^1 ;^/ $B ifl fi7S # ^^ ^i^© W€>z^/^ ■ ■ THE Farmers' Loan and Trust Company 16, 18, 20 & 22 WILLIAM STREET BRANCH OFFICE, 475 FIFTH AVE. NEW YORK LONDON 15 COCKSPUR ST., S. W. 26 OLD BROAD ST., E. C. PARIS 41 BOULEVARD HAUSSMANN BERLIN 56 UNTER DEN LINDEN, N. W. 7 THE Company is a legal depositary for moneys paid into Court, and is authorized to act as Executor, Administrator, Trustee, Guardian, Receiver, and in all other fiduciary capacities. Acts as Trustee under Mortgages made by Railroad and other Cor- porations, and as a Transfer Agent and Registrar of Stocks and Bonds. Receives deposits upon Certificates of Deposit, or subject to check and allows interest on daily balances. Manages Real Estate and lends money on bond and mortgage. Will act as Agent in the transaction of any approved financial business. Depositary for Legal Reserves of State Banks and also for moneys of the City of New York. Fiscal Agent for States, Counties and Cities. Foreign Exchange, Gable Transfers Letters of Credit payable throughout the world HENRY A. C. TAYLOR CHARLES A. PEABODY WM. WALDORF ASTOR OGDEN MILLS FRANKLIN D. LOCKE PERCY CHUBB GEORGE F. BAKER FRANCIS M. BACON, Jr. SAMUEL SLOAN BOARD OF DIRECTORS JOHN J. RIKER PERCY A ROCKEFELLER THOMAS F. VIETOR AUGUSTUS V. HEELY HENRY R. TAYLOR THOMAS THACHER JOHN W. STERLING EDGAR PALMER ANTON A. RAVEN MOSES TAYLOR PYNE J. WILLIAM CLARK CLEVELAND H. DODGE HENRY HENTZ EDWARD R. BACON FRANK A. VANDERLIP JAMES A. STILLMAN ARCHIBALD D. RUSSELL EDWIN S. MARSTON OFFICERS EDWIN S. MARSTON, President AUGUSTUS V. HEELY, Vice-Pres.andSec'y. CORNELIUS R. AGNEW, Vice-President HORACE F. HOWLAND, Asst. Secretary WILLIAM A. DUNCAN, Asst. Secretary SAMUEL SLOAN, Vice-President WILLIAM B. CARDOZO, Vice-President J. HERBERT CASE, Vice-President ROB^RJ E, BOYD, Assr. Secretary EDW'IHl''3i:BIil>, Asst. Secretary ^ m\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ m I Having credit enough with his master to provide for his own interest, he troubled not ^ » I himself for that of other men.— Clarendon. | I S CREDIT is the most effective force in our banking system there is always a demand for credit information; and The Mechanics and Metals National Bank of the City of New York has the faciHties and equipment for supplying banks and other customers with such informa- tion. Capital, Surplus and Profits, $ 15,000,000 Deposits (June 23, 1915), . 124,000,000 OFFICERS GATES W. McGARRAH, President NICHOLAS F. PALMER . Vice-President SAMUEL S. CAMPBELL . Vice-President JOHN McHUGH . . . Vice-President JOSEPH S. HOUSE Cashier FRANK O. ROE . . . Vice-President JOHN ROBINSON . . . Asst. Cashier WALTER F. ALBERTSEN . Vice-President ERNEST W. DAVENPORT . Asst. Cashier HARRY H. POND . . . Vice-President NORTH McLEAN . Manage Foreign Dept. »\\\\V\\\\\\\\\\\\\\\\\^^^^^^ -11 Strangers used to credit and trust the poor inhabitants, which had not ready money. Henry VIll. | UNITED STATES nOKTGAGEgTRUI COMPANY NEW YOR^K CAPITAL AND SURPLUS $6,000,000 MEMBER OF THE NEW YORK CLEARING HOUSE ASSOCIATION DIRECTORS Nicholas Biddle Robert Olyphant Charles S. Brown John W. Flatten Burns D. Caldwell Mortimer L. SchilT Lewis L. Clarke Elbridge G. Snow Thomas DeWitt Cuyler Henry Tatnall Charles D. Dickey Eben B. Thomas Allen B. Forbes James Timpson Henry R. Ickelheimer Guy E. Tripp William A. Jamison Arthur Turnbull Louis C. Krauthoff Cornelius Vanderbilt Julius Kruttschnitt George G. Ward Adolph Lewisohn William H. Williams OFFICERS John W. Flatten, - - - President Calvert Brewer, - Vice-President Carl G. Rasmus, - Vice-President Frank J. Parsons, - Vice-President Joseph Adams, - - - - Treasurer Alexander Phillipi, - - Secretary Henry L. Servoss, - Asst. Treasurer T. W. B. Middleton, Asst. Secretary Harry W. Hadley, - Asst. Treasurer Chauncey H. Murphey, Asst. Treas. William T. Law, - Asst. Secretary Ralph L. Cerero, - Asst. Secretary m\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ I Manufactures were rude, credit almost unknown; society therefore recovered from the ^ I shock of war almost as soon as the actual conflict was over. — Macaulay. ^ m\\mm\\\\\\\\\\\\\\\^^^^^^ NATlOlMAL BANK orvG.?TOcccL;pCyXJJi The Seaboard National Bank of the City of New York /^^REDIT information and banking facilities ^^ are as essential under the regime of the Federal Reserve Association as heretofore. Our facilities are at the command of our patrons and we respectfully solicit an oppor- tunity to demonstrate the quality of our service. Capital .... 1 1, 000,000 Surplus and Profits (Earned) 2,800,000 S. G. BAYNE, President S. G. NELSON, Vice-President W. K. CLEVERLEY, Cashier C. C. THOMPSON, Vice-President L. N. DeVAUSNEY, Asst. Cashier B. L. GILL, Vice-President J. C. EMORY, Asst. Cashier O. M. JEFFERDS, Asst. Cashier I .. . . Il 1 1 Credit is nothing but the expectation of money within some limited time. — Locke. | I IV FOURTH STREET NATIONAL BANK PHILADELPHIA Offers Unexcelled Facilities to Banks, Bankers and Trust Companies Foreign Exchange in all its Branches Steamship Tickets to all parts of the World Capital, Surplus and Profits $9,800,000 OFFICERS E. F. SHANBACKER, President JAMES HAY, Vice-President W. A. BULKLEY, Asst. Cashier FRANK G. ROGERS, Vice-President W. K. HARDT, Asst. Cashier R. J. CLARK, Cashier C. F. SHAW, Jr., Asst. Cashier DIRECTORS SIDNEY F.TYLER, Chairman JAMES HAY, President Merchants Warehouse Co. FRANK T. PATTERSON. Philadelphia CHARLES I. CRAGIN. Forrest Building WILLIAM A. DICK, North American Building EFFINGHAM B. MORRIS, President Girard Trust Co. WM. R. NICHOLSON, President Land Title and Trust Co. RUDULPH ELLIS, President Fidelity Trust Co. FRANCIS I. GOWEN, General Counsel Pennsylvania R. R. Co. ISAAC H. CLOTHIER, Eighth and Market Streets C. S. W. PACKARD, President Pennsylvania Company for Insurances on Lives and Granting Annuities E. F. SHANBACKER, President J. M. WILLCOX, Vice-President Philadelphia Saving Fund Society T. C. du PONT. President E. I. du Pont de Nemours Powder Co. THOMAS S. GATES. President Philadelphia Trust, Safe Deposit & In- surance Co. WILLIAM de KRAFFT, Secretary and Treasurer The Baldwin Locomotive Works FRANK G. ROGERS, Vice-President GEORGE K. JOHNSON, President Penn Mutual Life Insurance Company W\\\\\V\\\\\\\\\\\\\\\\\^^^^^^ I He traded largely; his credit on the Exchange of London stood high, and he had accu- ^ I mulated an ample fortune. — Macaulay. ^ W\\\\\\\\\\\\\\\\\\\\\mm^^^^^^ The Girard National Bank Philadelphia HE Federal Reserve system only affects that portion of balances formerly carried in the reserve centers that meets the reserve requirements of the Reserve Associa- tion. Member banks as well as non- member banks find their interests best conserved by maintaining active accounts with the independent banks in the reserve cities. THE GIRARD NATIONAL BANK OF PHILADELPHIA has served its patrons efficiently for over eighty years and will continue to give prompt official attention to all business entrusted to it. Stephen Giiard Born 1750 Died 1 83 I Capital and Surplus Resources OFFICERS $ 6,500,000 50,000,000 FRANCIS B. REEVES, Chairman of the Board JOSEPH WAYNE, Jr., President CHARLES M. ASHTON, Cashier EVAN RANDOLPH, Vice-President A. W. PICKFORD, Asst. Cashier THEO. E. WIEDERSHEIM, Vice-President ALFRED BARRATT, Asst. Cashier I If it were not for credit many people who possess capital but have no means of utilizing ^ I it themselves would find it useless and profitless.— John Stuart Mill. I V! Continental and Commercial National Bank of Chicago Capital, Surplus and Undivided Profits OFFICERS George M. Reynolds, - - President Arthur Reynolds, V -Pres't Nathaniel R. Losch, Cashier Ralph Van Vechten, Alex. Robertson. V V -Pres't -Pres't John R. Washburn, Ass't Ca.shier Herman Waldeck, V -Pres't John C. Craft, V -Pres't James R. Chapman, V -Pres't Wm. T. Bruckner, V. -Pres't $33,000,000 Harvey C. Vernon, Ass't Cashier Geo. B. Smith, Ass't Cashier Wilber Hattery, Ass't Cashier H. Erskine Smith, Ass't Cashier Wilson W. Lampert, Ass't Cashier Dan Norman, Ass't Cashier Geo. A. Jackson, Ass't Cashier Continental and Commercial Trust and Savings Bank Capital, Surplus and Undivided Profits - - - $5,000,000 Trust, Savings and Bond Departments OFFICERS George M. Reynolds, - - President John Jay Abbott, Vice-President Arthur Reynolds, Vice-President Charles C. Willson, Cashier Frank H. Jones, Wm. P. Kopf, Secretary Ass't Secretary Henry C. Olcott, Mgr. Bond Dept. Robert J. Hircock, Ass't Cashier Albert S. Martin, Ass't Cashier The Hibernian Banking Association Capital, Surplus and Undivided Profits $3,000,000 OFFICERS George M. Reynolds - - President David R. Lewis, Henry B. Clarke, Louis B. Clarke, Vice-President Vice-President Vice-President Frederic S. Hebard, Everett R. McFadden, Cashier Secretary John P. V. Murphy, Mgr. Sav. Dept. George Allan, Ass't Cashier Thos. E. McGrath, Ass't Cashier Combined Resources of these Affiliated Banks Over $250,000,000 « I How^ever gradual may be the growth of confidence, that of credit requires still more time | m m 1 luwcvci {^lauuai may ut I to arrive at maturity. — Disraeli IH WHILE the Federal Reserve Act has divided the country into regional districts, the course of trade remains the same. Banking follows its natural channels, and your New York business needs the same careful attention as heretofore. One hundred and twelve years' experience in serving banks as their New York correspondent tends to make this Bank's facilities and service of great value to out- of-town banks under the new regime. The Merchants National Bank of the City of New York DIRECTORS JOHN A. STEWART. Chairman Board of Trustees United States Trust Co. ROBERT M. CALLAWAY, President CHARLES D. DICKEY Brown Brothers & Co., Bankers EDWARD HOLBROOK President Gorham Manufacturing Co. JOSEPH W. HARRIMAN, Vice-President Harriman & Co., Bankers WILLIAM A. TAYLOR, Taylor Clapp & Co. Dry Goods Commission GEORGE ZABRISKIE Zabriskie Murray Sage & Kerr, Lawyers CHARLES A. BOODY President The Peoples Trust Co. of Brooklyn JAMES C. COLGATE James B. Colgate & Co., Bankers GUSTAV SCHWAB Oelrichs & Co., Agt's North German Lloyd S.S.Co. JOSEPH BYRNE, Vice-President and Cashier T. FRANK MANVILLE President H. W. Johns-Manville Co. FOUNDED I803 Resources over $30,000,000 I f^\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ »\ » . _ _ ..II I Silver and gold are not the only coin ; virtue passes current all over the world. — Euripides. ^ ^ ^ m\\\\\\\\\\\\\\\\\\\\\\\m\\^^^ P» i^ VIII THE BANK OF COMMERCE NATIONAL ASSOCIATION CLEVELAND THE CHAN^GES IX THE METHODS OF CARRY- ING RESERVES UNDER THE FEDERAL SYS- TEM CREATES A GREATER DEMAND FOR THE SERVICE AND CREDIT FACILITIES OF PRI- VATELY MANAGED BANKING INSTITUTIONS IN RESERVE CENTERS THAN HERETOFORE. IN CLEVELAND, the location of fed- eral RESERVE BANK, NUMBER 4, THE BANK OF COMMERCE NATIONAL ASSOCIATION CONTINUES, as has al- A\^AYS BEEN ITS CUSTOM, TO RENDER SUCH EFFICIENT SERVICE TO ALL CORRESPOND- ENTS AS MAKES IT MUTUALLY PROFITABLE. ITS DIRECTORATE IS COMPOSED OF SOME OF CLE ^ ELAND'S 3IOST REPRESENTATIVE BANKERS AND BUSINESS 3IEN; AN ASSUR- ANCE OF A FAITHFUL PERFORMANCE OF BUSINESS ENTRUSTED TO IT. I m\\\v\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^ If you were ignorant of this, that credit is the greatest capital of all towards the acquisition ^ I of wealth, you would be utterly ignorant — Demosthenes sW\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ i « ^ ■ a ^ ^^^ Statement of the Condition of the Wisconsin National Bank of Milwaukee UNITED STATES DEPOSITORY At the Close of Business May 1 st, 1 9 1 5 Compared with the Corresponding Period of 1914 mm RESOURCES May 1, 1914 Loans and Discounts $13,934,687.24 Bonds— Govt., Municipal & R. R. 3,078,997.90 Real Estate 541,000.00 Cash and Due from Banks . . . 8,334,465.70 May 1. 1915 $15,998,316.54 3,280,306.35 641,000.00 8,950,394.77 Total $25,889,150.84 $28,870,017.66 LIABILITIES Capital Stock $2,000,000.00 $2,000,000.00 Surplus and Undivided Profits . . 1,435,590.36 1,476,505.03 Res. for Tax. & Unearned Interest 53,011.60 52,778.63 Circulation 1,640,895.00 1,665,995.00 Deposits 20,759,653.88 23,674,739.00 Total $25,889,150.84 $28,870,017.66 OFFICERS L. J. PETIT, President HERMAN F. WOLF, Vice-PreHdent FRANZ SIEMENS, Asst. Cashier L. G. BOURNIQUE, Vice-President WILLIAM K. ADAMS, Asst. Cashier WALTER KASTEN, Vice-President F. K. McPHERSON, Asst. Cashier J. M. HAYS, Cashier A. V. D. CLARKSON, Asst. Cashier ISAAC D. ADLER DR. C. E. ALBRIGHT L. G. BOURNIQUE PATRICK CUDAHY HERMAN W. FALK DIRECTORS OLIVER C. FULLER R. W. HOUGHTON WALTER KASTEN GUSTAVE PABST L. J. PETIT CHAS. SCHRIBER CLEMENT C. SMITH HENRY M. THOMPSON GEO. D. VAN DYKE HERMAN F. WOLF I .11 I Put not your trust in money but put your money in trust. — Holmes. 1 m ^ fc\\\\\\\\\\\\\\\m\m\\\\\^^^^^^^ &" Cleveland HE great industrial progress of Cleveland and her advancement as a banking center w^ere the two principal reasons for the location of Federal Reserve Bank num- ber 4. All of which make an individual banking connection here more essential than ever before. The Union National Bank is equipped to meet every requirement of banks desiring a Cleveland correspondent. G. A. COL'LTON. President W. E. WARD. Vice-President W. C. SAUNDERS. Cashier E. E. CRESWELL. Assistant Cashier F. W. COOK, Assistant Cashier A. E. CHRISTIAN. Assistant Cashier C. F. MEAD. Assistant Cashier |}S\\^\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ .^^^^^.^^^....^^^^^^ M |i Let us all be happy and live within our means, even if we have to borrow the money to ^ m; 11 do it with.— Artemus Ward. | » Qylck to serve under any banking system. « — Com Exchange i 8 C m\\\\\\\\\\\\\\\\\\\\\\^^^^^^ ^ ■ Organized 185^ The Corn Exchange Bank NEW YORK CITY Capital, Surplus and Profits $10,000,000 OFFICERS WILLIAM A. NASH, Chairman of the Board WALTER E. FREW, President WILLIAM H. NICHOLS, Vice-President JOHN T. PERKINS, Vice-President FRANCIS H. PAGE, Vice-President FREDERICK T. MARTIN, Cashier EDWARD S. M.\LMAR, Asst. Cashier WM. E. WILLIAMS, Asst. Cashier DUNHAM B. SHERER, Asst. Cashier JOHN S. WHEELAN, Asst. Cashier RICHARD D. BROWN, Asst. Cashier In accordance with the provision of the New York Banking Law, this bank is prepared to make acceptances, based on actual commer- cial transactions, thus giving the paper so accepted the quality that passes as "prime paper" in the markets of the world. Accounts of State Banks and Trust Companies Invited a ]N\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ I We are content to take this on your credit. — Hooker. XIII ESTABLISHED 1891 Capital and Surplus, $3,000,000 ITH the establishment of the Federal Reserve System, the member banks have at their. disposal greater re- sources and additional facilities for taking care of their depositors. THE NATIONAL BANK OF THE REPUBLIC OF CHICAGO is therefore better than ever prepared to offer to banks and bankers the benefit of service based upon long experience and familiarity with the requirements of its correspondents, and such special attention as the business of each customer may demand. JOHN A. LYNCH President WILLIAM T. FENTON, Vice-President ROBERT M. McKINNEY Cashier O. H. SWAN Assistant Cashier JAMES M. HURST, Assistant Cashier WM. B. LAVINIA Assistant Cashier THOS. D. ALLIN Assistant Cashier LOUIS J. MEAHL Assistant Cashier WM. G. LEISENRING Mgr. Bond Department A. O. WILCOX, Mgr. Foreign Exchange Department W. L. JOHNSON Mgr. Collection Department CHAS. S. MACFERRAN Auditor I . . . _ _^^ ^ T fv\\\\\> pa ^ \ Credit is the roadway along which nations advance from barbarism to civilization. — Pratt. ^ m\\\\\\\\\\\\\\\\v&\\\\\\\\\\\^^^^ ^i Commercial Paper a rM a Bills of ExcKande Banker JAMES SPEYER Speyer & Co., Bankers TVILLIAM SLOANE President, W. & J. Sloane, Carpets SAMUEL SLOAN Vice-President, The Farmers' Loan & Trust Co. B. IT. BORDEN M. C. D. Borden & Sons, Commission Merchants "WALTER .JENNINGS President National Fuel Gas Co. CHAS. H. TENNEY Merchant Accounts of Corporations, Firms and Individuals received on favorable terms. Foreign Exchange. Commercial Credits. m\\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ I Manufactures were rude, credit almost unknown; society therefore recovered from the ^ I shock of war almost as soon as the actual conflict was over. — Macaulay. | m\\\\\\\\\\\\\\\\\\\\^^^^^ XXI « It • r ''' rrfT car rrci: rr rr fsfx rr First National Bank Building MILWAUKEE, WIS. HOME OF THE FIRST NATIONAL BANK OF MILWAUKEE AND FIRST TRUST COMPANY m\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ I ..I I Silver and gold are not the only coin; virtue passes current all over the world. — Euripides. | rst^^Omi UioiioiTXvnoxAL IIaxk mt; ":^^^ 11^' •■■■;: :-iiiu^ ■••■:;];;inn ■••ini!iin fie Sc gc EE Et £5 BBIgfi ii IE IE leiiEE Sf 11 15 It If II ' HJOIUing "■:;s::iii;i 'iK^g eE If ilirlffmt Capital and Surplus $7,500,000.00 Established 1863 THE First and Old Detroit National Bank is the lead- ing commercial bank of Detroit and Michigan, and is one of the six largest national banks West of the Atlantic Seaboard. With its strength, organization and equipment, it is in a position to meet the requirements of merchants, manufacturers and individuals seeking banking connections. Owing to the breadth and num- ber of its bank connections, it has wide facilities for handling Michigan business and offers its services to banks and bank- ers, whose accounts we invite. ALEX. McPHERSON, Chairman of the Board EMORY W. CLARK, President WM. J. GRAY, Vice-President WALTER G. NICHOLSON, Cashier WM. T. DeGRAFF, Vice-President W. A. McWHINNEY, Asit. Cashier FRANK G. SMITH, Vice-President ELMER E. FORD, Asst. Cashier MERLE B. MOON, Vice-President FRED H. TALBOT, Asst. Cashier JOHN W. STALEY, Vice-President F. F. CHRISTIE, Asst. Cashier EDWARD C. MAHLER, Vice-President RUSSEL E. SMITH, Asst. Cashier JOHN H. HART, Vice-President JAMES A. WILSON, Asst. Cashier I Credit is nothing but the expectation of money within some limited time. — Locke. Capital, $2,000,000.00 Surplus, $2,000,000.00 Resources, $36,000,000.00 F. O. Watts - - - T. Wright - R. S. Hawes F. K. Houston - W. W. Smith J. R. Cooke President Vice-President Vice-President Vice-President Vice-President Cashier D'A. P. Cooke - H. Haill E. C. Stuart Assistant Cashier - Assistant Cashier Assistant Cashier M. E. Holderness - Assistant Cashier W. C. Tompkins - - Auditor ]m\\\\\\\\\\\\\\\\\\\N\\\\\\^^^^^ I Let us all be happy and live within our means, even if we have to borrow the money to ^ I do it with. — Artemus Ward. I Fort Dearborn National Bank Chicago, Illinois ^"^^A^K REot^^' UNITED STATES DEPOSITARY Capital $2,000,000 Surplus and Profits $1,000,000 Deposits $35,000,000 Comparative Showing of Deposits March 29, 1910 . $15,041,357.21 January 13, 1914 March 7,1911. 21,574,956.79 December 31, 1914 February 20, 1912. 26,207,446.32 March 4,1915 February 4,1913. 30,499.714.20 May 1,1915 $29,727,922.06 29,531,375.00 29,844,165.94 31,803.027.83 OFFICERS William A. Tilden, President Nelson N. Lampert, Vice-President Geo. H. Wilson, Cashier J. Fletcher Farrell, Vice-President Henry R. Kent, Vice-President John Fletcher, Vice-President M. Jacobowsky, Vice-President Charles Fernald, Assistant Cashier W. W. LeGrOS, Assistant Cashier Charles L. Boye, Assistant Cashier Wm. L. McKee, Assistant Cashier Harry Lawton, Manager Foreign Dept. We particularly desire the accounts of banks. Our officer in charge is personally ac- quainted with conditions in your section. We know your wants and wish to serve you. |N\\v\\\\\\\\\\\\\\\\\\\\\\^^^^^ I Put not your trust in money but put your money in trust.— Holmes. I W\\\\\\\\\\\\\\\\\\\\\\\\\m\^^^^ XXV The Capital National Bank ^ ST. PAUL, MINNESOTA Q This bank — conducted in a broadly conservative manner — offers every advantage in service and every consideration consis- tent with sound banking. A business connection with us cannot fail to be of mutual advantage and satisfaction. <5 Correspondence is invited. JOHN R. MITCHELL JEROME W. WHEELER WILLIAM B. GEERY JAMES L. MITCHELL - EDWARD H. MILLER - GEORGE M. BRACK C. EDWARD JOHNSON - President Vice-President Vice-President Cashier Ass't Cashier Ass't Cashier Ass't Cashier Capital, Surplus and Profits, $750,000.00 Deposits, $6,400,000.00 ■ m\\\\\\\\\\\\\\\\N\\N\\\\\^^^^^^ I The only road, the sure road — to unquestioned credit and a sound financial condition is | the exact and punctual fulfilment of every pecuniary obligation, public and private, according The Mechanics-American National Bank of St. Louis An individual banking connection in St. Louis is as essential under the new banking system as heretofore. We offer correspondents the benefit of our equipment and superior facilities for handling their business in this section. May we serve you ? Capital $ 2,000,000 Surplus 2,500,000 Resources 35,500,000 WALKER HILL. President FRANK 0. HICKS. Vice-President JACKSON JOHNSON. Vice-President EPHRON CATLIN. Vice-President JOSEPH S. CALFEE, Cashier CHARLES L. ALLEN. Assistant Cashier JAMES R. LEAVELL. Assistant Cashier PHILIP H. MILLER. Assistant Cashier WILLIAM H. HETTEL, Assistant Cashier p\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ I ■ . . I We are content to take this on your credit. — Hooker. I XXVI I y Minneapolis ^ FIRST AND SECURITY NATIONAL BANK Where Capital and Mind Unite To Offer Banking Service Right Capital $10,000,000 Surplus and Undivided Profits 4,800,000 Your Account Solicited m\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ I Credit is the roadway along which nations advance from barbarism to civilization. — Pratt, • Resources - $10,000,000.00 PEOPLES BANK BUFFALO ^ QEND us your Buffalo ^^ business, if intelligent handling of items and rea- sonable rates appeal to you. A. D. BISSELL, President C. R. HUNTLEY, Vice-President E. H. HUTCHINSON, Vice-President E. J. NEWELL, Vice-President HOWARD BISSELL, Cashier C. G. FEIL, Asst. Cashier A. J. ALLARD, Asst. Cashier G. H. BANGERT, Asst. Cashier m\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ I Credit has done more, a thousand times, to enrich ihe nations than all the mines in | ] S I the world. - Webster. | XXIX Corner Liberty & West Streets COAL ^ IRON NATIONAL BANK of the City of New York Capital $1,000,000.00 Surplus and Profits (Earned) - 671,000.00 Depository of the United States, City and State of New York HOARD OF DIRECTORS Francis J. Arend, Pres. Wm. G. Besler . . . Pres. Central R. R. of N. J. M. F. Burns Pres. Burns Brothers George H. Campb-U Asst. to Pres. B. & O. R. R. Co. Alfred A. Cook . . . Leventritt, Cook & Nathan Henry L. d-; Forest de Forest Brothers Allison Dodd Dir. Burns Brothers Joseph A. Flynn, V.-P. Fidelity and Dep. Co. of Md. W. J. Harahan Pres. Seaboard Air Line George D. Harris .... George D. Harris & Co. Henry L. Joyce. Mgr. Dir. Bklyn. 8s Man. Ferry Co. John C. Juhring . . Pres. Francis H. Leggett 8b Co. John L. Kemmerer .... Whitney 8e Kemmerer Albert B. Kerr . . Zabriskie, Murray, Sage 8b Kerr E. E. Loomis Vice-Pres. D., L. 8b. W. R. R. Co. DeLaval Separator Co. Jan.es H. McGraw . . Pres. McGraw Publishing Co. John A. Middleton . . V.