,
including a market for government bonds. It was, therefore, forced to
the issue of legal-tender notes under authority of an act passed
February 25, 1862.

After three issues of these notes, amounting to $400,000,000, had been
exhausted, and the value of the notes had depreciated to such an
extent that persistence in this method of financiering portended
speedy financial disaster, Congress adopted a suggestion made early in
the war by Secretary Chase, to the effect that a market for government
bonds might be created by compelling banks to purchase them as
security for their note issues. An act passed February 25, 1863,
provided for the incorporation of banks with the right to issue notes
on condition that they purchase government bonds and deposit them with
an official to be known as Comptroller of the Currency.

It was the expectation of the authors of this act that the state
banks, then numbering over one thousand, would exchange their state
for national charters and purchase bonds sufficient to secure their
circulation under the terms of the new act, but, since they showed
reluctance so to do, in 1865 force was applied in the form of a tax of
ten per cent on bank notes otherwise secured. Under this pressure most
of the state banks reorganized as national institutions, but a few
retained their state charters and formed the nucleus of the state
system of the present day. On account of the ten per cent tax,
however, the issue of notes by this remnant became unprofitable, and
the new national banks have to this day remained the sole banks of
issue in the country.

The act of 1863 has been amended several times, notably in 1864, 1870,
1874, 1875, 1882, 1887, and 1900. In its present form it permits the
organization of banks with a capitalization as low as $25,000 in towns
of 3,000 inhabitants or less, and with a capitalization as low as
$50,000 in towns of 6,000 or less. Banks organized under this act must
put ten per cent of their profits into a surplus fund until said fund
amounts to twenty per cent of the capital; must invest at least
twenty-five per cent of their capital, if it is less than $200,000,
and at least $50,000, if it is $200,000 or more, in government bonds;
and may deposit said bonds with the Comptroller of the Currency and
receive circulating notes to the amount of their par value, provided
their market value is par or above.

The rights and privileges of these banks are stated in very broad and
ge