The Banks and United States Bonds
FOR many years the largest holders of United States bonds were the national banks. This is still true concerning the Old Debt.
The national banking system was established in 1863 primarily for the purpose of providing a market for Government bonds. With this object in view the banks were allowed to issue circulating notes upon the security of certain issues of bonds.
There are still three issues of bonds which have the circulation privilege, viz: the 2% Consols Of 1930, $599,724,050 outstanding; the Panama Canal 2's, $74,901,580 outstanding, and the 4% Loan of 1925, $118,489,000 outstanding--a total of $793,115,530 bonds, of which total on April 1, 1919, $688,- 183,:250 were deposited to secure national bank notes and $17,411,800 to secure Federal reserve bank notes. That is, nearly 90% of these issues is held by the banks.
National banks are permitted to issue circulating notes equal in amount to the par value of the United States bonds deposited with the Treasurer of the United States. Upon the average amount of notes outstanding a tax must be paid. This tax is one-half per cent. a year in the case of the two per cent. bonds and one per cent. a year in the case of the four per cent. bonds.