-P. Lehigh Valley R. R. Co. Edwin H. Peck E. H. Be W. J. Peck Wm. B. Randall. Pres. Secur. Transf. and Registrar Co. John T. Sproull President John W. Sullivan . . . Pres. John W. Sullivan Co Wm. H. Taylor Pres. St. Clair Coal Co. David Taylor Vice-President Stephen H. Voorhees . Agt. Royal Bank of Canada G. O. Waterman Treas. C. R. R. of N. J. San: uel Weil Samuel Weil 8b Son Wm. H. Williams . V. P. Delaware 8b Hudson Co. Frank D. Wilsey Pres. N. Y. Boat Oar Co. Wm . H. Woodin. Asst. to Pres. Amer. Car and Fdy. Co. MEMBER NEW YORK CLEARING HOUSE ASSOCIATION ;m\\\\\\\\\\\\\\\\\\\\\\\^^^^^ I Tomorrow, Sir, I wrestle for my credit, and he that escapes me shall acquit him well. — ^ ^ I Shakespeare, As You Like It. 1; ' I I v\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ i II XXX ■Di ©Ij0 Market mh Julton Natinnal lattk nf Nrm fork (1-42) A Sixty- Year Old Bank FOR two generations this institution has had a steady, conservative, profitable growth, enjoying to the fullest extent the confidence and good will of the business community. Its reputation, resources and facilities are at the command of banks, bankers and trust companies desiring a New York correspondent. Capital and Surplus, $3,000,000 Resources over Fourteen Million Dollars OFFICERS ALEXANDER GILBERT, President JOHN H. CARR, Cashier ROBERT A. PARKER, Vice-President WM. M. ROSENDALE, Assistant Cashier m\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ ^ I Credit has done more, a thousand times, to enrich the nations than all the mines in the ^ | I world. — Webster. | *" XXXI m% * The Corn Exchange National Bank of Chicago Capital $3,000,000.00 Surplus 5,000,000.00 Undivided Profits . . 1,900,000.00 OJic ERNEST A. HAMILL .... Pre?ident CHARLES L. HUTCHINSON Vice-President CHAUNCEY J. BLAIR . . Vice-President D. A. MOULTON .... Vice-President B. C. SAMMONS .... Vice-President FRANK W. SMITH Secretary J. EDWARD MAASS Cashier JAMES G. WAKEFIELD . Assistant Cashier LOUIS E. GARY . . . Assistant Cashier EDWARD F. SCHOENECK Assistant Cashier Directors CHARLES H. WACKER CHAUNCEY J. BLAIR EDWARD B. BUTLER BENJAMIN CARPENTER WATSON F. BLAIR CHARLES L. HUTCHINSON MARTIN A. RYERSON CHARLES H. HULBURD CLYDE M. CARR EDWIN G. FORMAN EDWARD A. SHEDD ERNEST A. HAMILL Foreign Exchanrre Letters of Credit Cable Transfers W I Tomorrow, Sir, I wrestle for my credit, and he that escapes me shall acquit him weL — ^ | 1 I Shakespeare, As You Like It. | | v^ SW\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ THE FIRST NATIONAL BANK OF ST. PAUL, MINN. Capital and Surplus, ^5,000,000.00 Resources, ^40,000,000.00 OLDEST BANK IN MINNESOTA OFFICERS LOUIS W. HILL, Chairman Board of Directors EVERETT H. BAILEY . . . President CHARLES H. BUCKLEY . . Cashier CYRUS P. BROWN . . Vice-President EDWIN MOTT . . Assistant Cashier EDWARD O.RICE . . Vice-President HENRY B. HOUSE . Assistant Cashier OTTO M. NELSON . . Vice-President CHARLES E. GALL . Assistant Cashier DIRECTORS JAMES J. HILL, Great Northern Railway Company LOUIS W. HILL . . President, Great Northern Ry. Co. ALBERT L. ORDEAN Pres., First National Bank, Duluth EDWARD N.SAUNDERS, Jr., Pres., Northwestern Fuel Co. RICHARD A. JACKSON Vice Pres.,Great Northern Ry.Co. CHAS. W. AMES . . . President, West Publishing Co. DAVID C. SHEPARD, II . Finch, Van Slyck McConville EVERETT H. BAILEY President JOHN J. TOOMEY Vice Pres., Northwestern Trust Co. CYRUS P. BROWN Vice-President GEORGE T. SLADE Vice Pres., Northern Pacific Ry. Co. THEO. A. SCHULZE . . President, Foot, Schulze & Co. JAMES T. CLARK Vice Pres., C, St. P., M. & O. Ry. Co. CHAS. W. GORDON . . President, Gordon & Ferguson HALE HOLDEN Pres.. C. B. & Q. R.R. Co. WATSON P. DAVIDSON Capitalist PIERCE L. HOWE Pres., Imperial Elev. Co., Minneapolis WALTER BUTLER Butler Bros. OTIS EVERETT . . . Pres., Northwestern Trust Co. WILLIAM B. DEAN Nicols, Dean & Gregg JULE M. HANNAFORD Pres., Northern Pacific Ry. Co. ALBERT N.ROSE Jos. UUman MARTIN R. BROWN Great Northern Railway Company M m\\\\\\\\\\N\\\\\\\\N\\\\\\\\^^^^^ I I Credit is nothing but the expectation of money within some limited time. — Locke !\\\\\\\\\\\\\\\\\\\\\\\\\\\\V\^^^^^ XXXI 1 1 Central Trust Company of Illinois 125 West Monroe Street Chicago Capital, Surplus and Profits, $ 6,000,000 Deposits 40,000,000 ACCOUNTS OF BANKS AND BANKERS RECEIVED UPON FAVORABLE TERMS. PARTICULAR ATTENTION GIVEN TO COLLECTIONS. OFFICERS Charles G. Dawes, President Joseph E. Otis, Vice-President Edwin F. Mack, <( (( William T. Abbott, 11 (( Walter H. Wilson, U li William R. Dawes, Vice-President and Cashier J. E. LiNDQUIST, Vice-President Landon C. Rose, u u William C. Cook, " " T. C. Neal, a a Fred B. Woodland, ti (( L. D. Skinner, Assistant Cashier Wm. W. Gates, a (1 Jno. W. Thomas, a u Harry R. Moore, " " Addison Corneau, " " Howard S. Camp, " " J. H. MussoN, (( u Albert G. Mang, Secretary William G. Edens, Assistant Secretary Aksel K. Bodholdt, It a John L. Lehnhard, Assistant Trust Officer Lloyd R. Steere, Probate Officer Robt. H. Berry, Auditor DIRECTORS A. J. Earling Arthur Dixon Charles T. Boynton Alexander H. Revell S. M. Felton T. W. Robinson Chandler B. Beach Max Pam Z. G. Simmons H. a. Langhorst A. Uhrlaub Howard G. Hetzler Walter H. Wilson Joseph E. Otis George Woodland Burton F. Peek James W. Stevens W. O. Johnson R. Floyd Clinch William C. Boyden c. b. scoville A. R. Barnes Landon C. Rose A. M. Johnson Charles G. Dawes w\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ ^^ I Strangers used to credit and trust the poor inhabitants, which had not ready money. — | I Henry VIII. XXXIV The First National Bank of Boston Established 1874 Capital $5,000,000 Surplus and Profits $12,000,000 Deposits $86,000,000 OUR Foreign Exchange Depart- ment offers complete facilities for financing the exportation and importa- tion of merchandise. With dired connedions throughout Europe, South America and the Far Ea^, we are prepared to offer excep- tional colledion facihties and secure the late^ reports on trade opportunities and general conditions. We transfer money to all parts of the world and buy and sell Bills of Ex- change and Cable Transfers. We issue Commercial Letters of Credit in Dollars, Pounds SterHng, Marks, Francs, Lire or other currencies. Our Travelers' Letters of Credit and Travelers' Cheques are available everywhere. Put not your trust in money but put your money in trust. — Holmes. Modern Banking Service WE are prepar- ed to give the merchants and banks throughout this dis- trict such service as will enable them to handle their domes- tic and foreign busi- ness with economy and dispatch. Correspondence and Interviews Solicited American National Bank Richmond, Virginia Capital and Surplus, $1,600,000.00 I Let us all be happy and live within our means, even if w^e have to borrow^ the money to y I do it with.— Artemus Ward. | 1 i m\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ XXXVI FIRST NATIONAL BANK AND FIRST TRUST a SAVINGS CO CLEVELAND COMBINED RESOURCES OVER $ S2.000.000.00 m\\\\\\\\\\\\\\\\\\\\\\^^^^^^ I He traded largely; his credit on the Exchange of London stood high, and he had accu- ^ ^ I mulated an ample fortune. — Macaulay. | ''"~~~ ^^^^^^^^^^^^^^ Merchants National Bank, Burlington, Iowa Capital, - - $100,000.00 Surplus and Prof its, 130,000.00 J. L. Edwards W. E. Blake James Moir . Alex. Moir H. J. Hungerford F. L. Houke . C. L. Fulton . ■ . President Vice-President Vice-President Vice-President Cashier Ass't Cashier Ass't Cashier Directors W. E. Blake, Chairman H. A. Brown W. W. Copeland James Moir Alex. Moir W. C. Tubbs J. L. Waite J. L. Edwards w\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ I Tomorrow, Sir, I wrestle for my credit, and he that escapes me shall acquit him well. — ^ I Shakespeare, As You Like It. The National Bank of Commerce in St. Louis TOM RANDOLPH Chairman of the Board JOHN C. LONSDALE, President W. L. Mcdonald, Vice-President W. B. COWEN, Vice-President J. A. LEWIS, Vice-President and Cashier Capital and Surplus $12,000,000.00 /^UR policy is to extend every ^^^ facility and service to finan- cial institutions for making col- lections and carrying reserve ac- counts, assurance being afforded that each transaction will be consummated on the basis most advantageous to correspondents. ^ ^ Having credit enough with his master to provide for his own interest, he troubled not | I himself for that of other men. — Clarendon. ^ v\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ Mutual Benefit Life Insurance Company 1845 of Newark, N. J. Frederick Frelinghuysen, President 1915 The Leading Annual Dividend Company Satisfactory Service to Policyholders for 70 Years Paid Policyholders Since Organization in 1845 Over ^350,000,000 Purely Mutual Liberal Policies Low Rates Large Dividends New Benefits as adopted extended so far as possible to old Policyholders The Mutual Benefit's Accelerative Endowment Plan is unique and is unequalled I Send for leaflet "What Bankers Think of the Mutual Benefit" ^ m\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ ^ » Manufactures were rude, credit almost unknown; society therefore recovered from the ^ ^ k shock of war almost as soon as the actual conflict was over. — Macaulay. ^ ^ Wm\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ i Southern PacIfic Steamships I New York and New Orleans Make these five delightful days at sea on a Southern Pacific Steamship a part of your trip to and from the California Elxpositions Suites, Staterooms, Baths and Promenade decks. Time for stop over at quaint New Orleans, most picturesque of American cities; thence overland through the wonderful southwest on the Sunset Limited Every Day in the Year — No Extra Fare Southern Pacific — Sunset Route "The Exposition Line — 1915" New Orleans, Los Angeles, San Diego, San Francisco Oil-burning locomotives, rock ballasted roadbed — mean no cinders, no dust, permitting open windows all the way. Electric safety signals. Through Dining and Observation Cars. Write for full information and literature L. H. Nutting, General Passenger Agent 366 Broadway, at Franklin St. 1158 Broadway, at 27th St. 39 Broadway, near Wall St i I Silver and gold are not the only coin ; virtue passes current all over the world. — Euripides. ^ ;sj§^ m\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ ■ i^ ^ i' The Citizens Central National Bank ■t;t:iffll In the Centre of the Down Town Wholesale District 320 BROADWAY, NEW YORK Between Worth and Pearl Streets Capital Stock - - - Surplus and Profits - Deposits, June 23, 1915 $ 2,550,000.00 2,537,864.00 26,891,152.00 AMBROSE R. ADAMS F. M. BACON, Jr., Vice-President CHARLES L. BERNHEIMER GARRARD COMLY, Vice-Pres. RALPH L. CUTTER riRECTORS OTTO L.DOMMERICH FREDERICK T. FLEITMANN WILLIAM S. GRAY ROBERT B. HIRSCH DARWIN P. KINGSLEY EDWIN S. SCHENCK, President WALTON P. KINGSLEY AUGUSTUS F. LIBBY WM. FELLOWES MORGAN CHAS. ALLEN MUNN FRANK PRESBREY UNION NATIONAL BANK PHILADELPHIA -V W, H . Carpenter, President T. H. Conderinail, Vice-President Louis N. Spielberger, Cashier John W. Mink, Asst. Cashier Capital $500,000 Surplus $400,000 Deposits $5,000,000 ACCOUNTS or IJANIvS, llANIvKK!-^. CORPORATIONS ^ AND INDIVIDUALS SOLICITED 1 WN\\\\\\\\\\\\\\\\\\\\\\\^^^^^ ^ I However gradual may be the growth of confidence, that of credit requires still more time | ^ I to arrive at maturity. — Disraeli. | ^ fcv\\\\\\\\\\\\\\\\\\\\\\^^^^^^ ^ XUl □ THE NATIONAL UNION BANK OF bosto:n^ CAPITAL, SURPLUS AND PROFITS $ 2,212,000.00 TOTAL RESOURCES . 13,200,000.00 HENRY S. GREW President THEOPHIIiUS PARSONS . . . Vice-President CHARLES P. BL.1NN, Jr. . . Vice-President WII^IilAM S. B. STEVENS Cashier ARTHUR E. FITCH . . . ASSISTANT Cashier I A BANK OF MEDIUM SIZE, WEIili ORGANIZED TO GIVE THE BEST OF SERVICE. ACCOUNTS SOLICITED PERSONAL ATTENTION There is no more important feature of service in banking than personal attention devoted to the requirements of every customer. For this reason the Chicago Savings Bank and Trust Company places its complete facilities in all branches of banking and trust company service at your disposal and guarantees the most careful attention to every de- tail of business entrusted to its care. We are especially equipped to handle business in the Chicago district and cordially invite correspondence regarding our ability to serve you. CHICAGO SAVINGS BANK AND TRUST COMPANY STATE AND MADISON STREETS CHICAGO Edward P. Bailey, John A. McCormick, - Raymontd E. Durham, - William M. Richards, - William A. Nicol, - Edward J. Prescott, - OFFICERS Lucius Teter, President Vice-President John C. Armstrong, Vice-President Vice-President Cashier Asst. Cashier Secretary F. O. Birney, C. H. Fox, - W. T. Bacon, William T. Anderson, - Asst. Secretary Asst. Secretary - Asst. Secretary Mgr. Bond Dept. Auditor CAPITAL, H. L. ScHMiTZ, Mgr. .Real Estate Loan Dept. $1,000,000 I I I w\\\\\\\\\\\\\\\m\\m\\\\^^^^^^^ I Credit has done more, a thousand times, to enrich the nations than all the mines in | I the world. — Webster. | m\\\\\\\\\\\\\\\\\\\\mm\\^^^^^^ XUll THE LIVE STOCK SfflSE BANK OF CHICAGO CAPITAL AND SURPLUS - $ 1,750,000 RESOURCES 14,500,000 WM. A. HEATH, PRESIDENT G. A. RYTHER, VICE-PRESIDENT M. A. TRAYLOR, VICE-PRESIDENT G. F. EMERY, CASHIER A. W. AXTELL, ASST. CASHIER H. E. HERRICK, ASST. CASHIER L. L. HOBBS, ASST. CASHIER BY SENDING YOUR LIVE STOCK BUSINESS DIRECT TO US WE WILL SAVE YOU TIME AND INTEREST IN HANDLING Established 1833 Webster and Atlas National Bank BOSTON, MASS. Invites correspondence with Banks, Corporations and Individuals desiring A STRONG BANK OF DEPENDABLE SERVICE. Capital $1,000,000 Surplus and Profits $1,260,000 Boston City Notes and Drafts promptly and personally presented. Member of the Clearing House and Federal Reserve Bank of Boston, thus insuring direct collection service for practically every point in New England. Careful attention to inquiries for credit information. OFFICERS: AMORY ELIOT, President RAYMOND B. COX, Vice-President JOSEPH L. FOSTER, Cashier ROBERT E. HILL, Asst. Cashier I If it were not for credit many people who possess capital but have no means of utilizing | I it themselves would find it useless and profitless. — John Stuart Mill. I fc\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ ■ 11 ■ UNION EXCHANGE NATIONALBANK ,8?^NEWYORFC>, SYDNEY H. HERMAN President LOUIS J. WEIL Vice-President GEO. B. CONNLEY Asst. Cashier Capital and Surplus $2,000,000 DAVID NEVIUS Vice-President and Cashier OTIS A. GLAZEBROOK, Jr. Asst. Cashier Total Resources $ 1 4,000,000 1 ^ Located in the heart of the new textile manufacturing district, and many of our clients being manufacturers and merchants whose business extends throughout the country, we receive a large amount of out-of-town checks. ^ Banks that can handle to advantage the items payable in their locality are invited to correspond with us. MEMBER NEW YORK CLEARING HOUSE DROVERS NATIONAL BANK OF CHICAGO Capital and Surplus, $1,000,000 Has for over thirty years rendered quick and efficient service to its correspondents RESOURCES OVER ELEVEN MILLION DOLLARS OFFICERS OWEN T. REEVES, President M. W. TILDEN, Vice-President GEO. M. BENEDICT, Cashier F. N. MERCER, Assistant Cashier H. P. GATES, Assistant Cashier DIRECTORS WM. A. TILDEN L. B. PATTERSON AVERILL TILDEN JOHN FLETCHER GEO. M. BENEDICT WM. C. CUMMINGS BRYAN C. TIGHE M. W. TILDEN OWEN T. REEVES. Jr. m\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^^ I If you were ignorant of this, that credit is the greatest capital of all towards the acquisition | I of wealth, you would be utterly ignorant — Demosthenes. ^ m\\\\\\\\\\m\\\\\\\\\\^^^^^^ ^^^^^^^^^^^^■^^^^^^ XLV n ACCEPTANCE OF TIME DRAFTS A Service for Bankers, Manufacturers and Merchants UNDER the new banking law of the State of New York, this Company is authorized to accept time drafts upon it by other banking institutions and by merchants and manufacturers, for both domestic and foreign business. The Company can therefore offer a ser- vice which may prove of great advantage to many industrial and com- mercial concerns whose financial requirements are seasonable and against commodities, as well as to many banks and trust companies. The Company also issues dollar and foreign money credits to cover the importation and exportation of mer- chandise; purchases and sells bills of exchange; issues tourist letters of credit and travelers' cheques, and makes payments in all parts of the world, either by mail or by telegraph. The Company is depositary for the cash reserves and surplus funds of many national and state banks, sav- ings banks and trust companies; also for the funds of many important cor- porations, estates, firms and individ- uals; it also acts as agent, trustee, custodian, etc., for individuals and corporations. Call or write in regard to any bank- ing or trust business. Bankers Trust Company NEW YORK Capital, Surplus and Profits, $ 22,000,000 Resources - . - - 200,000,000 I .. . . 11 I Credit is the roadway along which nations advance from barbarism to civilization. — Pratt. ^ | ^^ ta\\\\m\\\m\\\\\\\m\\\\\\^^^^ XLVI The National Park Bank of new york ORGANIZED 1856 CAPITAL $ 6,000,000 SURPLUS AND PROFITS . 15,000,000 DEPOSITS, JUNE 2, 1915 122,000,000 OFFICERS PRESI DENT RICHARD DELAFIELD GILBERT G. THORNE JOHN C. MCKEON VICE PRESIDENTS JOHN C. VAN CLEAF WILLIAM O. JONES CASHIER MAURICE H. EWER MANAGER FOREIGN DEPARTMENT GEORGE H. KRET2 ASSISTANT CASHIERS WILLIAM A. MAIN ERNEST V. CONNOLLY WILLIAM E. DOUGLAS FRED'K O. FOXCROFT J. EDWIN PROViNE HENRY L. SPARKS DIRECTORS STUYVESANT FISH CHARLES SCRIBNER EDWARD C. HOYT W. ROCKHILL POTTS AUGUST BELMONT RICHARD DELAFIELD FRANCIS R. APPLETON CORNELIUS VANDERBILT ISAAC GUGGENHEIM GILBERT G. THORNE JOHN C. MCKEON RICHARD H. WILLIAMS THOMAS F. VIETOR EDWARD C. WALLACE EDWIN G. MERRILL JOHN G. MILBURN This Bank issues domestic and foreign letters of credit for travelers, and commercial purposes. Commercial credits are given either in Dollars, available by sight or time drafts on this bank, or in other cur- rencies, according to the countries where settlement is desired. The National Park Bank has been engaged in the South American business for many years and through its strong list of connections in all sections of that Continent has every facility for dollar exchange there. v\\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ XLVII WE OFFER the services of a strong and con- servative institution, with experienced officers, and up-to-date methods for the transaction of a commercial banking and trust company business. Capital and Surplus over $2,000,000.00 Total Resources over $11,000,000.00 OFFICERS SAMUEL S. CONOVER, President JOHN W. NIX, Vice-President GEORGE HENRY SARGENT, Vice-President ANDREW H. MARS, Secretary STEPHEN L. VIELE, Asst. Secretary ARTHUR W. MELLEN, Asst. Secretary and Trust Officer WILLIAM H. BARNARD JAMES BUTLER JAMES G. CANNON SAMUEL S. CONOVER SAMUEL CROOKS WILLIAM C. DEMOREST JAMES M. DONALD CHARLES F. DROSTE W. J. FULLERTON FRANK A. HORNE DIRECTORS EDWIN E. JACKSON, Jr. ADOLPH KASTOR JAMES H. KILLOUGH LEE KOHNS HENRY KROGER ANDREW H. MARS CHARLES HENRY MATTLAGE EDWARD E. MOBERLY VINCENT S. MULFORD JOHN W. NEX JOHN A. PHILBRICK ALEXANDER M. POWELL STEPHEN K. REED CHARLES E. RUSHMORE GEORGE HENRY SARGENT HAMPDEN E. TENER EDWARD H. TITUS D. W. WHITMORE JOHN O. WILLIAMS WILLIAM ZIEGLER, Jr. I m\\\\\\\\\\\\\\\\\\\\\^^^^^ I »\\\\\\\\\\\\\\\\\\\\\\\\\\\'^\\^^^^ The only road, the sure road — to unquestioned credit and a sound financial condition is | ^ the exact and punctual fulfilment of every pecuniary obligation, public and private, according to | I its letter and spirit — Rutherford B. Hayes, | XLVIII IRnlinQnd&Ca 33 Pine Street New York Grant facilities whereby American Banks may draw direct drafts on China, Japan and other Oriental Countries Correspondents of Russo-Asiatic Bank, Hong-Kong Jordaan & Cie., Paris London & South Western Bank, Ltd., London Finance Corporations, act as fiscal agents and underwrite entire issues of securities. Redmond Building New York Investment Securities Members New York Stock Exchange m\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ m He traded largely; his credit on the Exchange of London stood high, and he had accu- | M I mulated an ample fortune. — Macaulay. | • The Equitable Trust Company Building Dollar This Company has originated a Dollar Letter of Credit which will enable the American Traveler to draw his Dollar Draft in any part of the world and secure therefor more foreign money than any form of Traveler's Credit yet offered to the public. CAPITAL AND SURPLUS Twelve Million Dollars T?F EQUITABLE TRUST COMPANY OF NEW YORK 37 Wall Street Established 1871 New York Branches Foreign Branches COLONIAL LONDON 222 Broadway 95 Gresham St., E. C. FIFTH AVENUE PARIS 618 Fifth Avenue 23 Rue de la Paix ]m\\\\\\\\\N\\\\\\\\\\\^^^^^ I Tomorrow, Sir, I wrestle for my credit, and he that escapes me shall acquit him well. «» luiiiuiiuw, oil, 1 wrcsiic I Shakespeare, As You Like It. « BROWN BROTHERS & GO. NEW YORK PHILADELPHIA Fourth and Chestnut Streets AND BALTIMORE ALEXANDER BROWN & SONS (All connectsd by private wire* BOSTON 60 State Street Members of the New York, Philadelphia, Boston and Baltimore Stock Exchanges STOCKS, BONDS AND INVESTMENT SECURITIES BOUGHT AND SOLD LISTS AND STATISTICS FURNISHED ON APPLICATION DEPOSIT ACCOUNTS of American Banks, Bankers, Firms, and Individuals received on favorable terms. CERTIFICATES OF DEPOSIT issued payable on demand or at a stated period. Arrangements made with BANKS AND BANKERS in the United States by which they may ISSUE THEIR OWN DRAFTS ON ALL FOREIGN COUNTRIES. BILLS. OF EXCHANGE and CABLE TRANSFERS bought and sold. Issue TRAVELERS' LETTERS OF CREDIT, COMMERCIAL LETTERS OF CREDIT, TRAVELERS' CHEQUES, avail- able everywhere. Collections Made on All Parts of the World BROWN, SHIPLEY & CO., LONDON HEAD OFFICE FOUNDERS COURT, E. C. OFFICE FOR TRAVELERS 123 PALL M.\LL, S. W. B I Having credit enough with his master to provide for his own interest, he troubled not « I himself for that of other men.— Clarendon. I ^ 11 m\\\\\\\\\\\\\\\\\\\\\\\^^^^^ ■ ■ ^1 ^^^ Broadway Trust Company WOOLWORTH BUILDING, NEW YORK CAPITAL, $1,500,000 SURPLUS, $750,000 Member of New York Clearing House Association FREDERIC G. LEE, President DEPOSITS January 1, 1908 January 1, 1912 $2,424,000 $5,150,000 June 23, 1915 $19,180,552 July 1, 1914 $16,213,000 This growth, we believe, is due to an increasing appreciation of the conservative poHcy of this company and to the close personal attention of its officers to the interests of customers. 1 I Manufactures were rude, credit almost unknown; society therefore recovered from the I shock of war almost as soon as the actual conflict was over. — Macaulay. :i 111 11 I CONTENTS ' ^ " JH^J' Wj kj S j^ # , 855; 55=l.aHHr8H5J CHAPTER I PAGE Commercial Paper and Bills of Exchange 3 CHAPTER II The Credit System CHAPTER III The Banks and the Credit System 10 CHAPTER IV Commercial Paper in the United States 12 CHAPTER V Commercial Paper in the Trades 19 CHAPTER VI The Bank Acceptance 37 CHAPTER VII Bank Acceptance As Defined by the Federal Reserve Board 47 CHAPTER VIII Definition of Commercial Paper Eligible for Rediscount with the Federal Reserve Banks 50 CHAPTER IX Bills of Exchange in England 53 CHAPTER X Commercial Paper in Canada . 