Fiscal Year Ended June 30, 1919
SECRETARY OF THE TREASURY.
87
lieu of surety or sureties on penal bonds. For the purpose of this
statute, the term penal bond is defined to include any recognizance,
stipulation, bond, guaranty, or undertaking, with surety or sureties,
required to be furnished by the laws of the United States or regulations made pursuant thereto. Pursuant to the authority so conferred,
the Secretary has prescribed detailed rules and regulations for carrying the section into effect, in Treasury Department Circular No. 154,
dated June 30,1919 (Exhibit 64, page 402). Completefiguresas to the
bonds deposited in lieu of surety or sureties pursuant to this circular
are not avaflable,' inasmuch as the bonds may be accepted by bondapproving officers of the Government generally, and may be deposited
with the Federal reserve banks and - branches as well as with the
Treasurer of the United States. More than $520,000 face amount
of bonds so accepted, however, had been deposited with the Treasurer
of the United States up to October 31, 1919.
Special regulations also have been issued in line with this statute
and circular, under which Liberty bonds may be accepted as security
in lieu of penal bonds to secure the payment of floor taxes on distflled
spirits, tobacco manufactures, and other commodities, and as security
for claims for abatement, and in connection with replacement funds.
The following amounts of Liberty bonds have been received by the
Bureau of Internal Revenue and held as security for the payment of
floor taxes or otherwise taken as' security in lieu of sureties:
Received during the fiscal year ended June 30, 1918.
Received during the fiscal year ended June 30, 1919....
Received from June 30 to Oct. 31, 1919
Total....
,
$4, 431, 450
1, 269, 300
5, 050
5, 705, 800
ACCEPTANCE OF LIBERTY BONDS AND VICTORY NOTES IN PAYMENT
OP ESTATE OR INHERITANCE TAXES.
As stated in the annual report for the fiscal year 1918, the act of
April 4, 1918, added a new section, 14, to the act approved
September 24, 1917, known as the second Liberty bond act, providing that bonds of the United States bearing interesi) at a higher
rate than 4 per cent per annum might be accepted at par and accrued
interest, under rules and regulations prescribed by the Secretary of
the Treasury, in payment of estate or inheritance taxes iihposed by
the United States, if owned continuously by the decedent for at
least six month prior to the date of death and a part of his estate at
the time of death. Pursuant to this section, detailed rules and regulations governing the acceptance of Liberty bonds for estate or inheritance taxes were prescribed by the Secretary in Treasury Department
Circular No. 132, dated January 30, 1919 (Exhibit 65, page 412). The
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REPORT ON T H E
FINANCES.
act of March 3, 1919, known as the Victory liberty loan act (Exhibit
7, page 235) added to the second Liberty bond act a new section.
No. 18, authorizing the issue of notes of the United States, subdivision (d) of which extended the provisions above described to
notes issued under authority of said section. Pursuant to this provision, the 4 | per cent Victory notes will be receivable in payment
of estate or inheritance taxes, and rules and regulations governing
their acceptance have been prescribed in Treasury Department
Circular No. 151, dated June 24, 1919 (Exhibit 66, page 421). The
3 | per cent Victory notes are not under existing law acceptable in
payment of estate or inheritance taxes.
The following table shows the total face amounts of Liberty bonds
accepted in payment of estate or inheritance taxes up to and including October 31, 1919:
Loan.
Par amount
of bonds.
First Liberty loan converted 4J per cent b o n d s . . .
Second Liberty loan converted 4J per cent bonds.
Third Liberty loan 4^ per cent bonds
—
Fourth Liberty loan 4£ per cent bonds
Total........
LOANS SECURED BY OBLIGATIONS
OF THE UNITED
Interest
paid. ,
$16,450
143,350
109,300
2,000
$101.72
1,439.68
1,324.13
29.37
271,100
2,894.90
STATES.
Section 5200 of the Revised Statutes as amended by the acts of September 24,1918, March 3,1919, and October 22,1919, authorizes any
national bank to lend to a single borrower, on the security of Liberty
bonds, Victory notes, or Treasury certificates of indebtedness, to a
practically unlimited extent if such loans conform to the regulations
prescribed by the Comptroller of the Currency with the approval of the
Secretary of the Treasury. Under these regulations it is provided
that in addition to a loan amounting to 10 per cent of the unimpaired
capital and surplus fund, already permitted by law, a national bank
may grant another loan to the same borrower amounting to 10 per
cent of the unimpaired capital and surplus if secured by a like face
amount of Liberty bonds. Victory notes, and certificates of indebtedness of the United States issued since April 24, 1917, and a further
unlimited amount if secured by such obligations having a face value
of $105 for every $100 loaned.
It is believed that this increased authority to lend on the security
of Government pbligations had a very beneficial effect in aiding in the
flotation of the fourth Liberty loan, the largest of the four Liberty
loans placed, and also aided in the placing of the Victory notes.
The regulations promulgated by the Comptroller of the Currency
and approved by the Secretary of the Treasury ena-bled the national
banks to make these loans to an unlimited extent as long as the
loans were secured by 105 per cent of Liberty bonds. Victory notes,
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or Treasury certificates of indebtedness, ''until December 31, 1920,
or until such later date as the Comptroller of the Currency, with the
approval of the Secretary of the Treasury, may prescribe. ^^
The mere fact that national banks had the right to lend to customers on the security of Liberty bonds to this unlimited extent
had a stimulating effect even upon buyers of Liberty bonds who did
not have occasion to pledge their holdings. The knowledge that
they could borrow on them if they needed to do so naturally encouraged many to subscribe for more than they would otherwise have
taken.
The sworn reports of the national banks show that on September
12, 1919, the total amount of Liberty bonds of all issues upon which
all national banks were lending was $915,211,000.
The amount of Treasury certificates of indebtedness upon which
the national banks were lending on the same date was $32,379,000.
These figures are interesting when we consider that the total
amount of Liberty bonds placed through the national banks was
$8,603,711,205, or 50.6 per cent, a majority of the entire allotments
by the Government, amounting to approximately $17,000,000,000.
These records, therefore, show that on September 12, 1919, the
national banks were making loans on less than 5 J per cent of the total
amount of Liberty bonds which the Government allotted.
The amount of Victory notes allotted by the Government was
$4,500,000,000. On September 12, 1919, the national banks reported
that the total amount of Victory notes held as coUateral aggregated
$297,819,000.
LIBERTY LOAN SUBSCRIPTIONS IN DEFAULT.
Pursuant to the provisions of Treasury Department Circular No.
78, dated May 14, 1917, offering the first Liberty loan for subscription, the Secretary of the Treasury has declared forfeited all delin-quent first Liberty loan subscriptions filed with an official agency,
together with all payments made thereon and all right and interest
in the bonds allotted. This forfeiture was declared by Treasury
Department Circular No. 135^ dated February 5, 1919, attached
hereto as Exhibit 67, page 424. Pursuant to this circular all forfeited installment payments are covered into the Treasury to the
credit of miscellaneous receipts.
Similar action has been taken pursuant to the provisions of Treasury Department Circular No, 90, dated October 1, 1917, offering
the second Liberty loan for subscription, as to all delinquent subscriptions to the second Liberty loan, by Treasury Department
Circular No. 156, dated November 15, 1919, attached hereto as
Exhibit 68, page 425.
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