Price of bonds 104 $104,000.00 Par value of bonds purchased 100,000.00 Money worth 6%. Income from bonds $2,000.00 Income from circulating notes loaned at 6% 6,000.00 --------- $8,000.00 _LESS DEDUCTIONS._ Annual tax on circulating notes $500.00 Sinking Fund to retire premium on bonds at maturity, amount to be charged off each year 181.00 Expenses (plates, express charges, etc.) 75.00 756.00 --------- Net Income from Circulating Notes $7,244.00 Net Income from loaning $104,000.00 (net cost of bonds purchased) at 6% 6,240.00 --------- Net profit on taking out $100,000.00 of circulating notes $1,004.00 Hence the net percentage of profit on taking out National Bank notes on this class of bonds, is about one per cent., based on their _present_ market price. The profit on taking out circulation on other United States bonds is even less. Suppose the market price of the 2% bonds purchased was higher, say 108, as it was several years ago, the profit would be even less. Also, if the bonds decline in market value below par (as in case of war, for instance), the bank must stand that loss; and purchase and deposit an additional amount of bonds, so as to make the market value of the bonds deposited equal to the amount of its outstanding circulating notes. In order to retire its circulating notes and obtain possession of its United States Bonds, deposited as security therefor, the bank must send the Treasury Department an amount of lawful money equal to the amount of the circulating notes it wishes to retire. It can then "withdraw a proportionate amount of the bonds held as security for its circulating notes." But the law says that not more than nine millions of National Bank Notes can be retired in any one month. Therefore, if the market price of United States bonds goes up to a point where all profit on its circulation is wiped out, the bank may have to wait several months until previous requests for retiring circulation are out of the way. In the meantime United States bonds may have gone down in price.