57 CHAPTER XI Commercial Paper in France 58 CHAPTER XII Commercial Paper in Germany 61 11 111 (I II III i III III 11 III III III II II 11 II II 11 II II II II ■Di BERNHARD, SCHOLLE ^ COMPANY 14 WALL STREET NEW YORK LONDON MEMBERS OF NEW YORK STOCK EXCHANGE PRIME ACCEPTANCES WE SOLICIT INQUIRIES FROM INSTI- TUTIONS OR OTHERS INTERESTED IN THE PURCHASE OR SALE OF THE AC- CEPTANCES OF PRIME BANKS, TRUST COMPANIES OR BANKERS. INVESTMENT BONDS SHORT TERM SECURITIES '\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ SWXWWWWWWV, I The only road, the sure road — to unquestioned credit and a sound financial condition is HE change in the methods of discounting paper brought about by the Federal Reserve system of banking created a demand for an up-to-date work on commercial paper. To meet this demand the Banking Law Journal publishes herein a review of the methods of dis- counting paper under the old system of banking, as compared with the new methods under the Federal Reserve Act. In describing the difference between the methods so long ob- served in this country, and the methods in foreign countries, we endeaver to point out the advantages and simplicity of single name paper, as against the two . name or acceptance form of credit; and as the Bank Acceptance is not as yet generally un- derstood in this country, it is given special attention, it being predicted by bankers, who are familiar with its operations in the European discount market, that it will soon become one of our chief credit instruments. These gentlemen point out that, there being a tendency to create a private discount market here, such as obtains in Europe, commercial paper that is eligible for rediscount at the Federal Reserve Banks becomes a liquid asset, which is one of the con- spicuous advantages of this form of credit. Other subjects carefully treated are The Practical Operation of Foreign Exchange, The Credit System, The Banks and the Credit System, Commercial Paper in the Trades, Bills of Ex- change and Commercial Paper in England, Canada, France, Germany and Japan. The authenticity and practicability of the work is vouched for by the fact that the data was supplied by thorough, practical foreign exchange men, credit men in banks and industrial houses and commercial paper dealers. The Bank Acceptance, as defined by the Federal Reserve Board and the Board's latest ruling on this form of credit under date of July 15, together with the Board's definition of commer- cial paper eligible for rediscount, are given in full. Reduced facsimile American Express Company Travelers' Cheque Published through the courtesy of the American Express Company AMERICAN EXPRESS COMPANY 9,749.999 The Travelers' Cheque system was originated in 1891 by the American Express Company. It offers a simple and convenient way of carrying money while traveling either at home or abroad. CAN YOU USE A FORWARDING AND FINANCIAL SERVICE WHICH KNOWS NO GEOGRAPHICAL LIMITATIONS? C The American Express Company offers to bankers, merchants and manu- facturers, a service as complete and comprehensive as the realm of business itself. €L The whole duty of its 30,000 employes consists in looking after other people's business. They are neither manufacturers nor merchandisers, but in every part of the commercial world they are facilitating the business of those who are. C. Their service to you begins where your organization leaves off. They attend to all phases of import and export trade, both express, freight and financial, from the issuance of the through bill of lading to the collection of the draft or invoice. C, They quote inland traffic and foreign ocean rates, issue foreign and domestic drafts and money orders, travelers' cheques, and letters of credit. They transfer funds by telegraph and cable; buy and sell domestic and foreign exchange; collect bills and accounts; serve legal papers; pay taxes; execute orders for purchase and make sales on consignment. C, Their service embodies that technical knowledge so essential to success which only experienced men can give. Through the American Express Company, with its exclusive offices in the principal foreign cities and correspondents at all im- portant points, it is a simple matter to establish direct contact with the com- mercial activities of every land. Chapter I OMMERCIAL paper, as the term is used in banking and commercial transactions, is a popular rather than a technical expression, employed to designate those simple forms of contract, — instruments of indebted- ness, which are treated everywhere as equivalents or representatives of money, and which have long been recognized in the world's com- merce and by the courts of various countries as essential to trade and finance. These instruments in their inception, transfer and payment, are governed by that code of laws which has been evolved from the customs of merchants, commonly known as the '' law merchant. " Exports and imports, remittances to and from every quarter of the globe, payment of sums large and small between parties near to and remote from each other, are made through the medium of bills of exchange, while promissory notes and checks have universally become part of the business life of nations. Every business, corporate and private, and every profession in some form or other, makes use of these indispensable instruments of transfer and are bound by the laws relating thereto. Simple as these instruments may seem, the rights and obligations of the parties thereto are surrounded by a complicated mass of statute law and judicial decisions which seek to jealously guard the rights and enforce the obligations of the parties concerned. The law of debt is as old as history, and the sanctity of obligations is the founda- tion of all trade and commerce. The breaking of the pledged word or the written promise has throughout history been considered a disgrace to the guilty one and a menace to business. By the common law of England, a chose in action (meaning a claim recoverable at law) could not be assigned, on the principle that if such debts could be thus trans- ferred, "pretended titles might be granted to great men whereby right might be trodden down and the weak oppressed, which the common law forbiddeth." The rule was first relaxed as to bills of exchange, but was gradually extended to notes and other securities, until the rule itself disappeared. I While all choses in action are now transferable, the negotiable instrument is the only species which carries by transfer a clear title and a full measure; and like an instru- ment under seal imports a consideration. The negotiable instrument has the following distinguishing characteristics: I com^merciaL-'^'paper and bills of exchange (a) As to title. If a piece of personal property (chattel personal) or a wow-nego- tiable instrument be stolen, no purchaser however innocent can acquire title against the true owner. If a negotiable instrument be stolen, and transferred by the thief to a third person in due course, for value, before maturity, the owner may hold against the world. (b) As to amount. If a non-negotiable instrument be assigned, the assignee steps into the shoes of the assignor, and if the same has been paid, or is subject to counter- claim, or set-off, against the maker, such counterclaim is good against the assignee. But commercial paper in the hands of a bona-fide holder for value carries the right to receive the face amount, and is subject to none of the defenses good between the ori- ginal parties. Commercial paper is "a currier without luggage," and as such forms an important part of the circulating credit medium of the world. (c) As to consideration. Under the common law, an instrument under seal im- ported consideration, by virtue of the solemn ceremony attending its execution. No other non-negotiable instrument does; but by the customs of merchants, heretofore men- tioned, a bill of exchange prima facie imports a consideration, and by the Negotiable In- struments Law, now in force in forty-two states, consideration is presumed. As be- tween the immediate parties lack of consideration may be shown and the presumptive consideration rebutted; but in the handsof an innocent holder for value, before maturity, no want or failure of consideration can be shown. Its defects perish with its transfer. THE BILL OF EXCHANGE Perhaps the best definition of a bill of exchange yet conceived is that in the English Bills of Exchange Act, of 1882, which says: "A bill of exchange is an un- conditional order in writing, addressed by one person to another, signed by the person giving it, requiring the person to whom it is addressed to pay on demand, or at a fixed or determinable future time, a sum certain in money to, or to the order of a specified person, or to bearer." By the same act, a promissory note is "an unconditional promise in writing made* by one person to another, signed by the maker, engaging to pay on demand, or at a fixed or determinable future time, a certain sum in money to the order of a specified person, or to bearer." The one is an order; the other is a promise. Both have distinctive functions to perform in the financial affairs of the world. THE PURPOSE OF THE BILL OF EXCHANGE The fundamental purpose of the bill of exchange is to settle debts without the transfer of money. To pay a debt does not necessarily mean to pass over the money, but to cancel the obligation by any of the processes known to commerce and the law. To satisfy one debt by canceling another is no less effective as a means of payment than the shipping of gold itself. And the mutual offsetting of debts between men as well as nations is the cheapest means of payment known. Where debts between immediate parties are canceled by book accounts — goods for goods, no credit instruments arise; but since the course of trade does not make the immediate offsetting possible, bills of exchange and promissory notes come into being. If A owes B, and B owes C, A may pay C direct and cancel B's debt to C, with one instead of two transfers of money or its equivalent, C giving B credit for the sum received from A. Or, to do it in a banking way, B ma}^ "draw on" A to the order of C. The effect of the draft would be to say: "A, pa}^ to C, the debt you owe me, B, and I will credit you.'] COMMERCIAL PAPER AND BILLS OF EXCHANGE To illustrate this principle as it applies to international trade and foreign exchange, suppose that The Boston Beef Co., an exporter of meat, sells The Liverpool Beef Co., ^10,000 worth of beef. The London Steel Co., knowing nothing of the transaction, sells the New York Razor Co. ^10,000 worth of Sheffield steel. Payment for these goods can be made in one of two ways: either by shipping two sums of gold across the Atlantic, with the attendant risk and costs, or by the use of a credit instrument in the form of a bill of exchange. The Boston Beef Co. therefore draws up a document as follows: (illustrated on the following page). Boston, August 1, 1914. At sight of this first bill of exchange (second unpaid) pay to the order of New York Razor Co. (importer of steel) $10,000, value received and charge to account of Boston Beef Co. (ime^^fr pf meat), to Liverpool Beef Co. (buyer of meat). Knowing that the Razor Company desires to make payment of its debt in London, the Boston Beef Co. sells this bill of exchange to the Razor Company and receives its money for the shipment of beef. The Razor Company now has a claim against the Liverpool Beef Company and good title to the funds in its hands which are due to the Boston Beef Co. Therefore, the Razor Company sends the draft properly endorsed, to the London Steel Company, its creditor, for collection and credit. The London Steel Company thereupon presents the draft through the proper channel to the Liver- pool Beef Co. which pays the draft, or "accepts" it, and thus the London Steel Company obtains its money. The double shipment of money is thus avoided and cost and risks reduced to the minimum. Of course, such direct dealing does not generally obtain, but through the medium of banks and exchange brokers essentially the same process takes place in all exchange transactions, debts in one country offsetting credits in another, so that in the sum total money is used only to adjust the differences at final settlement. The bill of exchange becomes an acceptance if-rhe drawee writes across the face of it: "Accepted" (date made and date payable). The same principles apply to inland bills (bills between different places in the same country) the only difference being in the money units involved. Whether the order is for the payment of funds out of a balance in the hands of a banker (banker's check), or in order to secure payment for goods as soon as shipped, by drawing on the buyer and selling to a bank in the exchange market, (trade bill) the result is the same — the payment of a debt by means of a paper instrument of credit. PROMISSORY NOTES ' Promissory notes, however, perform a different function, and are not drawn on persons, but by persons. They do not primarily intend to transfer funds, but to settle debts and borrow money. They need not necessarily represent a business transaction, but many, if not most of these instrunients arise by virtue of goods bought and sold. k COMMERCIAL PAPER AND BILLS OF EXCHANGE — 1 — The Boston Beef Co. sells to the Liver- pool Beef Co. $10,000 worth of meat BOSTON Creditor of Liverpool — 5 — Boston Beef Co. drav^'s on Liverpool Beef Co. and sells draft to New York Razor Co. Liverpool Owes Boston — 2 — Liverpool Beef Co. buys $10,000 worth of meat from Boston Beef Co. LIVERPOOL Debtor to Boston — 8 — Liverpool Beef Co. pays draft to Lon- don Steel Co. and transaction is closed i^JxThitiiiu* tuf QmmUliM '- "° m ^huiu^stm* ^. ^^ J S '•:£■ /// ' //// / f f),. '/y^^' ' /'////^ Udms-JHm mmasklhh(§ i im^ — 3 — New York Razor Co. buys $ 10.000 worth of Steel from London Steel Co. NEW YORK Debtor to London — 6— New York Razor Co. buys draft of Boston Beef Co. and endorses "Pay to London Steel Co. New York Razor Co." and sends draft to London Steel Co. for Credit The Draft New York Owes London The Draft — 4 — London Steel Co. sells New York Razor Co. $ 10,000 worth of Steel LONDON Creditor of New York — 7 — London Steel Co. presents draft to Liverpool Beef Co., receives payment and credits New York To get a clearer interpretation of the transactions shown in the above diagram, read the paragraphs consecutively as numbered. COMMERCIAL PAPER AND BILLS OF EXCHANGE Another form of credit that is most ussful to the general public is the Traveler's Cheque. America has now become the great tourist nation, which the American Banker's Associa- tion has recognized through the establishment of its Travelers' Cheque system. This form of credit is an authority in effect to whomever it may concern, for instance, banker, hotel clerk, merchant or railroad agent, to credit the party some instances approximating one hundred per cent, of the business done,) is undoubtedly due to the growing number of banking institu- tions, every town and hamlet now having its own bank. And as the people become more and more accustomed to the use of the bank check — the perfect circulating medium, checks will supplant other forms of currency, so that paper money will only be used to a limited SIGN here when purchasing at Bank COUNTERSIGN here in the presence of person called on to accept ch3qiie Here write name of PAYEE ^Q>i5CK V^O BANKGRS TRIJ fer COMPANY € KWC4UHTU»ieMCD»CUWWrrRTHISGFfiJlAWKE ATAirvTm WrfHIK rwo VtAWB r»OM DATE TSjjrn N'.' Pay to the order of . r^At VYv5i : ^V ^ vcvyyi t- ov Ci-eviv 1. 1 j^ iglti (y- «« ""^■'*<3fr *•*' *^*«" BANKenS TRUST COMFAKY. i^T"^ 8209? OR ITS tQUIVALf HT AS 9CL0W NAME OF ISSUING BANK WILL BE PRINTED HERE VALUES of cheque in FOREIGN MONEYS plainly show how many pounds, dollars, marks. franks, lire, kroner, et ■ , ore s'^^-'^' receive Courtesy of the Bankers Trust Company o{ New York Facsimile of American Bankers' Association Travelers' cheque with instructions how to fill in presenting it, when he identifies himself by means of his countersignature, with cash goods or service. It has placed in circulation millions of dollars in paper that is safe for tourists to carry and safe for those called upon to accept for full value. The system marks a vital and important forward step in banking service. The Use of Bank Checks in the United States The use of bank checks is as highly devel- oped in the United States as could be hoped for; even England where the bank check has supplanted other forms of circulating media, could hardly make a better showing. There, money is used only in the small exchanges, over-the-counter buying and in the payment of labor, which is a small factor in the gross turnover. The reason for the widespread increased use of checks in this country (in degree and gold only in international transac- tions. With less than five per cent, of the bank deposits in the form of currency, and only I per cent, in coin, it would seem that the check had at last come to be the currency of the country. The statement has been made by men of authority, that qd per cent, of the business of the country is done without the use of money. The statistics forming the basis of these calculations have been gathered from time to time by the Comptroller of the Currency, the inquiry taking the form of as- certaining the relative proportion of checks and other credit instruments in the receipts of the banks of the country during a single day; the day being selected as fairly represent- ative of normal conditions. These statistics show ihat about 92 per cent, of the deposits are in checks. The Credit System Chapter II THE credit system forms the perfect and convenient method for paying large sums, especially in distant places. It displaces the use of a corresponding amount- of gold and silver, thus releasing the metals for other purposes; hence, credit is a far better medium of exchange than an equal amount of coined money; for while money is an indispen- sable denominator of prices, and the medium of the smaller exchanges, credit is the instru- ment of the larger exchanges and larger pro- duction. Indeed, in this broader field of usefulness, credit performs what coin can not, except through the credit system ard its various modes of adjustment how would it be possible to pay over $300,000,000 daily in ten minutes at the New York Clearing House ? It is done there by exchanging and offsetting items, having differences to be settled later. Moreover as an instrument it is economically costless and not like money with a commodity value and therefore expensive. Through a cooperative credit system such as obtains in Germany, Austria and Italy, laborers and artisans are enabled to unite their limited credit, and make it effective and cheap by reason of its goodness; for collective credit is as potent a force as collected capital. And wherever the credit system is well de- veloped, credit is not only stable and cheap, but an educational force, and as valuable as a national asset, as is climate or geographical location. The credit system is most effectively developed in those nations where the highest order of intelligence prevail, and where credit is used in its full power it has carried through achievements impossible under any system of_barter or money exchanges. /^In the credit system we have, first, the \creation of the obligation; second, the transfer )of the instrument arising out of tlie transaction ; third, the circulation of the instrument; fourth, its payment and cancellation. ""■ Personal Credit Personal credit underlies the whole credit system. The intrinsic goodness of the in- dividual credit has much to do with the sound- ness of the entire structure. This credit was formerly based largely upon personal knowledge of the borrower; but casual obser- vation has given way to careful inquiry and systematic records, so that with the growth of the system, more definite and accurate information is now obtained as to the bor- rower's condition, habits and ability and, only as credit is strong at the base can the structure reared upon it be sound. If the credit given by the storekeeper is unwisely extended, extravagance and loose methods encouraged, collections slow and bad debts accumulated, it endangers the whole system; for when the retailer cannot pay the wholesaler the latter must fall back upon the bank, and the load of unwise credit assumed by the individual spreads to the whole system, undermining its usefulness and power. Credit too freely offered is an economic crime. The credit unions of Germany have the right idea, and their credit system is the essence of strength, because loans are never made but for productive purposes. The credit must not only be desired but desirable, self -liquidating, and for a purpose that will create and not destroy. The ultimate strength of any system of credit depends not only upon the willingness of the borrower to pay, but his ability. If the man be able and also willing the very essential elements are in evidence. If he be able but not willing the risk is bad; and if willing but not able, loss is certain. Credit is Capital Credit, answering the same, and often a better purpose than money, the power to command credit is as effective as the power to borrow the actual money. If Smith will trust Jones, either on book account or on note, or by accommodation paper or endorsement it is as beneficial as the loan of the actual cash. A loan of credit does not, however, always increase the supply of capital; for if Smith loans Jones $10,000 by means of his note, the proceeds increases the capital of Jones, but the lender's credit is reduced accordingly. And so the creation of credit does not always increase the volume of capital, but its commercial value may be increased by mobil- izing the capital and making it effective. Jones may have use for the capital created by capitalizing Smith's credit, and employ it so effectively that he can pay Smith for its use and still make a profit for himself. Moreover the idle capital in the hands of Smith becomes effective capital in the hands of Jones. COMMERCIAL PAPER AND BILLS OF EXCHANGE As money becomes an effective instrument of exchange, not only by reason of the amount available, but by the frequency of the turn- over, so credit becomes an effective instru- ment by the frequency of its circulation. Moreover it effects prices by reason of its effective turnover, because of its lessened cost. It can readily be seen that if one hundred dollars changes hands ten times a day, it does the work of a thousand dollars, and leaves the nine hundred for other purposes. And so a credit instrument may settle several debts by being passed from one to the other the ultimate redemption in gold being the only safeguard necessary to insure stability. Only when fear of adequate redemption facilities creeps in to unsettle the minds of the public does the question of final redemption become a disturbing factor. Forms of Credit The Credit system resolves itself into five forms; book credit; bank note credit, commercial paper credit, check credit, and acceptance credit. The form which credit takes should be adapted to the needs of the people and the usages of business. It can readily be seen that any form of credit which locks up cash is more expensive than that which involves no cash. \ The book credit is merely a record of the transactions — accounts stated. In former days this answered fairly well, when goods were sold on long time, and quick turnover and cash discounts were not in vogue. The "accounts receivable" on the credit state- ment is merely an aggregation of the book accounts. This form of credit is negotiable, some firms making it a business to loan on such security, and some banks take such accounts as security for cash advances. The check form of credit is the most effective as a circulating medium, this form being most effectively developed in England and the United States, where the check is more gener- ally used than in any other part of the world. The check, like the bill of exchange quickly comes home for payment; but the check, being in non-uniform denominations, and with credit unknown outside its immediate field, is not as perfect a form of credit as the bank note, which if issued under proper safe- guards, answers the same purpose as money. The danger lies in the ratio of coin to bank notes. If the volume of notes is large and the gold backing small, a sudden demand for payment (redemption) results in a suspension of specie payment unless gold can be attracted, or some other form of credit instrument created that will meet the demands of the note holders. A central credit agency, is therefore, needful, which can turn the credit instruments of commerce from one form into another, which, until the creation of the Federal Reserve Association, we have sadly lacked. ' TThe check and the bill of exchange properly accepted, form the perfect medium of large payments, as the bank note forms the perfect medium of the small. Quick redemption, expansion and contraction with the changing needs of business make the former ideal credit