase demanded the suppression of all banks as a penalty and cure for the losses, disturbances, and inconveniences wrought under the then existing system.
Then, too, the banks derive an advantage from the fact that the national bank notes bear the name of the bank and the adjective "national," which serves to advertise the bank among noteholders. An advertising advantage is also realized from hav ing an amount of United States bonds in the bank's statement, since it suggests conservative management and the possession of a reliable secondary reserve. In addition, the ownership of govern ment bonds by the banks and the provision for central redemp tion of notes open to the banks avenues for cultivating friendly relations with the United States Treasury.