NATIONAL BANKING UNDER THE FEDERAL RESERVE SysTeEM 
interest higher than 29 is subjected to a semi-annual tax of 14 of 
1%. Other expenses in connection with national bank circulatio 
include (1) 59% of the total amount of circulation, which must b 
ept on deposit in actual money, without interest, with the Treas- 
urer of the United States to redeem notes sent into the Treasury; 
(2) the sum that must be set aside as a sinking fund to absorb the 
remium on bonds which, purchased above par, the government 
must ultimately redeem at 100; and (3) the same expense in connec 
jon with redemptions, etc. The profit on circulation, therefore, 
above what might be obtained by loaning a sum of money equiva- 
ent to the cost of the bonds in the open market, is equal (say in a 69%, 
~~ : : 
market, to take a , concrete case) to the net receipts minus 6%, on th 
ost of the bonds. 
method of computing this profit may be illustrated much more 
imply by the following tabulation, which shows each step taken in 
he calculation. The hypothesis is that $100,000 worth of circulation 
; been taken out, secured by Panama 29%, bonds selling at 101.00, 
and that the prevailing rate of interest in the money market is 6 
Cost of bonds (Oct., 1926)..." 
Circulation obtainable. . .. 
Interest received on bonds. : 
Interest, at 69, on circulation less 59%, redemption fund. ... 
.. $101,000.00 
100,000.00 
2,000.00 
5.700.00 
Total gross receipts. . .. .. 
Deduction for tax. . 
Deduction for expenses. . . 
Deduction for sinking fund.” 
$500.00 
62.50 
75.79 
Total deductions. 
Net receipts (difference between gross receipts and total deductions). . .. 
Interest on cost of bonds at 69. 
Profit on circulation in excess of 69, on the investment... .......  ... 
Extra profit in terms of per cent 
[ 
1 
a 
$7,700.00 
638.29 
$7,061.71 
6,060.00 
$1,001.71 
.9929,