instruments, and when quickly turnable into the bank note, a bank obligation that will pass current throughout the country, answer all the purposes of metallic money, and as a medium of exchange are both economical and efficient. Credit may be used to obtain funds; it may be used as funds. In the mercantile world, the credit of the merchant in whatever form it may be utilized, is used to obtain funds; but when credit takes the form of bank notes, it is funds. And credit when used by the bank in making acceptances, again becomes funds, by creating a circulating medium. Bills of exchange, checks, and notes cir- culate as money by passing from hand to hand in the settlement of debts. Thus, a farmer owing his storekeeper for a bill of goods, tenders his sixty day note. The merchant passes it on to the jobber in the county seat, who gives him (the merchant) credit for the amount, and passes it over to his bank and himself receives credit for it on checking account; or, he might pass the item on to the wholesaler in the large city, who in turn gives the jobber credit, and discounts the paper at his bank. Under the Federal Reserve Association plan, the discounting bank may in turn rediscount the paper at the Federal Bank and receive bank notes for it, so that ultimately the paper will pass into the cir- culating medium of the country. If each transfer represents a commercial transaction — a sale of goods — there is no element of un- soundness in the process; but if fictitious undertakings and speculative enterprises are thus financed, accommodation loans made, there is danger in the process to be carefully guarded against, moreover such paper is not eligible for rediscount in the Federal Reserve Banks.j Banks and The Credit System Chapter III THE function of the bank is to gather the idle capital, and through its mob- ilizing power employ it effectively. Money in bulk is always a powerful force in the credit system. Banks become effective parts of the credit system in proportion to their aggregated money accumulations and standing in the credit world; and their ability to lend their credit is based upon such holdings and augmented by their reputation and known conservatism. The essentials of a credit transaction are exchange and time. Credit does not appear in all exchange transactions, but exchange appears in all credit transactions, and out of such, perfect credit instruments arise. Banking credit bridges over the period between raw material and the finished product. The manufacturer buys raw material on condition that he be allowed time to turn it into the manufactured article. He buys the material on credit and liquidates the debt by turning the manufactured article into money. But the seller may want his money long before it can be manufactured into finished goods, and so the bank intervenes, buys the credit on the manufacturer, and pays the seller at once. The bank is the perfect instrument for doing this because it has accumulated capital for just such puiposes. Banking Credit is Capital Some economists claim that credit thus used is never capital, and can only be used to facilitate the process which terminates in the creation of capital, and increases its efficiency. Be this as it may, the use of bank credit assuredly augments and increases the efficiency of private capital. Thus a manufacturer with $50,000 capital makes 10 per cent., or $5,000 a year. Supposing he has $10,000 of his own capital and borrows $40,000 of a bank at 5 per cent., $2,000, and still makes the $5,000 gross, he would have $3,000 profit left, or thirty per cent, on his capital instead of ten. The Function of Banking is to Lend Credit nrhe function of banking is to gather capital and lend credit. While in one form, banks may be said to create credit by issuing bank notes, their function is more particularly to certifv to credit. And after the examination and certification of credit by the bank, credit unknown, but good, becomes a circulating credit and therefore the most effective form of credit. The discount system of Europe has most effectively developed this latter phase of banking in the certification of credit through acceptances. : tJnder the National Bank Act, a national bank was not allowed to lend on credit without ' setting aside a certain amount of cash, and it could not lend its credit. In the certifica- tion of checks, cash has already been set aside. They do not therefore lend their credit in this instance, or create new credit, but certify to the maker's credit and assume his obligation making it of such quality as to circulate more freely. But it involves cash. And whatever progress has been made by the American people towards a more scientific use of credit has been through a painfully slow process and in spite of inadequate laws and unscientific banking methods. The average American bank simply collects the idle funds of the community and lends against them. It lends capital rather than credit, and only in such places as New York has the certified check become an important credit instrument. Banks by virtue of their power to mobilize cash, may most efficiently exercise credit functions, and become the transferors and extinguishers of trade indebtedness; and a greater service could not be rendered society than this. The operation of setting debt against debt is best illustrated in the opera- tions of the Clearing House. Bank Credit Should Be Self- Liquidating . ^The quality of credit created by banks is tested by self-liquidation. A secured loan may have ample value back of it, but as a risk it is not nearly as sound as one which represents an exchange of values. In both England and Germany, collateral loans are quoted at higher rates than loans for purely commercial purposes. In panicky times com- mercial paper has proven itself a more liquid asset than the be'st of stock exchange loans. The trade loan will redeem itself by the proc- ess of consumption; while the stock exchange loan only redeems itself by sacrifice. The contrast between European and former Ameri- 10 COMMERCIAL PAPER AND BILLS OF EXCHANGE can methods is the difiference between the lending of money and the lending of credit. The distinction lies in the evidence of debt behind the loan. The bulk of the assets of the great banks of Europe are in bills of exchange and acceptances. Heretofore most of the assets of New York banks were on call loans, a distinctly commercial bank being so rare that it was made a feature in the ad- vertising. Prior to the inauguration of the Federal Reserve System the commercial paper held by the banks of this country was re- garded in the light of a secondary reserve; but in Europe it has always been regarded as a primary reserve, no distinction being made between cash and bills maturing, since the latter can be turned into cash at once by rediscounting with the central bank/ Lending and Borrowing on the Same Terms 'The bank should not grant credit upon terms other than those upon which its credits are granted. If its debts are payable on demand, its credits must likewise be payable on demand, or by the operation of some out- side agency, be turnable into cash upon demand, which amounts to the same thing. The discounting to a central institution, which uses these obligations as the basis of note issues is the perfect method by which a bank can employ its funds to the fullest extent, and yet have its assets always ready to respond to the demands of its creditors. The European banks long ago recognized this principle and adapted themselves to it; while American banks have always heretofore been obliged to invest deposits payable on demand in bonds, both short and long time, paper of customers which they are in duty bound to renew and commercial paper of stated maturity with no means of rediscount at hand; thereby investing a call obligation in a time security. (The Federal Reserve system provides a remedy for this.) To offset this weakness, the law required them to carry a large reserve — an obligatory reserve, (while in Europe a reserve was optional) — so that upon demand, at least a part of the calls could be met. But this, at critical times proved utterly inadequate, as it did in 1907. , Liquid Assets - Liquidity of assets can only be obtained by so arranging the maturities of loans that there is a constant turnover. 'Without a central discount market such as we have lacked, but which promises now to develop, the American banks have depended upon the following to keep their funds in liquid form: (a) Cash in bank and on deposit subject to call; (b) call loans on stock exchange securities; (c) a constant stream of commercial paper under which they are under no obligation to renew; (d) short term bonds with well selected maturities, and a broad market; (e) high grade bonds listed on the stock exchanges; (f) other bonds; (g) customers notes. In Europe the call loan is not regarded even as a secondary reserve, commercial paper maturing from day to day, forms the perfect reserve, in that it not only matures and will be paid, but short term paper can be turned into money at will by rediscounting at the central bank. The central bank must hold gold enough to protect the notes issued against commercial paper, but the duty of turning liquid assets into circulating credits is the function and the principal function of the central bank. The cash holdings of banks, which is expensive, can thus be turned into interest bearing credits, and these, when needed, into money. There must be cash enough to meet the demands, and the belief that money can always be had for the asking is the safeguard of the business world. By this process an interest bearing credit becomes a circulating credit. The Banker a Dealer in Credit The banker is primarily a dealer in credit, and it is to him the public looks to keep the credit machine in good order. While he suffers in common with mercantile interest when the credit system is disturbed, the burden falls most heavily upon the business community. The banker always has his redress upon the borrower, but when his banker fails him the borrower has nowhere else to go but to the bankruptcy court. And for the sake of the public weal, the banker should at all times be in a solvent condition, by keeping the credit structure over which he presides, sound. The volume of credit and its intrinsic worth is regulated by the banker, and as a governor of credit he can control both the quantity and the quality. A large volume of credit at too cheap a price results in speculation, and the banking system that does not properly control the flow of credit is faulty at its basic point. The distinction between sound and un- sound banking depends upon whether the commercial paper that comes into existence COMMERCIAL PAPER AND BILLS OF EXCHANGE is the result of genuine trade, or is merely fictitious. If it is merely to borrow money it may not be unsafe, but is a species of fiat paper that has no true value as an instrument of credit. Paper should liquidate itself; and borrowing money gives birth to no self-liqui- dating instruments. While a single commodity may be the ulti- mate basis of several instruments of credit, the several transfers may be complete in themselves. Thus, if A sells goods to B and takes his note for six months; B sells the goods to C taking a four months note; C, in turn sells to D, taking a two months note, there will be three credit instruments out against the same commodity, but each will represent a distinct bargain and sale, and each meeting his obligation to the other will liquidate all. Banks as Clearing Houses of Credit The particular function of banking in connection with commercial paper is to collect the various obligations and "clear" the transactions as the clearing house clears checks. Debtors and creditors are constantly trying to get together and write off their debts against each other. The Bulk of Bank Deposits Book Credits The bank deposit is a more dangerous instrument of inflation than bank notes. There is a limit to the amount of notes the people will take and use, but no limit to the bank deposits that may be created by the operation of credit. The bulk of the bank deposits are merely book credits. When a man borrows $5,000 on his note and has the same credited to his account, the liabilities are swelled by the same amount and so are the assets. The borrower checks out the credit thus created, and these checks are deposited in other banks and again go to swell the deposits. By making the loan the bank has added $5,000 to the buying power of the community, and the buying power thus created is existent while the loan remains in force. This is the cause of inflation. The danger lies in the too free use of this credit in prosperous times, so that when depositors lose confidence a sudden demand for cash finds the banks unable to meet the call. Canada can create bank notes as needed and retire them when not wanted, and use the check book as freely as we, and as a result never has a currency panic or a suspension of specie payments; while we, heretofore, have met a sudden demand for cash by curtailing credit, selling securities and calling loans — all because the book credits were payable on demand and the basis of the credit impossible to turn into money until maturity, and sometimes not then. Commercial Paper in The United States Chapter IV COMMERCIAL paper, in its broad sig- nificance, includes all forms of instru- ments that arise from the operations of commerce. As commonly understood in bank- ing and financial circles, however, the term has been narrowed to have particular reference to notes sold to banks through commercial paper brokers. It is sometimes designated as "pur- chased paper," as contradistinguished from discounted paper of the bank's own customers. As a bank investment it has become very popular, it having been authoritatively stated that over $1,700,000,000 of such paper has been sold in a single year by brokers to banks throughout the country, representing the obligations of upwards of 3,000 business concerns. The reasons for borrowing through this channel are two: First to take advantage of the broad market, and secondly to obtain the lower rates that the broad market affords. This is not to say that home banking facilities are not availed of, but in small places the rates are usually higher than in money centers, and it is a recognized principle of borrowing in this country, that the home banking con- nections shall not be overstrained, so that there will always be an "anchor to the wind- ward" in the event that open market borrow- ing becomes difficult. "^'The chief merit of commercial paper as an investment lies in the fact that it comes in large denominations; is of short maturity, and does not fluctuate like stocks and bonds. It is worth par at all times. The commercial paper now in existence in the American market consists of (a) Promissory notes signed by a firm, individual, or corporation issuing the same promising to pay a specified amount to a certain party at a certain time; 12 COMMERCIAL PAPER AND BILLS OF EXCHANGE (b) bills of exchange, usually accompanied by- documents; (c) collateral loans, usually on collateral note protected by warehouse re- ceipts, trust receipts, stocks, bonds, etc.; by which specific property is pledged as security; (d) notes protected by mortgage security, either real or chattel. Forms of Paper Commercial paper in the sense used today by banks and bankers consists of first, promis- sory notes made in uniform denominations, usually running from three to four months, and as a rule sold through note brokers, the proceeds of which are used to take advantage of trade discounts. The second form of commercial paper ig known as "receivables." In the nomen- clature of the trade, a "receivable" is a note given by the buyer to the seller in payment' of a bill. The note is endorsed by the payee and sold through brokers or to a bank direct, and constitutes "two-name paper." Of such character is the note of the retail merchant given to the jobber which when endorsed and sold becomes a receivable. It is prima facie evidence of a business transaction, and needs no other corroborative proof of its genuine character. The advantage is that the trans- action is closed at once, and the business of financing the matter falls on the banks and not upon the business house. Endorsed Paper "Endorsed paper" differs from receivables in that the endorsement is added either for the express purpose of giving strength to the note, or to insure moral backing. Thus the endorsement of an individual on the note of a corporation is evidence of the faith in the maker and adds personal to corporate liability. Present Custom a Growth "i'The present custom of issuing commercial paper is the out-growth of a process of evolu- tion. Trade bills — notes given by merchants in the settlement of debts, were formerly in common use. With the introduction and expansion of the cash discount, single name paper began to grow in favor, so that at the present time, this form of paper predominates in the American market, it being estimated by commercial paper brokers who are well informed, that fully 90% of the paper is single name. With the advent of the credit depart- ment in banks, and the highly organized credit departments of paper brokers, commercial paper has largely supplanted bond investments.' The methods of certain trades are so firmly established that any sudden change in the credit operations would work revolution in the business which would, no doubt, be danger- ous if not disastrous. For instance, in some lines, like textiles, the dating ahead of all sales, the book account form of credit, the assigning of accounts to a factor, is so char- acteristic of the trade that to insist upon promissory notes would be almost impossible. The business is built up around the custom, and financial arrangements have been made accordingly. The trade discounts in some lines are so liberal that to neglect to take advantage of them is costly both in money and credit. For instance in tea the discount is 9%, and coffee S% for cash, ten days. In order to obtain the cash for such discount operations, the paper of the merchant is sold in the open market through brokers, and all bills discounted. It is not customary to have two kinds of paper out, i. e., single name paper of the mer- chant, and his receivables. If a firm were to borrow on its open credit on single name paper, and then sell its bills receivable, it would weaken its financial standing and its financial condition, since it had parted with its choicest and quickest asset, and have a primary and secondary obligation outstanding at the same time. Commercial Paper and Note Issues It is a principle of sound banking that no advance oi bank credit should be made except to facilitate exchanges— to anticipate a de- ferred payment. The payment of the mer- cantile debt should cancel the bank debt, so that the term of the latter should be short, not longer than the time needed to turn the material into money. Loans for any other purpose are not of the sort that expedite business. Loans for carrying securities or for speculation of any sort are not of prime quality, as viewed from the liquidation standpoint, since the security must be sold in order to cancel the debt; while in commodity loans the security must be consumed. It is clearly the intent of the Federal Reserve Law that the note issues should be based upon paper arising out of mercantile transactions and the Federal Reserve Board has decided to place this restriction upon all paper that is accepted for rediscount. Single Name Paper "fThe use of single name paper dates from the Civil War. Prior to that time, "trade 13 COMMERCIAL PAPER AND BILLS OF EXCHANGE paper" — merchandise notes, was the custom; but the Greenback troubles, and the uncer- tainty of the value of a credit instrument running over a long period, brought about a change of method and sellers generally desired cash and made concessions for prompt pay- ment. The period of credit was shortened (before the war, credit running as long as six months, or longer, was not uncommon) and due concessions were made for quick settlement. The inducements to pay cash were so great that the merchant could not afford to neglect them, and failure to do so was to invite criticism of his standing. In order to obtain funds to make such payments, merchants sold their single name notes through brokers (first on commission and then gradually the brokers became pur- chasers, depending upon their ability to promptly place their purchases and thus avoid loss) and with the proceeds pay cash for all purchases. The market for single name borrowing has been largely restricted to firms with large capital and well known credit, some brokers refusing to handle paper of concerns of less than half a million assets; but as the benefits become known this form of borrowing spread to small and sometimes weak concerns. The merchant or manufacturer who receives a note in payment for his goods, holds the same in his portfolio, and issues his own paper. This eliminates the circulation at the same time of two kinds of paper with the same names, the single and the double — the pri- mary and secondary liability. The Advantages of Single Name Paper The disadvantage of the acceptance form as against the practice of borrowing in the open market on single name paper and taking the cash discount is the simplicity of the single name transaction. Thus a merchant sells twenty notes for $5,000 each, and probably pays several hundred bills with the proceeds. Under the acceptance or two name form he would put into circulation as many credit instruments as he had payments to make which would congest the bankers' portfolios, neces- sitate additional bookkeeping, and add to the cost in the collection departments. Of course, the seller of the notes draws as many checks as there are bills to pay, but these are quickly redeemed and pass out of existence and do not require the same bookkeeping detail as do notes. At the hearing before the Merchants Association in New York, in March, 191 4, it / was the opinion of most of the members present that it would be impossible for them to obtain notes from their customers, and in order to carry them on open account it would be neces- sary to continue single name paper. One of the criticisms against single name paper is that it is to the broker's interest to keep as much of this paper out as possible ; often when the needs of the borrower could be met by the home banks. At maturity other notes are issued to take up the maturing ones and the result is a constant stream of notes, in some instances representing fixed investments. It sometimes happens that more than one broker is employed, which of course results in inflation, since there is no check on the > amount outstanding. > Two Name Paper While single name paper may be based on an account receivable, two name paper is the embodiment of an account receivable. The depreciation of bonds, and the diffi- culty in selling under panicky conditions has brought about a substitution of commercial paper for bonds as a short time investment, which has led to keen competition by brokers for business, and as in all other lines weaknesses have crept in as competition has developed. To issue two name paper requires two concerns that are well enough versed in business practices to make a note on one hand and to have it turned into cash on the other. Two name paper not only has the added protection of an extra name, but the added safeguard of a formal acknowledgment of the amount due and the existence of the debt. It is obvious that with the cost of the trade dis- count system, from 12 per cent, yearly and upwards, that two name paper has a decided advantage in the lessened cost. If this charge were not placed on the business world, goods could be sold for the manufacturing cost plus a profit, and the debt settled by note, the discount of which could not exceed the legal rate, the cost of credit would be considerably lessened. Whatever the merit of single name paper, two name paper would be more acceptable in other countries, first because they are accustomed to such paper, and secondly it carries its insignia with it. There is this to be said, however, against two name paper, the endorsement of a "re- fv ceivable" and its sale introduces a contingent \ liability, which while remote, may be worth considering. Single name paper is a direct. 14 COMMERCIAL PAPER AND BILLS OF EXCHANGE primary obligation. The book account is closed by cash and the debt is to the bank. With two name paper, the debt account, while settled, still exists in another but contingent form. On the other hand there are two very obvious advantages in the double name paper: (a) The self-evidence of a business transaction, Being given by the buyer to the seller to liqui- date a trade transaction, and in an odd denomi- nation, it is prima facie a trade instrument. (b) It has the double liability of the two names. While in some instances two names may not be any better than one good one, nevertheless it is recognized abroad that two names are generally stronger than one. No further proof than the paper itself is needed that it is a bona fide instrument arising out of business trans- action, while in the single name instrument additional proof or statement might be neces- sary to prove it had been given for the purpose contemplated by the Federal Reserve Act. ' The Commercial Paper Dealer 'The commercial paper dealer has of recent years become a most important factor in the banking business of the country, inasmuch as he has been the go-between between the bank having funds to invest and the borrower needing accommodation. He is a most vital part of the money market machinery. In the first place he covers the country, both in buying and selling paper, and knows the field. He knows the needs and preferences of the banks and the conditions of the borrow- ers. He has a credit organization that gives him an accurate check upon the paper offered and a reputation to sustain. His offerings are synonymous with quality. He works on a small margin, and must sell large quantities to make any great profit. In the second place the dealer knows his customer. He investigates his credit risk with much care before contracting to handle his paper, and this relation once established, is lasting. The borrower knows that he will be taken care of and the broker knows he will have a steady supply of paper to offer, and need not go to the expense of a new investiga- tion at every issue. Having determined the fact that the paper is desirable to offer, great care is used to know that it is genuine. Copies of the by-laws, if a corporation, are filed, showing the process required in borrowing. The authorized signa- tures are filed, and all due precaution used to insure that the paper is authoritatively signed, and when so issued becomes the binding obli- gation of the issuer; for by the law of forgery it would be no obligation if unauthorized. The question arises as to how far the dealer is liable for unlawfully issued paper. Most houses specifically guarantee that the paper is genuine; some make no guaranty, but agree that the dealer would be responsible for any irregularities. The fact that the paper is sold by a house of standing is suflS- cient to warrant its quality. Most of the leading houses pay the borrower upon receipt of the paper in cash less the commission. Some of these are large enough to borrow of the banks, sums running into the millions on their single name paper, and do not hypothecate the paper bought; while others less strong pledge the paper as collateral. The paper is then offered through the mails and traveling representatives to the banks, and purchased by them, sometimes under option extending from a week to ten days or to the next board meeting. Some houses do not extend options any more, but sell outright. None of the dealers endorse the paper. Credit statements are furnished if desired together with full information as to the borrower's condition. As an intermediary the dealer has been able to extend the borrower's field of operations throughout the country. And contra to bring to the banks in all parts of the country the very best paper the country produces. The turnover of commercial paper must be enormous. The total loans of 25,993 banks in the United States on June 4, 191 3 was $3,547,695,105. Assuming that one-third rep- resents paper bought in the open market, and that the average time is four to six months, giving a turnover of two to three times yearly, would make the total handled in the course of a year about $2,300,000,000. There are several firms now handling over one hundred millions yearly. In selling paper, dealers give upon request not only a digest of the statement, but also list of houses from whom trade references may be obtained and also banks which have handled the paper before. The nearest approach to a discount market in this country at the present time is the market created by these paper dealers, who know where the demand exists and where the supply is to come from.f « Principles of Borrowing It is a recognized principle of borrowing, that loans for permanent improvement, such as the acquisition of land, machinery, build- 15 COMMERCIAL PAPER AND BILLS OF EXCHANGE ings, and other fixed assets, should be in the form of stocks and bonds, the latter with mortgage security; while for current purposes, — for liquid capital to handle the turnover of the business, another form of borrowing, which may be termed liquid borrowing is proper. That is to say, the loan should liquidate itself — pay itself off, by the auto- matic turning into money of the commodities represented by the loan; for every loan of this character should be for the purpose of financing a business operation. And when the purpose of the loan is completed, the instrument that arose at the inception of the trade should disappear and another take its place. If $100,000 of single name paper is put out for the purpose of taking the trade discounts, when the goods are sold to the next in line, and payment made therefor, the single name paper should go out of existence. And another set of instruments come into being to finance another transaction. A stock of canned goods would be consumed in the course of a year at the most; and to issue bonds for such articles would be against good borrowing principles, while six months paper would be proper. A loan for the purpose of buying cattle for feeding for the slaughter, would be perfectly proper, and paper secured by such collateral eminently safe; but it should liquidate itself as soon as the cattle are sold to the meat packers. And no paper is bad that is self-liquidating. The present method of determining the quality of commercial paper is to ask, first, for a statement, which must be of recent date; then to analyze it and determine if the j/ratio of obligations to debts is within the j) prescribed limits, usually two of quick assets ' to one of quick liabilities. The proportionate amount of quick assets to quick liabilities is a matter concerning which some bankers and credit men do not agree; but the ratio runs from one and a half to two and a half to one, depending upon the char- acter of the business. An intimate knowledge of the maker of the paper would permit a narrower margin than if the paper were a long distance from its issuing point. More- over the value of the fixed assets can be more accurately determined in the case of home concerns. The character of the business, the gross and net profits, etc., which indicate the skill of the management may be ascertained; then to check the paper through the trade — that is, to ascertain from mercantile houses if the maker takes advantage of the trade discounts; whether bills are promptly met or not, and lastly to inquire of banks that have bought the paper and therefore investigated it them- selves, if they have found it satisfactory both upon inquiry and at maturity. The statement should be recent, certainly within two to three months, and if possible statements for previous periods should be obtained for comparison, to ascertain how the business has progressed. Certain classes of trade such as wool and grain must do all buying in a short period and are therefore heavy borrowers during the buying season, and a statement should be obtained at the height of the season, and one at the ebb, to show the fluctuation; for in such lines some firms clean up and go out of debt after the selling season is over and before buying begins for a new year. The Buying of Commercial Paper In buying commercial paper no hard and fast rules can be laid down, but the general principles of credit apply, and the paper must have the same qualities that the borrower would be expected to have if he were to apply for a loan on his single name note. The maker must have character — business reputa- tion built up by a career of honest dealing. He must have demonstrated the capacity to run a business; to conduct it with efficiency; and he must have resources ample to furnish backbone for the business, so that the borrow- ing shall be for current needs only. It is no function of the bank to furnish permanent capital. This must be done by private capital, bond and stock issues. As in granting credit there are no fixed rules, so in analyzing a credit statement there are no infallible tests that may be applied; it is an art acquired in the school of experience supplemented by observation and study. Each proposition must be considered by itself in the light of the data at hand, and judgment rendered accordingly. A knowledge of the trade customs and methods is useful; like- wise the manner of extending credit in the particular line; buying and selling methods, discounts, datings, etc., are all well to know as helps to determine the credit risk; and the credit man's work is never done — there is al- ways "something doing" in his department. As in purchasing securities basic rules and principles are applicable as a guide, so in the purchase of commercial paper, there are \ accepted principles that apply to all paper. For instance, in buying stock, a long record 16 COMMERCIAL PAPER AND BILLS OF EXCHANGE of uninterrupted dividends is a most healthy sign, and the test can be applied to any security. So also in buying paper, a record of achieve- ment of profit making extending over a series of years is a sure indication of able manage- ment and profitable operation; and the test is not difficult to make; while a critical exam- ination of the statement requires skill and experience not generally possessed by the average banker. A few general rules appli- cable to the purchase of commercial paper as a broad science will be helpful; but they are at best but generalities, detailed discussion being quite beyond the possibiHties of the present work. General Rules for Buying Paper 1. Buy of Responsible Dealers. — The first and foremost requisite is that the paper be bought of a dealer of standing, whose name is synonymous with quality, whose credit department has made a thorough investigation of the risk, and pronounced it good enough to offer over their name. There is no warrant, however, no matter how large the house, that the note will be paid; the only warranty being implied, that the paper is genuine and is what it purports to be. 2. Diversify the Risks. — The line of paper carried by a bank should be diversified, both as to classes of paper and location of the borrowers. The paper bought from brokers should not be in the same line of industry that absorbs loanable funds at home. It is easy to distribute the risk, both as to amount and as to the trade and the sectional risk. While one trade is dull another might be good; and while one section of the country suffers from depression, other sections might be prosperous. Following the advice so often quoted, it is a good policy not to have all the eggs in one basket. No single loss can then seriously affect the bank's condition. 3. Buy Paper based on Staple Commodities. — ^The paper should be of concerns dealing in necessities of life, and commodities having a wide market, and not such as have limited utility and are subject to the whims of fashion. Since the proceeds of paper is to go into merchandise, it is needful that the merchandise be of a selling quality. It must be staple. Paper thart5~rS5nedTbr some seasonal whim of women would be risky as against paper issued for groceries or meat. Paper issued for rare groceries or drugs would be exceedingly slow in moving. In the mercantile world, commercial paper becomes stock and the stock, accounts receivable; these in turn cash to meet the maturing paper. In manufactur- ing, commercial paper becomes raw material, the raw material finished product; this, accounts receivable, and these money to meet the paper. A certain New York wholesale grocery prided itself on the fact that it could meet any call for any article likely to arise. It had a large and extensive stock, some slow moving. It was not making money. It did not have the turnover it should for the capital employed. It decided to abandon its policy and put in a quick selling stock, and depend upon its ability to get rare articles on call rather than keep the same in stock. It is obvious that the paper of this house issued after it changed its policy was much better quality than that represented by its former stock of slow selling merchandise. ; The difference between paper sold for' financing luxuries and paper issued for neces- sities may be appreciated by the fact that a , large automobile concern states that it sells ) ^ all touring cars for cash, but trucks on time, knowing full well that the latter will help pay for themselves, while the former will be ^ "" an item of expense to the owner. 4. Buy Paper of Established Concerns show- ing Healthy Growth. — All healthy business is the result of growth. But few of the large in- dustries of the country were made to order. There are a few department stores that have been established in large cities by men who have been successful in other places, and there are many large concerns that are the result of combination of smaller ones; but in the last analysis they are growths and not creations. It is apparent that the business that has grown from the acorn to the oak is a much better risk than one made to order. There must be a history of achievement. A success- ful history is essential to success for it demon- strates not only success in the past, but the probability of continuance in the future. 5. The Same Concern Should not Issue Single and Double Name Paper. — When a concern floats its single name paper it is for the puqjose of taking advantage of the trade discounts, and if its receivables appear on the market at the same time, it indicates that it is not taking the discount for all purchases and is pinched for capital. Therefore only one form of pajDer of the same concern should appear on the market. Its receivables are its best quick assets and should not be sold. 6. No Large A mount of Bills Payable Should Appear on the Statement -when Single Name Paper is Issued. — Commercial paper (single 17 COMMERCIAL PAPER AND BILLS OF EXCHANGE name) being issued for the purpose of taking trade discounts, no large amount of bills payable should appear, for it is for the purpose of paying cash that the single name paper is sold. 7. Check Through Local Banks and Pur- chasing Banks. — Local banks are in close touch with general business conditions at home and the standing of borrowers. They know how they live, their habits, their local reputation, and can, and generally will give information at first hand regarding these points. Local bank connections should be carefully inquired into. The banks used for references should have been purchasers of the paper within recent period, for credit risks change quickly, and what might have been a good risk six months or a year ago, might at the present time be undesirable on a recent investigation. But if a well known bank has bought the paper upon investigation and found it satisfactory it is good evidence that it is a desirable pur- chase. 8. Check Through the Trade References. — Trade references, at least three, should be checked to ascertain the credit standing in the trade. If discounts are taken as a fixed policy, it is a sign of strength. If bills are allowed to lapse, collections slow, and the account generally unsatisfactory, it is assuredly a sign of weakness. 9. The Statement Should be Verified by an Independent Audit. — The statement should, if possible, be one made by independent account- ants who have nothing at stake in the matter but their reputation for accuracy. It is an inherent weakness for a man to magnify his assets and minimize his liabilities, and even though the statement be made in perfect good faith, it may be biased in favor of the issuing concern. Certified Audits and Registration OF Paper -^ here are two movements in connection with commercial paper that augur well for the safety and stability of these instruments in banking transactions, namely the inde- pendent audit and registration. The inde- pendent audit has for its object the ascer- tainment of the financial condition of the borrower by an independent party whose sole object is accuracy. Borrowers, however honest, are not the proper ones to certify as to their condition. The assets are apt to be magnified and the liabilities understated, and only a careful audit, or to use accountancy terms correctly, an investigation, will assure the real condition. This should be made by recognized firms of public accountants, and should be periodical and compulsory for all borrowers. Credit men, bankers, and clearing houses are taking cognizance of the value of such an audit and lending their support to the movement. Some time ago the Louisville Clearing House sent out notices to banks and borrowers in the Louisville District suggesting that such an audit of borrowers be made as preliminary to further extension of credit. This audit will not only reveal the financial condition of the firm, but also its liabilities on commercial paper, if such a record is kept, and if not the audit will soon place this in- formation in the hands of the bankers. The Federal Reserve Association would seem to be the proper medium through which such a campaign may be waged, and with the moral force of the Federal Banks back of the re- quest for an audit such action will doubtless fol- low. Moreover credit may be refused all firms not complying with the request to furnish prop- er certificate of condition. It is of importance to the business man that he know where he stands, and of more import to the banker who lends him money; for while false state- ments of condition for the purpose of obtaining credit are a penal ofifense, the redress usually comes too late, and it is frequently hard to prove that the error was intentional ; and losses cannot be compensated by prison sentence. The prevention is better than the penalty. Registration of Paper The second safeguard is the registration of all paper sold in the open market. This registration has had the attention of various banking bodies since 1908 when a committee of the American Bankers' Association, made an exhaustive study of the subject and recom- mended that there be some supervision of the issuance of paper off'ered in the open market. The committee also recommended an annual audit of firms issuing paper, and the registra- tion of paper under the supervision of Clearing Houses in New York, Chicago, St. Louis, Philadelphia, and Boston. Under this plan banks buying commercial paper through dealers would have prompt and ready access to an independent appraisal of the assets of each borrowing concern, certified by an ap- proved public accountant, and could promptly ascertain at any time the amount of paper outstanding. The Clearing Houses did not favor the plan and nothing came of it. 18 COMMERCIAL PAPER AND BILLS OF EXCHANGE In 191 2, a Central Bureau of Credit Infor- mation was proposed to the Association, to be capitalized and supported by fees, the object of which was to safeguard paper by furnishing information relative to credits, registration to be performed by selected banks and trust companies. This plan has also failed to enlist support, but the three avenues of registration that are open are: Trust company registration, Clearing House registration, and ,'registration under the Federal Reserve Association. In 1910 a large manufacturing company with a large output of paper and country wide trade arranged to have its paper registered with a New York trust company, the registra- tion to include notes issued, notes indorsed and drafts accepted. Daily reports are made to the corporation and by the corporation, so that the amount of paper outstanding at any particular time may be accurately known. Other companies have followed this idea. Under a clearing house plan, firms in clearing house cities, could register their paper with the clearing house. In fact the country might be divided into zones, so that every part of the country would be included in a credit zone. All paper issued could be registered with its zone center clearing house, and here be available for the banker's use. The Federal Reserve Association has the power and the machinery for putting such a plan into effect. If it refuses to discount any but registered paper, it will wield a mighty force in that direction. The registry of paper will accomplish two very desirable things: It will certify to the authenticity of paper and the regularity of its issue. Bogus paper does not often get into banks, especially when bought of reliable dealers who use due safeguards to see that paper is regularly issued. But it has been demonstrated that paper might be genuine and yet doubtful. Cases have been brought to light in recent years where large amounts of paper have been issued with authority, yet it wa? nevertheless unwarranted and merely accomm.odation paper. Registration will check the amount out- standing. The recent Claflin failure demon- strated above all things that there is need of machinery for officially determining how much paper is outstanding at any particular time. The volume of the Claflin paper was unknown, unless it was to a very few, and a system of registration of such paper would have ad- vised banks of the amount outstanding and the load the firm was carrying and place them on guard. It is conceivable that firms will not take kindly to such a practice, as it will divulge their trade secrets ; but a firm that is unwilling to have its indebtedness known is unwarranted in assuming to borrow in the open mar- ket. Commercial Paper in the Trades Chapter V BROADLY speaking all business concerns borrow; it is needful and proper that they should, for by so doing, the busi- ness can be greatly extended and its profits enhanced. There are a few concerns strong enough in their individual capital to pay cash for all purchases, but these are few. And with the custom of trade discounts prevailing in this country, it would be an act of business folly to refuse to borrow when a distinct profit accrues through borrowed funds. Borrowing follows certain established lines, depending upon the customs of the business as they have grown up in the particular trade or industry; but the recognized methods are seven: (i) From the local bank on note of hand, with or without indorsement; (2) from the local bank on notes of customers given in trade transactions and discounted with the bank; (3) from the local bank on pledge of security in the form of stocks and bonds, warehouse receipts, bills of lading, etc.; (4) on promissory notes (single name paper) sold through brokers in open market; (5) on receivables (customers' notes) sold likewise through brokers; (6) on accounts receivable assigned to or discounted with banks or business factors, and (7) for capitalization purposes on mortgage security, stock and bond issues. The scope of this work does not permit each trade and industry to be reviewed separately in respect to its financial rnethods and general scheme of operations, but in order to show the part which credit and credit instruments play in such operations, it is 19 4-> , '/^/^ \ ■f/ ' f r //// //jTf^ r0SMM»m^smmim^s^i^smt& 'r' . ,/,/ ,//y/ /// If////, // /,/,'//,,/// '///M/C/Zi;/ ///////^^/ '-— ' ^, . . (' ://///'////// y/ri -9^/7^ <'S^^C,2-'(.^ . ,///,y/^///f ■/ /'////'/ r/ //,, '///'////'/// f ///^/,/^/' ^* y/'/'/.j/ //^,/',/.-/'/^/ A,/// //■ /// / /r/f , // '////■,/■,// /,r / ',/// /^/// ihlp'iUeU«MU**TV<>oIlti*B«blr<^i>p*Bf cMMaMMSMM «......?-0.*i. ......^^...^Xf «fc. tU t ® r^.-ptrZllOtta. C S ptf cent, Pnmtgt CflAip€S Ship'l ILri Ktd. _ , Silpftr; Ha<*s IhlMKm. "™ '- -^—^ "WHITE STJLK, LIliTE NEW YORK AND LIVERPOOL l\vCClvCOrIo«PfMMlrxidont«u4 roodiUoD. bf lb« OOKANIC VXCAIM NAVIOATtON CO. {U _ WELD.& NE VlLLa , _^ „ .^ a-..jOaZa'u iaty>^.5Mi>< fM«ht. I StorllDC wl'b t »m wot. pnn** V i^it^ IT 1« MCTUALLT AOMlDUai»k««t^M»w»h^lh»™Uh»rtj»»»UlwHhorwlth<«imoMi m low »d a«4lM *mm1i la dl((r«Mi ta d*Tlata far the eurpo>« of mtidc Ufa or prwparu. •r ba praraoMd tram ui caaaa froB itraaaadloa ■■ tba ortioar* 0*Bcaa ot bar Toraaa, m uuable ika aooda to Ihoir daoUwUoa bj aai aib*r uaaiBer : ib*£ Uia tarrtar aball doi ba ItaUa tor loMor <>»a«a oi ra a t onad ty Bta fraw bbt aooaa or wbaraMcrar MCWrlBf i br tarrMrTolikaMaaMrarcravi b« ina^lii rlram or robbarai br anvat ottmuwm of nlaua. nilan or «aoDla r^ •r U '^ L^ jy^'waiiw halhalBmwIlrTl^y^ PlUi rJTjitlnr »H -' "•'•MniTftiii ill 1 — * -fc'-*- '-■-f - .7^ S. ^ ^....^^ss^illl^....,./^ 20 COMMERCIAL PAPER AND BILLS OF EXCHANGE proposed to review briefly the salient facts regarding a few of the leading industries, representing the three fundamental economic wants of mankind, namely, food, clothing and shelter. We shall, therefore, give a brief resume of the movement of a cargo of grain from the farmer to the bread eater; wool from the sheep's back to the wearer; leather from the hide to the pair of shoes; lumber from the forest to the dwelling; cotton from the field to the loom. We also give facsimiles of some of the docu- ments used in financing the export trade of a few of the leading products, viz., the draft or bill of exchange, bill of lading, insurance certificate, invoice, certificate of inspection, etc. It will be found that the financial operation of these industries include all the standard forms of borrowing, from the bond issue to the hypothecation of the accounts receivable. It will also be found that the lower down in the scale of business operations, the less scientific is the credit. Goods moving from the original producer to the wholesaler as a rule are on practically a cash basis; from the wholesaler to the manufacturer on book credit or on note, the credit element of which has been carefully considered. From the manu- facturer to the retailer or jobber on credit like- wise carefully investigated. But when the goods go from retailer to the consumer on credit, it is often on casual acquaintance and trust in the buyer's honesty. And because of the lack of careful credit operation, many retailers fail. The failures of general stores, grocery, meat and fish dealers in 1913 totalled 4^389 out of 11,145 for all traders in the United States, showing a decided tendency on the part of the retailer to over extend his credit; for most failures are in the last analysis due tqjpoor credit risks. Moreover, the amount involved^ irTthelailures of small traders was $28,000,000 out of a gross total of $115,000,000 for all traders, or about one- fourth. Raw Material Moves for Cash As a general proposition raw material moves from the producer to the manufacturer on cash. The goods are usually shipped on bill of exchange, with documents attached. The documents are released only upon payrnent of the draft, and irrespective of where title to the property vests, control of the same is in the holder of the bill of lading. Banks freely lend upon such security, hold- ing the documents as collateral to the loan, and by virtue of the nature of the goods, they are a prime security for loans within limits that will allow for fluctuations in market prices. On a through shipment, the bill of lading passes from hand to hand, following the goods, and carries the consignment from its origin to its destination; but where it is necessary, as for instance in grain movements, to ship first by rail, then by lake steamer, then by rail, and again by ocean steamer, the grain must be transferred several times before it reaches its destination. Obviously the surrender of the bill of lading carries possession of the goods, and to surrender this instrument is to surrender both control and title. There- fore in moving the commodity from rail to steamer, through warehouse, elevator, etc., the bill of lading must be secured in order to make the transfer. Control of the goods is retained by taking a "trust receipt" for the same and surrendering the bill of lading. When the physical transfer is made, the trust receipt is replaced by another bill of lading, which goes forward with the shipment. By this process control is vested in the holder of the bill of lading (lender) and risk avoided. In some lines, as for instance, grain, the draft is paid when presented, even though the goods are en route. The bill of lading is left as collateral for loans, and as sales are made and goods move forward, the bills already deposited are taken up and others lodged. Thus there is a constant flow of bills of lading in and out of the loan collateral, as transactions are made. Houses in poor credit would of course, have to pay cash on presentation of the bill, and those working on a small margin would have to sell as fast as they buy in order to keep things moving, but the banks will carry the burden, if a sufficient margin is maintained to protect the bank from loss in market fluctuations. The need for banking afliliations that will advance large sums on credit, based on the raw material will be seen from the fact that some large mills buy cotton and wool in a single purchase or set of purchases in quantities sufficient to last a whole season. And, more- over, a large part of the labor is expended and paid for months before the goods are market- able. The Textiles The textile trade divides itself into four branches: (a) Manufacturing establishments; (b) commission houses; (c) jobbers and (d) retailers. These commission houses or factors are of four classes also: (a) The selling agent who has no capital invested in the business, 21 :93 c -/CO ^ "With the exception of riaka E /Qj^Ot-.. ,, ^ . No. 185200 Certificate sot llnsurance> ;; ^^STjfCTCP BY V '"'• New York City, N. Y., J^CoJ /C iqiV Qlt^SiBtoCIItftifg.Thatonthe /^,4UJiy^j:0>^££^ gALES CQTTON, valued at sum insured, per ^/S >^2/eC7a> o^J\\AXXiJL, Peck & Hughes, PKCSIDINT Co o„f» °a 2 *:.'h ' ?' I If- s B sis-so i 5.8 r li^^ |.^ C3 tr" E" aT^ 5.^ -els si ^ c5S 9 at 3.. 8'?^' °B-- iff sir 'Is ? 21H1 HKfjl WELD & NEVILLE, No. ^ ^ 7 >JNVOICE OF - /i^^. -. -y-BAUB Cotton smesD won '^ roR ACCOUNT AMD RISK OF 0^ ,€4^ L8S8 PREICHT ON V\3 / S*(0 LB». «0^6

////// yr/'/rr/v//// /-^ NYE&^JENKS GRAIN CO. -5f ^ / ^^ Messrs .B.L. Sinith,& Co. -^ London Documents For Payment l"xdmiuu*far ^^'^^s-is-o ix^mfjufj* oct. 27th. /^/4, Seven ^///^y////^/ sighr i^/ ////J iM^B^fM r //f.jr//yj Seventeen hundred ninety- three and 15/0 pounds sterling ._ ./y-Messrs. B.L. Smith & Co • nye&jenks grain CO. -^ - London. < iJli: 5998 ^^ ^--^ Atlantic Transport Line THE ATLANTIC TRANSPORT COMPANY KCCetVCt, II iiManU nod «<« •^ « ■ ■T.^.Ti..m/-t..iK«i.Tin.~-NTa A JUDts mtTH nn i 111] (MOO) Rie^t thmiBBTiii Rnshelg of Whe»t NEW YO RK TO L ONDON AGENTS I THE ATLANTIC TRANSPORT COMPANY ctiMW* «< ctenelv.^MtoicibtaftkM«w bt«»kMa. vamlB, or fir Mpfa atMi c . ,. .- CMMd by U« frafo w Baw of ttaa ka wU aUBBirla kUnapMUMBMrttarudvrvpM^ r^Kiirt 1/ u r*t« •< "^ (MM •? ki«i>0 M^ •^■T««MM, Mi all fft. M^MM. IMr«k» lanrrwl M lU fMd. .kalt ». • Nm m4 J LJi t yr f i •MM.KM.hr, mv m**." '>/^*J»^^i»«*."*'^nf Jjel- XXmDON ^frji_-.^..... 130M ^ /«5 M MM^ MI<1 ^»|fM ..d Dk^tft^lW MfT^ tSiaU 0*U«r ■SUtallZ"dUnMl''M. IM.'^lktM W BMf/- P« CO* ■iSS?' CkoM. BMT AlO* ^MMwSriv OOartOM^. -^Z 1 «»....»».AMhiA«r... ...fir &,.£ ...fer.0Ot./t.jC. /» M^ ^- jC iKh amkw or lorkMifL bm In fk na* tha ataamar-oiniara ateU ba MrtlUad to lui «r p«t into anA u lb* Hak aai !*i*"** "f .«>«mM. (n t Iham. or any a( Ihara. ConalvnoM in b*Ta craft !■ utMAanra "■~^'"'» •" "•*"J^» ™,7r?,J!L'tt2 Mrvary (Tob alaanMr or «unv at riaamar-ovaat'B '«Uon. worklM rontlnuoutfy day and/or nisbi. pajrlnc tA nnr e»aa l/l P*r ion ara^nt. or Mitarwiaa tna jU djjgQl ba pat In-- «— — -' •■ — ' '- -"— — ' O^.^i-^li^L^i; Dated In NEW YORK iP«.t.9tet-26th jgi*, 26 nc Anuik TrMsptri conpaa!. aoents COMMERCIAL PAPER AND BILLS OF EXCHANGE also act as selling agents and for this work they collect a commission. All of these transac- tions are usually defined in a contract, and the factor gets a large or small per cent, and commission in accordance with the bargain he is able to drive with the mill owner. These factors also act as financial sponsors for the mill men, "accept" their paper and make advances on consignments. Apparently there are a great many irresponsible com- panies in the textile business who send their salesmen out amongst the trade with promises of deliveries of large stocks of goods at low prices at some time in the future. The con- cerns which are ordering these goods want to be sure that the deliveries will be made as promised, and if they are not sure of the standing of the mill man they ask him who his factor is. If the factor is well known, that is enough for the purchaser; for he feels sure that a responsible firm of factors would not act for an irresponsible firm of mill men. Moreover, some factors agree to make good to any firm losses it may suffer through the failure of a factor's client to live up to his contract. Therefore, the name of a factor is valuable to any mill man who wishes to make contracts for manufacturing or for sales for future delivery. The Factor's Operations There are several ways in which the factor operates. He may contract with the mill to sell its entire output. Goods are sent to his place and displayed, a portion of the building being set aside for the use of that particular mill, with a man in charge. The factor will make advances on the goods received, as for instance upon receipt of $25,000 worth of goods, he will advance say $15,000 at once, which provides the mill with its current funds. Or, he may allow the mill to draw upon him, not for the price of goods shipped, but as a finance bill in foreign exchange. This will be accepted and sold in the market. It is really accommodation acceptance, but lends the credit of the acceptor, which is well known to that of the mill which might be unknown. Another department of the factor's work consists of financing mills for which he may not be selling agent. Thus there are firms in New York which will discount accounts receivable. The operation is as follows : When a bill of goods is sold, the invoice is stamped "This bill assigned to A. B. and Co., to whom payment should be made." Upon so assigning the bill, the factor-banker will advance usually up to 80% of the amount, for which an in- terest charge is made. If the seller wishes the collection of the bill guaranteed, he will pay an additional sum as insurance premium for the surety of his money. The process simply means, that the factor-banker buys the ac- count, taking the risk of collection, for which he operates a well organized credit department. If the full amount of the bill is at once desired, a further charge is made to cover the risk. It is a highly profitable line of credit operation. In some cases 6% is charged upon the advance made, for the time to run and an extra charge for the balance; thus in case 80% was advanced at 6% on a hundred dollars, the charge would be $4.80 for a year. If the bill is to be guaranteed, a further charge of 6% flat on the balance is made, or $1.20. The factor secures money to himself, first by the strength of his own house, being able to borrow of his own bank on his note of hand, without pledge of security. Or he may sell the accepted paper of the mill and thus secure funds; or issue single name paper. Some of these factors never appear to borrow, having private capital sufficient for their needs. One of the largest factors in New York borrows on both their single name paper and acceptances, and another on its single name paper. Bills of Exchange in a Shipment OF Grain We are indebted to the Nye & Jenks Grain Company of New York, members of the New York Produce Exchange, for the accom- panying documents which are used in financing grain in the export trade. In the movement of grain, bank credit and credit instruments play an important part, but individual credit does not appear until the finished products move from the whole- saler to the retailer, and from him to the ulti- mate consumer. All transactions in grain are carried on by means of bills of exchange, payment for which must be made before the goods are delivered to the buyer; but inasmuch as the raw material changes hands many times before it reaches its final destination, physical possession of the goods is not desired, but merely title thereto, or control thereof, which is evidenced by either a bill of lading, rail, lake, or ocean, an elevator receipt or trust receipt. In order to obtain possession of the bill of lading, and therefore constructive {X)ssession of the goods, the bill must be paid upon pres- entation, which is often, if not generally, before the arrival of the goods. Therefore the buyer must either have abundant capital X 27 )^^/M£:. Pounds Sterling NEW YORK BRANCH. No. British and Foreign Marine Insurance Company, Limited. ate. ■. HITWOIltH, Caa., Cauaau. HKItaCIIT w. PRINCIPAL OFFICES AND BRANCH OFFICES: UVERPOOC SCMlkltf <: CQ D CO as h O u I- "< o U u Satis, 1^.. .i l ..ili.. inNDON I nu >~l Si~< f ■"■• ' *™"- **"- «'"'"■''*"■ SYDNEY, M RM H: H-*T c<»..i, M...O'. MEIBOURNE. t7 ( KEW YORK, Ctt> E>ck>i«. B< 41tloQ« of tao FoUoy. , ^ ^ BUpnwDt* to London u««ovor«d, InolndlDg i1»k of ipeolal Ilgbtoi tetlon Ttft QUOT or alio. TbU OflHu[e»U u loMMd InOrlalnAl and DnpUoate. one of which b«l] «b* other to itaad noil and toM. To eoBlona wltb tlw Botobvo Iaw« of Orsat Brltalo, la order OonlfloatomnfltbotUmMdwithtaTEN hays " TUt OuttBeaM obaU not bo vltlfttod br i r iBteroot or by dovlotloa proTldad <" aaA conTeyt all Xhm i ^ hta of the Original Policy-holder (for the operty il»e cowred by U Spefeul Policy direct to the holder of this ludlood br onr urrooiKrat ■peolftUr ocTMd that tin tbe Bill* of Ladlnx and/or herob7 i ueoiou '~- " iQBuraaoe. TeueU ao betvoon ttio »Miired and aMnrer* to \ ^^% •oonaotaMWiitoUioaMnrod. and an additional premli It u herabT airreod that any looa or elahn under thu Oertiaoato. ohaU bo paid onrront rato or exriUn«« at tto OIBoeo oftheerf ' eotltolon with another ahlp Inelnded, other than water or ai pay landing, wareboualac, forwi , , „,-,-- , arfrlng fmro tranahlpment and to pay for any pordoo of oargn onndemnod dlatreaa owing to perna loaured agafnai. Inoludlng rlak nf craft, raft andfor llg. fron tho vea^ alaO all UtMrttea a^ per ooatraot of aCrelghtment. Kaoh crafty raft Not *Hld i/nftst coufiUrsl^ntd bj JOHN M. F/f£Y, In9ur»vct Agwt. Product Exehangt, Nt* YoHr. being plaoed by 1 itedt- -"• " the total I tbla policy ahall, li B aaanred for the time be reported to the oMoec? - * If the port that aeyloaa located agenta of the t andwr Teaae) with r revolting 8tate«, o lether oocurrlng In ■ abandon In caae of btookado, and f wlae ; and whether oocurrlng held ooTered agalnat " damage or loaa reaultlng from faulte In the management of aald veaael," for which " the veaael, her rera" la, or are, relieved of reaponalbUlty under Section s of the United Stotea, approved 13th February, isn, but nothing In thto ^mlt or affect any rlgbta which the company may have by aubro- otherwlae, agalnat the owner* of the aald veaael. Is hereby nnderatood and agreed, that In eaae of Loaa or Damage bai • -|der thla Certlfloaie, li ^-^..^ .- . - - _ __ Liverpool or Loudou, __ ,. _ the damaged gooda arnve at other porta. It la agreed that pranvptly reported for artendon to the nearest located age Uat of m auDb aireuu printed oa the baofc of this Ortlfloate. bv the asaured free from loaa or expense arising from capture, aclanra ition or deatniodon, or the ootisequenceB of any attempt thereat, whether ' bclllgereni nadons, or by goTemmenta J or lawleaa pereona tberem, or other- of dlBtreM or otherwise. Aiao warranted not to Tom aDvexpenaelaeonaeqnenoetherftof.butlnUM , of blockade to be at liberty to proceed to an open port and there end the Toyago. alao agreed that the property be warranted by the aaaured free from any enarge, damage or loaa, which may arise In uonaeqnenceof aaelzure'or deteudon for or on at of any Ullolt orprohf bited trade, or any tnule in artlclea contraband of war, or the tlou of any port regulation. tnvoiee Jfo, ' 7/ Shipp/d bv NYE & JE^KS GRAIN CO., New On Bixii-d. S. S. for account cund risk of "TTPt^dd^ B/L daUd, OcA >^Af'/ against our ioXe/^J*/*^ >'//'f> ^ Throuih M <2.JV^^, / c» ^' Insured in BRITISH ^ FOREIGN MARIXB IffS. CO. M Documents attached to draft as follows: , //^sJf Bills af Utding i^-o^ /"^^C -^ ^/irdj^l Jnsuranae Ctrti/icai* /mpeclien Certificate /fi/-^ E. <}• a E. Msiu York, UeyrlijY 191*^ NYE ftfieXJKS $t^AINf«>r COMMERCIAL PAPER AND BILLS OF EXCHANG E Iivsnjiij,s (I III/ pQ}L3Si9S^:> ("rorttun/ h>fh>yj,r.sy„f.stni„lan/ o/'t/,r XKW'YOllKPmDrCK KX(;iLl\(iK. .S'lO/iir/ , For arc'/ of' of his own or ample banking facilities. Being staple articles, in constant and world wide demand, convertible into money at little expense or delay, such loans are of the very best, and are readily made by the banks, the only peril being in the changing price of the goods, and danger of deterioration. Banking accommodations are therefore to be had by pledging these bills of lading or elevator receipts with the bank as security for advances. As a matter of fact, neither the bills nor the goods are actually pledged with the bank, but possession of the bill being necessary in order to get possession of or to move the goods, the holding of the bill of lading is in itself perfect security. Inasmuch as large grain merchants are receiving consign- ments of grain constantly, and paying the drafts attached, there is a constant 'stream of bills passing through their hands, which may be placed in the bank to replace others taken out for the purpose of moving shipments. There are a few large elevator concerns in the West that buy grain and secure funds for cash payment by selling their single name paper in the open market. While the wheat is, in the last analysis, the security, it is the credit of the borrower that is the real element. These same concerns also borrow on ware- house receipt for the grain, and on account of the security, obtain cheap rates in the large cities of the West; but as between the buyer and seller, grain as a rule moves on a cash basis. The various st^ps taken in moving a ship- ment of wheat from the producer in Dakota to the consumer in Europe, and the financial operations connected therewith will be best understood by tracing in detail such a ship- ment. It will be observed that the draft and bill of lading become separated at various points, subsequently coming together, and again separating, depending upon whether the documents are used as collateral. Presuming the farmer is in need of short time credit for his current operations, as dis- tinguished from long time credit for the pur- pose of buying or improving land, it will arise from a need of funds to plant and harvest the crop. He may buy his seed of the local mer- chant on open account, or give notes for it, which are discounted at the local bank. In buying machinery, he gives his notes to the agricultural machinery companies, and these notes constitute as important a form of two name paper, as arises in the market. In paying off his harvest hands, cash must be had, which is supplied by the local bank, and if on credit, against his note of hand. ' The crop being harvested now begins its journey to the place of ultimate consumption. Upon receipt of the grain, the local elevator will roughly grade the wheat, issuing its receipts, which are paid for in cash at the office. Assuming the grain to pass through several hands before reaching its destination, it will be shipped from the local elevator to the lake port, where it will be officially graded, which grading is accepted in all markets. A draft is drawn on the lake port dealer, for instance at Duluth, with bill of lading attached, and sent to a bank at Duluth. The draft is presented to the drawee at Duluth and paid. If the Duluth firm is borrowing on the shipment, the bill of lading will be security to the bank for the advance. If the grain is to go forward, it must pass through an elevator, and therefore the bill of lading must be surrendered before this can be done. In order that the property 2f COMMERCIAL PAPER AND BILLS OF EXCHANGE may not be out of the bank's control, a trust receipt is taken, which vests control in the bank while the transfer is being made. If the grain is to remain in storage a warehouse receipt is issued, which is deposited in the bank as collateral. But assuming that the grain is to move to the seaboard, the trust receipt is taken up when the grain is on the ^ake carrier, and lake bill is issued. When the grain leaves the elevator in Duluth for Buffalo, via the lakes, the Duluth firm will draw on Buffalo, attach the inspec- tion certificate, the bill of lading, and insurance certificate to the draft and forward to a Buf- falo bank. The draft is paid, bill of lading again surrendered for trust receipt, which in turn is replaced by a rail bill for New York. ~ When on board the car for New York, the trust receipt is taken up and draft, rail bill and other documents forwarded to New York, and paid by drawee. From the railroad car the grain goes into elevator, the bank holding a trust receipt while the grain is being transferred. As soon as the grain is on board the ocean liner, certificate of loading is issued, an ocean bill of lading drawn, draft on the European buyer or his bank attached, insurance effected, and the bill with the documents attached becomes foreign exchange and is sold in the foreign exchange market. Formerly drafts against grain were at 60 da};s sight on the buyer, documents to be delivered against payment of the draft, under rebate for the unexpired time, as explained on page 31 under the heading of meat bills. The same rule appHes also to flour bills. Since 1913 it has become the practice in the grain export trade from the Northern parts of the United States and from Canada to draw on the buyer at seven days after sight documents deliverable against pay- ment. Shipments from southern ports are usually against 30 day sight drafts. All drafts on United Kingdom are subject to three days grace; drafts made for longer than three days after sight pay the British revenue stamps as follows: Not exceeding ^5, id Exceeding £ 5, but not exceeding ^10 2d " 10, " " " " 25 3d " " 25, " " " " 50 6 d " " SO. " " " " 75 9 d _ " 75, " " " " 100 I shilling and for every further ^100 or fractional part of ^100 an additional i shilling is required. Flour in the Export Trade We are indebted to the Pillsbury Flour Mills Company of Minneapolis for the ac- companying documents which as are used for financing exports of flour. Also an account of the methods of handling these intruments in the foreign trade, from the booking of the order to the payment of the drafts. "Our foreign customers who book flour for future delivery and make specified shipping periods, differ somewhat as to the terms of settlement. For instance, in Holland where the guilder is used they require goods shipped and documents consisting of bill of lading and insurance certificate attached to draft drawn at three days sight. The drawee in this case has the privilege of accepting this draft and obtaining the documents attached upon this acceptance, while in England where drafts are generally drawn in pounds Sterling for the English trade drafts are drawn at sixty days sight and payment of bill is re- quired before the documents are surrendered. In the two above cases we generally draw on customers direct, our correspondent in this country having the privilege of forwarding the documents through whatever bank they choose. "In the case of Scandinavian countries who Pillsbury Floor Mills Company MiimeAPoLis. MixN. Cute Mc iMM fc PiusawBv. mmauKut Mmneapols, ^^IIn- ^^12 I9M iSI Manager Credit lynmnAjg, Dear Sin ^ , ^ have drawn on yoo at /fiWETT days Aa aghi tor for account ^ (S^awfd)^ .J^.S)mtjitig| *m mtn Mmacn m thi Rwn UBCEIVSDtL JElnaea9olia» JOmu Kay 19th,..xai4... Inm SUXfi«acy.jaAUr.:Xai&. 66* tU Mtowini frtfrt •• evpamt lood ordtr. ttetpl «• noiti (etnltttt amdtm^tltu tl—altnU •/ package mJnm»). markid. numUnd. eontigntd amd dtfUiud •* iadictttd Ulft: ordsr-oC PllUlnin^ FXouv.jiillfi Co^ PMTV TO M MDfltt SXSE BDIQ>BBO..(500 280#). JXSTB SACKS IXOXm i«oooo xts. ■ *Shlpp*r'> W»l(lit . . (nbjMt to iimillii) ^.._ (*V. n. Uw f«««lrM AiMI iMBlM iiu W I IBM !• «■«■ tf "MiinM>' •!' ■•'fw«' Mw»^>iMiv"l jUlsa Xiae £BAnrCBD.&-]UW ;\Cartfor, Pae. 2S47» -860 cacScs 67 BDFE ST. ' « ■ o> u 45441 250 ir.P. Tla PulQth and 9%. Srs^t, MUiu To be rnrried to Ikr Port (A) ol HontXCal , ()Ue« ''M tkrmn bf.. (o (A/ P»tI (B)...^ OaHgOW^.SCftt^ ~ _ (vr to mar Ihertio m $tnmtr maymlf ly grt, viik librrtu lo rail lU Dny pari or fxirl'in ormri oU/trrunloiKarii ruMlr I , and lo br Ikrrr Mierrnl in likr good order and eoiiUHtm at above eontignrtl. or lo rimtignrr'i atxigmi. or lo nnoikfrpnrrirr on Ihe rtiuir In iletlimition it ronnigiird beyond laid Port (B), »fom pmrmrof immtdiatrly on diichani ol lh» orooerlv. ol Ibk lyiolil lkrrrn». al Ikr rale Irom... MilUiaaJIOUa^ |ft«Ti , .. '' Glasgow, scot. litXand rate-^ghteen (18) St'SQ/oai'ittn}Bxil'ronek%»dnd ,^.,«.i, amas wkiuht. md aiia»^mt,rr^^^ fourteen (14) & 00/ftP prepaid ,, „,» „;/ ,(w dtor,* 111// 'leoraiiii, kUIwiiI any aUowanee ol rreilU or iliiroanl ; xrlllrmnil lo be mnilr im llir buiis ol I .ihillimft i ffnee, Ui Morb. '■.lit Iraurl, 3. no llulrh gtiildtrt; H.HU kroner lo Ihe ilolbir. Ihiilnl Slolrs gold rnrrenr): il in oll„r 'Hrrenry Ikait kertin pr»vidtd lor. netUemeul ti> be niadt al tkf rale ol ft. HO to Ikr prwml tlerliHii. at the rurrrnt rale ol rirhaH'te ollirinliy quoted on tkt day tk* ocean ttiiinier luterx Ike Outtam Bouu at ilt port ol ditrharije, lur irhirh Imnker't nhort-tii/bl biltt oh Condon ran he bougkl; wktm I Ireiijht in lirrpaid.- titSti .Uniied Statet gold it equitaleni to nnr intunil sterling. '•tV tf femtt^ iMMi* ■Mm.d, Il l« fcvrabr Mlpulatad lh*< — iw IVtm fef th« *lpp«f 1 lin»yii<«. akal W iilMlM t» tWa Mi4 br Mm Ili um I9W fclwiill Mi4 » W th* .fMt •! I^» MfvlOT liwln ll»U Un W UMmt i^di CONDITIONS iMliny whUh akaU b* nud« wItkMit Of ip i iHI nMMl.* .•Tm°> •» >b.^di luVll fxIMi iM akuvi •.< ^ far III ia_ o> dua|to >U>b lh> lUp » i>i«i au tew •• mOt hi ^ -"^ --^^*pMaMtjMf«br«aeiimdo«tbtaB«4aab.Ub**UMttef«(«. ly tt* tfrtvml uif diaeteis* wMI&ufi^. Mr »*«■ «< .^.^^ f ,1^ ibktfb^ - - Th* UiipiMT ud/w .VMT oi tb« pMda _- J ^ t. — <_. j^( t^ BMkilw • •MTibwl ud TftJuad 1m>*b: ib«t tk» PMki !iS^ .U>. uTSiMa i» •klp* w>i u te M llbav <• ~l~^ b^ •>• V^ «M ■ MBatMt^ mmtd miUm a lb* (oeda apacifiad iMidiac Bhariaa on^a toodi. Ttia ialaad Tie tuoda IB *boJe or in pari far ika Imgbt asd ehaf|«* th» pft m ade bO ffa«bl 11*''^ ifll iX WiT-Sj;^ WBKKKQF. The Agent ntmiiw. on .Mo// a/ ^.-*^.^.^rL^ -^ ^^ i"' / ^*^ ^■?> Pounds/ /o Sterling London, England, m A/ j tt o I 4e Sii; ar« to bfe Surt-»naort»4 to tn,j v^6*^o\ Guilders Vv^a' / //y// ////^/// W\x^x\ r//^ ^f/Z/fz/u/f^ !< .j/rr//// //r//'.i///f r// //Ji)'// Z- /A/ ru//? /y Uursclv •5' ^k . -^--^ ,^*^ ^/ ^"^ ^//<->-,^ Guilders, i ,;;rH. F. OSIECK, "ii: Q„ the ele venth day nj March /p/_*. PILLSBURY FLOUR MILLS CO. caused to be made by this Company on Open Policy No. 7S36, an endorsement for insurance of ( 228 pounds ) Tkt rfWMM l99i •/ CrttI BriUtm rtfffiwV. Ih*l iMt tirtitfit it tUMtU wiMn 10 i4yi ^fttr rttnfl i« tkt UniUd Ximgittt, ttktrmit >««•( h tslltettd h Two Hundred and twenty-eipht pomdE 3te|'l|n j | on 400 SffffkK nf Finiir - a •D -«~£-S- shipped by Rail Road 'n tn NftwYork. N. Y. nnliifd at sum insured. Lake ^teamtf^ "' inland (^rjhiajr/j at and from Minneapolis, Minn., ^fd~fit%ind thence per Steamer or Steamers to «» Cnpgnhagan, Dpnmarlf. z;^ " ■= B ■5 S fi This CertificaU reprejtnU ered by a Special Policy direct to the holder of /iaS) or by IFendt UCo., I surrender to them of this Pound Strrlint, and when n_>o -^^-^ 32 COMMERCIAL PAPER AND BILLS OF EXCHANGE the documents are surrendered against pay- ment only. If drawn for longer periods, they seldom run to maturity, but are retired under rebate of interest for the unexpired time, as It is "to the advantage of the consignee to obtain possession of the goods as soon as possible, owing to their more or less perishable nature. On account of this feature "Meat Bills" are considered a very desirable form of remittance and command the very highest rates among banks who deal in exchange. Of course a shipment of meats or other similar product may be covered by a draft on a bank at sixty or ninety days sight, but as the docu- ments attached to such a draft are always delivered to the bank upon its acceptance, such a Bill of Exchange becomes at once a "Bankers Acceptance," and may be redis- counted and circulated in the open discount rnarket without any further reference or rela- tionship to the documents originally attached, or to the shipment which they represented. Many of the large packers have their own offices and selling agencies abroad and draw Bills of Exchange on them, such as the one reproduced herewith. Such Bills of Exchange are handled exactly the same as if the shipper had drawn on a second party. The bank that purchases the draft in this country sends it to its correspondent in the city where the payee is located, and when received there it is immediately presented to the drawee for acceptance. When the documents are deliverable only against pay- ment, and the drawee wishes to obtain pos- session of the goods at once, he notifies the bank and they allow him a rebate of interest for the unexpired term of the draft at a rate, one-half per cent, above the rate of discount allowed on deposits by the leading Joint Stock Banks in London. As the interest allowed on deposits is I >4% below the Bank of England discount rate, the re- bate allowed is normal- ly one per cent, below the Bank of England rate, but it must not be overlooked that 4% is themaximumrateof in- terest allowed, no mat- ter how high the Bank rate rises, hence 4 >4% is the maximum rebate; this must be remember- ed when the Bank rate goes above S/^%- Leather and Leather Paper The leather industry of the United States aside from the manufacture of shoes, comprises 919 establishments employing 67,100 persons, and capital to the amount of $332,726,900. The materials in the raw state cost $248,278,900 and by the tanning process $79,595,200 is added to the value. The wages average about $39,- 000,000 a year. The shoe industry is con- stituted of 19 1 8 establishments; employing 215,900 persons, the wage earners numbering 198,297. The capital employed is $222,324,248, salaries and wages being $1 17,092,1 16. The raw materials alone cost $332,738,213 yearly. The products at the last census were valued after manufacturing, at $512,797,642. The leather supply is naturally dependent upon the supply of animals, and the quantity of the latter can be known with considerable exactness any time a census is taken. And with the supply of cattle growing less and the population greater, new fields must be opened up if the cost is to be kept within bounds. Moreover the introduction of the automobile has made increased demands upon the leather supply. The processes in the leather industry are two, tanning and finishing. In some cases both are done by the same concern, while others do but one. The labor cost is light, the materials according to the last census costing 75.7 of the total value of the products. Corporations control 49 per cent, of the establishments and 76.3 per cent, of the value of the products. Of the 919 establishments, 78 or 8.5 per cent, manufacture products of Si, 000,000 or over, yearly; but such concerns supply 48.2 per cent, of the total value of the pro- 33 3Htnttof €5^iliitunrfiTr ARJMOU R Mi COIVI PAN Y V/,;v/^.,. /////./,'/ /^/ 4 ^^^"'"' r^^y^'^^f^^^'r^^ f I ■; ii n ii > iii i i » i I y — • ^' y^..<:- '^ ' ■ ^ . y ^//<". ARMOURSS COMPANY '//..v../..,//////'^/ /^/ _ J^Aee 4 34 saasKomiEm III' 1^ illl 'if; 1= IS 'if; i\ i II I m •I ;;3 2. if ||i i| i 01 N 111 H ^ '-"' ll IJl 1^ It IbS 1| i 'lit U°4 s|i ?l i us: iSi js= jl ! ■ S'll P'l i!i ii |i|! "Ill ill || sill le|li?sl«{;^ ml flUWll^ ISiiiillilil |ip|il!»ll|§|ll nmmumiimimmr MARKS AND NUIBEU BILNo.2i3 Maxhf aniNn. Z A^jnUiti AmCoapmarat llllillllllMllB«MlMiliiiiBiiiiiiiiJWiuiiiiimiinimHi«Hii««Bm.Hi«Tlinif«imM»—i—»^g g $.A^/^' MARINE PgPART^iENT No.kMO. 6837 CERTIFICATE OF INSURANCE JEttta Sttaurmtr? Olumpang, l|artfbrb. fflnmt TALBOT. Bino « co..Aanm .. .. ^V-- ^ .^^T ^/ •»«* Buvn .T. inw rMK JVfelK VOWS^-L^^*^ / 7 . /9/^ aiifiB tB to (Unrtifg. TAo/ on -.-g^ Cy'^Z^i^ fkilueJ at sutnoMfred per skamer'or deamert at and fnm.^^tU"^"^ /^.xy A'i-Cid/^^^^:^^^^^ _ f^ Loss, if any, payable ^ to ARMOluR/^^^OMPAbfV/or order, on surtetdtt of thk Certificate. /y/j /i/'' Thb CcrOficaie rtpraatb and lakes At pJace rf IMPoUey, anJ canoeya all Ae right rf Me OHflnal Polky-HoUer (for iht purpote of colUoing any lots or clabnsj, as fatty as if Ok properly loat cooereJ hy a special Policy dIreB lo the holder of this Certificate, and free from any UabdUy for urtpald prembims. Not ralM mimt comliiil|iiH k; /UUMUD m toatun ^^^^^^^^^^^^^^p^^Q^^^^^^^^^^^rara^^mi^^^^^^^mraE^^ famStXBBA wi^mwwff^a r FonmiDX ut lau loni CHICAOO, u. s. A. February 17th, 1914 INVWCB OF 2000 P4il8 Lard siiiPPGo t^. If, 1914 KR B^' Union Line FOB sHiPMfiKT PES Dominion S. S. LINE TO FOR ACCOlMT ANB RISK OF MESSRS. AfiUOUB AND COUFAmT LTD. , BRISTOL. EtTGLAHD RAILROAD TO **• Yollt. Bristol CIF SALS NO. BRISTOL By ARMOUR ^ COMPANY 72 ASKK oabl« DATED Feb. 10th, 1914 (D 72 r 2000 Palls Lard 56000 lbs 500 cirt m/- Xess ocean fr«ight 66000 lbs @ 22.500 - |l4a.50 • 4.80 tees Olecomit 1^ ises- 0- o 30-18- » 1204- !• 9 M. 1281- 2- 9 Intended fox S. S. "ENOLISHMAK" ealliufi Fehxuaiy 29th, 19M «e have drawn on you to-day for C 1281- 2- 8 »t S days' •Igbt, Draft Ho. 2604 to which are attached: ISVOrCB *0R SALK HO. 72 for £ 1281- 2- 9 OOVT IHSPBCTIOH CKRTIPICATE HO. 355835 AKTHA IHSURAJJCK CBFTIPICATB HO. 683TJ for 16910.00 STAB OillOH LIHE KXPORT BILL OF LADIWJ HO. 2.,' ZfcOB 35 COMMERCIAL PAPER AND BILLS OF EXCHANGE ducts. Small establishments manufacturing $20,000 and less constituted 25.9 of the total number, and the value of their products was but one-half of i per cent, of the total. The process of tanning is simple, being merely" the immersion of the hide into a solution for a stated time, and drying. The next step is the middleman, who buys the leather from, the tanners and sells it to the manufacturers, so the goods move from the animal to the tanner, through the middleman (also often a tanner) to the manufacturer, to the jobber, retailer, and consumer. Imports of raw skins, are of course financed upon letters of credit, drawn on London, as is the custom in all other import operations. If the importer cannot finance the transaction with his own capital and banking accommodations the goods are released upon a trust receipt. Terms of Leather Credit Owing to the liberal terms upon which leather is sold on open credit and the generous discounts for cash payment, the bulk of the leather business is done on book account. The terms for open credit are: Sole leather, 4 per cent, ten days; • three per cent, thirty days; two per cent, sixty days, net ninety days. Or, to express it as obtains in the trade, 4/10, 3/30, 2/60, net 90. Upper leather is usually sold on 5/10, 4/30, 4 months net. Fancy leather 2/10, net. The consumers of leather which are prin- cipally the shoe manufacturers, belting con- cerns, and manufacturers of leather goods, harness, etc., particularly the shoe manu- facturers, sell their single name paper in the open market and buy for cash. All large tanners, jobbers, and shoe manufacturers issue single name paper. One of the largest paper brokers in New York does not have receivables from either tanners, jobbers or shoemakers. Lumber and Lumber Paper Lumber as a commodity differs essentially from such products as grain, meat, and other perishable products, in that it will keep for a long t'me under proper conditions, and aside from the fire hazard, which can be insured, is void of risk, for prices are not subject to sudden fluctuations aiid tend upwards as the supply becomes depleted. Lumber is being cut and consumed three times as fast as it is being grown and is an article in constant and widespread demand. The lumber industry reaches colossal propor- tions, and is so wide spread in its operations that it practically covers the country, being con- centrated, of course, in virgin regions where the standing timber is still uncut. No less than 45,000 establishments, large and small, are given over to the working of lumber in va- rious forms, employing 797,825 persons, all but 185,000 being in logging camps and saw mills. The capital employed is $1,182,330,000, and the salaries, wages and services amount to over $735,000,000, yearly. The value of the products is over $1,160,644,600 to which is added in the course of manufacture over $652,429,475, the cost of materials being 43.8 of the total value. The State of Washington leads, with value of products $89,154,000, and New York comes next with $72,529,800. 19,500 estab- lishments produced less than $5,000 of finished products; 2,446 between one hundred thou- sand and a million, and only 72, a million or over. The credit operations of this industry will therefore be confined largely to the minor- ity, the first mentioned dealers working on open account. The above figures, of course, do not include carpenters and builders. Some timber owners operate mills of their own, while others sell to millers who cut and sell to the trade. Lumber in storage is carried by personal capital, and is rarely pledged for bank accom- modation. Trust receipts are not used, ex- perienced bankers stating that they have never seen such an instrument in connection with lumber transactions. In making shipments, where the lumber must be transferred from rail to boat and vice versa, the credit of the operator is sufficient to safeguard the transfer without the use of trust receipt as obtains in other lines. The terms adopted by the National Whole- sale Lumber Dealers Association are: The freight, net cash, balance by note, 60 days from date of invoice; one and one-half per cent, discount for cash within 15 days from date of invoice. One per cent, for cash within 30 days from date of invoice. No discount after 30 days. The New York terms are 2/10, note at 90 days from delivery at the buyer's option. Philadelphia terms are note 60 days, and Boston terms likewise. The general custom is to pay by notes as above, these going into the open market through brokers. Single name paper is issued by a few large concerns, but lumber paper is mostly two name. Some banks wnll not buy lumber paper, on ac- count of its slow moving qualities and bulk. The lumber business is not crowded with speculators, who deal on margin, and the companies in the field are large and powerful. 36 COMMERCIAL PAPER AND BILLS OF EXCHANGE The industry consists of five classes: The holders of the standing timber; the millers who saw; the wholesalers who buy of the mills (some mills have their own selling organization, and the wholesalers often have an interest in the mills); lastly the retailers and the final consumers, — carpenters, fur- niture manufacturers, contractors, railroads, etc. Control of Timber Of the standing timber in the United States, the Government owns one-quarter; two railroad companies and three lumber companies one-quarter; 190 individuals one- quarter, and the rest is scattered. Sixty- seven owners control 40 per cent, of the long leaf pine, and in the Lake States six owners control one-half the Norway pine. In the Pacific northwest thirty-seven owners control half the standing timber, the average holding being fourteen thousand million feet each, while three owners control one-eighth of the total supply of privately owned standing timber in the United States. Lumber Credit The lumber industry gives rise to three forms of credit instruments: Timber bonds, lumber receivables and single name lumber paper. Standing timber is financed by issues of timber bonds, supplemented by private capital, the former method covering large and expensive tracts, and is the development of the past decade or two. Where there is immediate prospect of its being utilized for manufacture standing timber is generally financed by means of bond issues; that is, where milling concerns are required to borrow for their operations. These bonds mature serially, and, as the timber is cut, a sinking fund of generally the amount of the value of the stumpage is deposited with the Trustee for the purpose of meeting the bond maturities and expenses. Yard stocks of lumber at the mill are generally held on the books of the milling companies as merchandise, and except in the cases of companies which are weak finan- cially, are seldom pledged for loans. In some instance however, where there are bond issues, all of the assets of the milling company, including the plant, and, of course, the yard stocks, are included under the terms of the mortgage. After cutting into standard sizes, the lumber is sold through selling agencies of the timber companies or branch offices in the large cities, or^ wholesale dealers, and moves from the mill to the wholesaler on bill of lading with draft, or on open account, usually the latter. Many mills sell direct and eliminate the wholesaler, and the middleman does not play an important part in this industry. As strictly commercial paper, there is very little single name lumber paper issued by concerns in the Pacific Northwest. In fact there are but one or two concerns which have availed themselves of the facilities of the commercial paper brokers. Strictly speaking there is no considerable quantity of lumber paper, either single name paper or two name paper, on the market. Generally lumber companies are closely allied with their local banks and their needs are taken care of through these connections, or, as before stated, by bond issues. Lumber accounts receivable are generally considered quite good, especially those from the manufacturers to the yards, and even retail accounts compare favorably as a whole, with most other accounts re- ceivable. Two name lumber paper originates as follows: A large New York concern, for instance, might go into the South and buy a million feet of lumber, on four months' time, giving its notes as the lumber is delivered. It, in turn, sells to the consumers, taking their notes. The latter are sold through brokers, and with the proceeds, the first men- tioned notes are met at maturity. There would thus be two sets of receivables in existence at the same time, representing the same commodities. The Bank Acceptance Chapter VI OL NEof the chief merits and distinguishing ^ features of the European Banking systems lies in the bank acceptance, the effect of which has been to standardize bills of exchange, and add new powers and effectiveness to them so that by virtue of the credit quality they become part of the circulat- ing medium of the country. The acceptance is not only the best but the cheapest form of the credit instrument ; 37 COMMERCIAL PAPER AND BILLS OF EXCHANGE cheapest in that it does not deplete the cash holdings of the acceptor, no reserve being need- ed to safeguard the risk ; the principal requisite being that the acceptor shall be in high stand- ing, and with resources and record that will stamp the acceptance as of high quality by vir- tue of the power back of it. It is the most effective form of credit in that such an in- strument possesses all the functions of money in discharging indebtedness, and as such becomes an integral part of the monetary system of the country. \ The acceptance is most highly developed in England, France and Germany. But not until the establishment of the Federal Reserve Banks and the enactment of the new New York State Banking Law in April 1914, was the bank acceptance known in our banking practice. In England and Germany the bank acceptance is the principal form of credit, while in France the individual acceptance is the most common form. The distinctive methods that obtain in each of these countries will be found in the chapters devoted to those countries. The Acceptance — How Made The acceptance comes into being by the mere act of writing anywhere on an instru- ment, but preferably across the face, the words: "ACCEPTED" November 15, 19 14 Payable February 16, 191 5 Tenth National Bank, New York. No particular form is necessary, and any words that signify an acceptance are sufficient. "Seen," "O.K.," "Good," "Presented," or merely writing one's name across the face of the instrument have been held sufficient; but the recognized form is as above. It thereby becomes the promise of the acceptor to pay to the payee the amount named, and is equivalent to the promise in a promissory note. In England the acceptance must be in writing across the face of the bill. In this country, under the Negotiable Instruments Law, it need not be on the face of the bill, but must be in writing, although it may be on a separate piece of paper, or it may be made by tele- graph. But under the statute the holder is entitled to an acceptance on the bill. The Theory of the Acceptance The mere writing of the words "accepted" across the face of a bill over the name of an internationally known bank, changes the character from an unknown instrument which would pass current, if at all, only in the locality where known to an instrument accept- able anywhere in the banking circles. The commercial effect is to change a bill of exchange drawn, it may be, by an unknown merchant in some little town, on another, no better known, to the promise to pay of a well-known banking corporation, whose name 'is synony- mous wuth all that is good. The bank by accepting does not merely engage that the maker is good and will pay as per agreement, or that funds will be on deposit to meet the instrument at maturity, but that it will pay according to the tenor of its acceptance, absolutely and without condition. There are, of course, in circulation, also, the acceptances of private houses no less well known, whose acceptance makes the paper "prime," and therefore of the highest quality. But even in England where the acceptance has reached a high state of development, the number of such houses is less than a dozen. Then come the acceptances of houses in a lower stratum of credit, acceptances based on merchandise, the quality of the acceptance being immaterial, since it is based upon the worth of the merchandise involved. And still lower down, the acceptance of the in- dividual upon a trade bill, representing a purchase of goods, and this by virtue of the name attached, usually three, becomes eligible for rediscount at the central institution. In France especially, the latter forms a very important element in the banking system. The banker, by adding his name to paper, supplements the credit of the individuals there- on — in fact supplants their credit with his own, giving to the public his credit in exchange for theirs. Thus in the English bank state- ments will be found on the asset side "Liability of customers on acceptances" (which may be secured or unsecured) and as a liability, "acceptances," which represents on the one hand the obligation of the bank to the holders of the paper outstanding and accepted, and on the other the liability of the makers to the bank. The power of the bank to accept a bill of exchange enables it to sell for gain the credit it possesses, without parting with a dollar of reserve. ' It lends not cash, but credit. It holds no reserve against its acceptances, for as they fall due the drawees will have funds in the bankers' hands to meet the obligation. It is the drawee's duty to look out that a reserve is available to meet his engagements, \ and the burden is shifted from a few bankers to many individuals. 38 COMMERCIAL PAPER AND BILLS OF EXCHANGE The banker's cash is therefore held as a basis for cash advances where such are necessary, and to meet foreign demands which only the metal will satisfy. In the American market the lending of one hundred millions would mean the setting aside of eighteen millions in lawful money or gold, while in Europe it in- volves no cash whatever. As is well known, the common form of borrowing in this country is by means of the promissory note, and while it is the credit instrument that is used most generally in commercial transactions, it does not and can- not enter into the circulating medium of the country, because it carries no token of strength. put in circulation, per capita was 312 marks, while in 191 2 it was 495 marks. Acceptance in the United States Under the Old Regime The National Banking Act did not prohibit acceptances in so many words, but the courts have held that a National Bank had no power to lend its credit, and therefore could not make an acceptance. The lack of the accept- ance privilege had much to do with retarding the development of a discount market herej Acceptance — Under the Federal Reserve Act Section 13.— "Any Federal reserve bank Rio dg .Tftnpirn^ .J^nm Iftt h ^&/ ^ ^SfarAmu/^''^7rr^'/,^ /^i^^^^^'^ry/^/^^^^^ :TKi> - Uiine :/1 w/rrro///// 0/ l/c 728s S/B "Byron" / ' ^° ^y^vreving shipment of 2000 ba^g* of^ cof u. s. A. By courtesy of Bernhard, Scholle & Co. of New York and the Bank of New York. National Banking Association Facsimile of a Prime Acceptance This Acceptance being based on an importation of goods it is eligible for rediscount at a Federal Reserve Bank. y I The manner in which the accepted bill of exchange performs all the functions of money, and becomes a circulating credit, is well typified by the practice in Germany, where the merchant instead of paying by check or in cash, gives the dealer from whom he has bought goods a bill of exchange, payable in from three to six months. The dealer uses the customer's bill in making payment to his creditor, and so on until it finds its way into a banker's hands. The bill, therefore, per- forms a series of monetary transfers, for the holders prefer to pass the bill on, rather than discount it, which would cost the discount. Business men in Germany, other than bankers, are in the habit of accepting such bills at face value as cash. The growth of the use of bills of exchange in Germany will be seen from the fact that in 1872 the average amount of bills * Italics are the amendments approved March 3, 1315. may discount acceptances which are based on the importation or exportation of goods and which have a maturity at time of discount of not' more than three months, and indorsed by at least one member bank. The amount of acceptances so discounted shall at no time exceed one-half the paid-up and unimpaired capital stock and surplus of the bank for which the rediscounts are made, except by au- thority of the Federal Reserve Board, under such general regulations as said board may prescribe, but not to exceed the capital stock and surplus of such bank* The aggregate of such notes and bills bearing the signature or indorsement of any one person, company, firm, or corporation rediscounted for any one bank shall at no time exceed ten per centum of the unimpaired capital and surplus of said bank ; but this restriction shall not apply 39 COMMERCIAL PAPER AND BILLS OF EXCHANGE to the discount of hills of exchange drawn in good faith against actually existing values. "Any member bank may accept drafts or bills of exchange drawn upon it and growing out of transactions involving the importation or exportation of goods having not more than six months sight to run; but no bank shall accept such bills to an amount equal at any time in the aggregate to more than one-half its paid-up and unimpaired capital stock and surplus, except by authority of the Federal Re- serve Board, under such general regulations as said hoard may prescribe, but not to exceed the capital stock and surplus of such bank, and such regulations shall apply to all hanks alike, regard- less of the amount of capital stock and surplus* customers and to issue letters of credit author- izing the holders thereof to draw drafts upon it or its correspondents at sight or on time, not exceeding one year. The distinction between the two lies in the fact that under the Federal Reserve Act, acceptances can only arise out of import and export operations; while under the New York Act, there are no restrictions as to the origin of the paper. Moreover, the New York banks are not limited as to the amount of acceptances they may make in total, although they are not allowed to loan by way of any extension of credit, by means of letters of credit or by acceptances, more than one- tenth part of the capital and surplus, to any Ey courtesy of Corn Exchange Bank and Theo. H. Price of New York Facsimile of the first Acceptance under the revised banking law of New York Thi? is the first bank acceptance to be made in this country under legal sanction. As it was not based on a commercial transaction it was secured by Al collateral. Under the Federal Reserve Act an acceptance of this character would not be eligible for rediscount at a Federal Reserve Bank. Section 14. — "Any Federal reserve bank may, under rules and regulations prescribed by the Federal Reserve Board, purchase and sell in the open market, at home or abroad, either from or to domestic or foreign banks, firms, corporations, or individuals, cable transfers and bankers' acceptances and bills of exchange of the kinds and maturities by this Act made eligible for rediscount, with or without the indorsement of a member bank. Acceptance Under The Revised __ Banking Laws of New York '' In order that banks and trust companies in New York may have similar powers the re- vised banking law of New York permits a bank or trust company to accept for payment at a future date, drafts drawn upon it by its * Italics are the Amendnr.ents approved March 3, 1P15. individual, partnership, corporation or unin- corporated association, etc. Banks in the Federal Reserve System may not accept paper running longer than six months, while New York banks may accept up to one year./ There are, however, three other forms of acceptance widely in vogue in this country, neither of which conforms to the European idea of acceptances; (a) The certification of checks; (b) the acceptance of selling agents of bills drawn by their principals; and (c) the acceptance of merchants and others, of drafts drawn upon them by creditors, the same, after acceptance, being a warrant to the bank to charge the same to the drawee's account and remit to the drawer. These are methods often used for collecting overdue accounts. The certification of checks, which plays such 40 COMMERCIAL PAPER AND BILLS OF EXCHANGE an important role in stock exchange trans- actions, is in a sense an acceptance, some banks using the term "accepted" instead of "certi- fied," as is the ruling custom. But it is not an acceptance in the true sense of the term, since the certification acceptance is against a deposit of cash, and is merely a formal acknowledgement that the drawer has the amount on deposit and that the bank will hold the same pending the receipt of the certified item for payment. The nearest approach to an acceptance (finance bill) in this country prior to the fed- eral reserve law was the practice in vogue be- tween mill owners and their selling agents. These mills draw upon the agent or factor who accepts and returns the paper, which is then discounted by the mill in its local bank. It is in reality an accommodation indorsement. These acceptances are sometimes sold through brokers in the open market. The Acceptance in International Trade The present method of financing American imports is best made plain by considering a typical case in the form of a commercial letter of credit which illustrates the part that London has always played in all such international transactions. The reason for establishing a credit in London and thereby providing an English acceptance was not because there were no good banks in the United States, but because they have heretofore been prohibited from doing an acceptance business under the National Banking Act, as construed by the Comptroller of the Currency ; and by virtue of their long monopoly of the field, the English banks have established a world wide reputation, and world wide connections for such operations. It is the result of years of sound business practices. And having no acceptance market in the United States we have paid London annually heavy tribute for using her credit facilities. Through the courtesy of the National Bank of the Republic of Chicago, we are given authority to reproduce herewith a Commercial Letter of Credit drawn on the London City and Midland Bank of London, also the im- porter's guaranty and application form. In this transaction the London bank was notified by its Chicago correspondents that this Letter of Credit had been opened, and a copy was sent to them for their guidance. The original Letter of Credit was forwarded to the East India Trading Company, Colombo. Upon receipt of this Letter of Credit in APPLICATION FOR COMMERCIAL LETTER OF CREDIT To th« National Bank of the Repnblio CHICAGO. ILUNOIS Please teaoe for onr aeeoant a Conuaereial Letter of Credit on London aa «peoiiied belowi Amoont sevcn thousand fljLx liundred. pojwjds ster^ In iavor oi.East India ..Trading Coiopiftn3r.»..Lijnlt.ed...„ Addreea ..CaloiDho , Ccylon _ _ Drafts to be at .Nlnet.y imjm aUht. Shipment of 200 t.onfl CS^.MO. lit)s« ) Ceylon....c.(i!C.Oftnut oil during Marcli, 1914. To be ahipped to..2!l.e.w....Y.orJs.,....U..»....S.»....A.. (Chicago or Seaport) Via ...Kew . Y.or.k,.. ..U... ..S.......A... (Port of Arrlml) Drafta mnat be drawn on or before MarC.ll...31a.t..».....1.9..1l.4 Shipments mast be completed on or before MarCh....S1.8.t.o ...19i4_ Cnstom House Brokers WakCm. .and..llC...L.a.y€h.X lna....I.n5..»_ Dooomenta to be sent to Wakcm and Mc LaUghlin,. I|»C-^ K.Y. Insnranee etfeeted By..-.allinpera Were or Abroid) Special dlreetiona JiJCAlt.iS..t.Q....D.QTeir....SO%..ljiTQtCiA. .Tal.ue ©...£.. .47/.6/0....p.er....Mnji..X«.....l.»...P.».N.e.l..Y.o Colombo the goods were shipped, and in accordance with the instructions contained therein the shipping documents required were taken to the bank and the Bill of Ex- change negotiated, thus enabling them to realize on the transaction without delay. The Bill of Exchange was then sent by the bank in Colombo to their London correspond- ent, who in turn had the same accepted and probably sold in the London market. Such a Bill of Exchange may have changed hands several times before it became due, the acceptor having no further interest in it as he knew that at the expiration of the ninety days the draft would be presented to him, and he would charge it to the account of the American bank that opened the credit. It will be noted in the guaranty signed by the importer that the bank issuing the Letter of Credit is amply secured, having a clear title to the shipment while it is in transit, and full power to take possession of the goods and dispose of them at its discretion in the 41 COMMERCIAL PAPER AND BILLS OF EXCHANGE The XationalIIankoitiie Repi j5lk OF CHICAGO (:oM>iKit<;i-vi> (:uKJ>iT N i;mi$i:i* /////'// /^ /V^/ ///^ / /r //^f^, , ^/-^y^y / f^,, //I, yyyyy^y///'^/yi^// r// r///e- >wyY «^,^'W9!B^/^,yr/^«*^^^ ////'y/yy. , JiLLHULbi^^ -^'^ykr' /r^(^%f^y/y^rf^ /y //u' yy yy/yyyyyyy/y/yjyA/j.^^y^r/^A^iiff^ia^ Oz/y^^ yyy//f\ //y//fy/// % y/f A7,^/y^^ y/y ^^ .^/r ^^y y^ty/y'yyyyyyyyyy'//y//yyyyy/yy ^ ^^^A/^r^^A^' A^y/y(y)^ rZ/yy//. f"" yyr// y/yyy// yy/yy/yy ///yj(7/'e^A//^yy€^^'eay ty/zyy //j/ryy^ /Ay yyy'yy/) >V^ yy/y-Ayy y'yy,^aa^i> ^y/AyyA/VAf'y/y!jy/ryyyy'y/ /// yyyy/////y/y/yy' y/'/Al -iii^y/J^y^Ay/ yyyAA Ay y/yyAyy Ayyy/yyyyy/ yy/yyyy A'''''"-^^'^^^^^'^''^'^^ yy/ Ayy /'yyyy// n/^'iy//,i^.yyyy'y yf.uAyYyy.fyy'. f. A/y^yyyy/yyyy yA/ey/yrA^flyjL^ ^^^l"!-! . AAyyyyj ■y/yu/yyyA/yy//yy yUcciccyUccaJY^. By courtesy of the National Bank of the Republic, Chicago Facsimile of Commercial Letter of Credit event the amount of the draft is not paid by the importer when due. In addition to the guaranty which is shown herewith, the bank usually requires the im- porter to sign a trust receipt when the goods arrive in this country. In such a receipt the im.porter agrees to hold in trust for account and benefit of the bank, as its agents, the merchandise as specified, with power to sell the same and in case of sale to pay over to the bank the proceeds as security for any sums due or to become due under the relative 42 COMMERCIAL PAPER AND BILLS OF EXCHANGE To the NATIONAL BANK OF THE REPUBLIC. Chicago, Gentlemen: ^. Having received p-om you Letter of Credit No. ^/ ^ ^ ^ for — ^ '^^xj J"- "" — ^ f ^ ., .y ■ on ^^i^^J^''-^^-'^'^^. copy of which is herewith annexe d .^Ctr-^ herrhy agree to its terms and in consideration thereof hin d ^^-< tn reimburse you for any draft or drafts drawn thereunder, />^-i/^^:£^^-t^-e Jays prior to maturity thereof, at the current rate of exenange for first-class Bankers' Bills. It is understood that the commission for accepting under- titis credit is to he /'^ P *^ cent, hereby give you a specific claim and lien on all goods or merchandise A/ (and the proceeds thereof) for which you may have paid or come under any engagements under this credit, and on all policies of insurance [which /^f^ agree to effect) on such goods or merchandise to an amount sufficient to cover your advances or engage' ments under this credit, and on all bills of lading given for same, with full power and authority to take possession and dispose of the same at discretion,, for your security or reimbursement, and to charge all expenses including commission for sale and guarantee. And T'^^ further agree to give you any additional security that may he demanded. And /y^ further pledge to you as security for any other indebtedness n f /^"tc/Cct^^ to you, any surplus that may remain, either in goods or the proceeds thereof after providing for the acceptance under this credit. We further authorize you to cancel this letter of credit at any time to the extent it shall not have been acted upon when notice of revocation is received by the user. This obligation is to continue in force and to be applicable to all transactions, notwithstanding any change in the individuals composing the respective firms, parties to this contract, or either of them, or in that of the user of this credit, whether such change shall arise from the accession of one or more new partners, or from the death or secession of any partner or partners. Yours respectfully, Mld-Wej Importers' Guaranty Letter of Credit. The importer also agrees that the delivery of the said merchandise to him shall not operate as a waiver of the owner- ship thereof, and continues the agreement that the bank made, that its representative may at any time enter any place where the said merchandise is stored and resume pos- session thereof. Provision is also made that the goods shall be insured by the importer at his expense against loss by fire, and such insurance to be made in the name of the bank. . While new methods have developed since the outbreak of the European war for financing importations of goods, the old custom of estab- lishing credit in sterling, marks, and other standards will continue to be the leading form for quite some years to come. 43 COMMERCIAL PAPER AND BILLS OF EXCHANGE International Acceptance Under THE "Dollar Credit" A^ The latest form of acceptance for use in the international trade is the acceptance under the "Dollar Credit." The First National Bank of Boston was the first member of the Federal Reserve Association to adopt this form of ac- ceptance. The power conferred upon the members of the Federal Reserve Association, authorizing them to accept drafts and bills of exchange in connection with the exportation and importa- tion of goods, together with the demoralization of our International Exchange Market by the European War, brought about this new method of financing our International Trade, through the medium of the "Dollar Credit," as a basis of International Exchange instead of the pound sterling. conversion of American dollars into English or other currency. The First National Bank of Boston was the first member of the Federal Reserve Association to make acceptances under the "Dollar Credit." The advantages of this instrument drawn in dollars instead of sterling is explained by the bank as follows: "In the case of a dollar Credit, the invoices for mer- chandise purchased in dollars will be covered by a draft for the exact amount drawn under a dollar credit. No conversion, so far as the importer is concerned, is made either at the time of drawing or at the maturity of the draft in the United States!^ The Advantage of the European Acceptance Accepting drafts is an old business in Eur- ope. There, it has long been an important factor in the economic life. ^./V /^''S^^^v"^// '/ //' '^J$\ By courtesy of the First National Bank of Boston Facsimile of Acceptance under the "Dollar Credit" By establishing the so-called "Dollar Credit" in place of or interchangeable with "Sterling Credits" our financial relations with all foreign countries will no doubt, be materially improved. Heretofore the only method open to the American importer, in purchasing goods in foreign countries was through Letters of Credit (as illustrated on a preceding page) drawn on London, Paris, BerHn and other foreign finan- cial centers, which means the sending of funds to these centers and thence to the point where the goods were purchased, to finance the transaction. The "Dollar Credit" will not only be more direct, but less expensive. It will obviate the In the United States prior to the Federal Reserve System, commercial paper was a non- liquid asset, with no power of circulating in the money market. The banker bought the notes of his customers, or loaned direct, or bought commercial paper of the brokers, with no other thought than to have held it until maturity. It did not or could not circulate] The European merchant, instead of borrow- ing from the bank direct, by giving his note and receiving credit against which he may check, arranges with his bank to accept his bills for him, up to a certain amount and for a certain time. He uses the credit by drawing his drafts on the bank in payment for goods, 44 COMMERCIAL PAPER AND BILLS OF EXCHANGE and these are accepted by the bank for a small commission. Or, the merchant may arrange with his banker to accept bills drawn on him. When thus accepted they find a ready market. Again, the merchant in selling may draw on the buyer and upon the acceptance of the latter, sell the bill to his bank. The custom differs slightly in the various countries. V Trade obligations abroad are not settled by means of checks as in this country, or by promissory notes or cash, but by these accept- ances, and when so used are a perfect means of payment. Their importance may be seen from the fact that such instruments drawn for the purpose of financing the cotton ship- ments to England aggregate in a single season from three to four hundred million dollars. "^ 'The ability of the London market to finance this huge volume of transactions without stringency, or unsettling conditions generally is a forceful argument in favor of this principle of banking. The London acceptance is recognized in all parts of the world as the standard. Many banks in London carry acceptances in their portfolios for short-time investors, as the prl.-ie acceptance there is considered very de- sirable paper for this class of customers! In other countries where drafts are accepted that are based on internal transactions, the negotiability of the instrument is not so easyJ Safeguards ^ [It is apparent that a power so broad as the acceptance is potent with danger if not under some restraint. A bank might accept to an unlimited amount, and therefore become top heavy with contingent liability. As a means of making money, its power is unlimited, for nothing is necessary but to add a name and the work is done. No reserve is necessary, no quick assets need be carried to meet this contingent liability, dependence being placed upon the borrowers making good at the time of maturity. But in case the borrower should fail, a serious situation would arise, the bank being compelled to meet its acceptances, and would therefore use its assets to pay these at the cost of its other creditors. There is no law to regulate these practices in the European countries; but a stronger force is at work — the credit standing of the bank and public opinion. One of the great banks of Europe once got caught in such a condition, and its acceptance thereafter was not "prime" and it has been a slow process of recovery. In Europe banks use their own judgment and accept up to what they consider the line of safety. The amount of these acceptances does not bear any fixed relation to the cap- ital or other assets. Some banks accept up to a certain proportion of their capital while others accept to many times their capital.] The Letter of Credit Issued IN Dollars The most modern form of credit instrument for financing importations and for the use of travelers throughout the world, is the letter of credit issued in dollars. The first of the International Bankers to is- sue this instrument was The Equitable Trust Company of New York. It has already proved to be exceedingly sat- isfactory in providing funds for travelers as well as to importing houses, and its success has been beyond the expectations of the issuing institution. Heretofore an American importer buying goods in any foreign country would open a credit in Europe; most generally in London, in sterling, but under the new method drafts are drawn in dollars and cashed without charge for commission all over the world, and the operation of the credit is so simple that better rates of exchange are secured than any form of paper yet offered to the public. For use in European countries, a table is printed inside the credit, providing for stated sums to be paid for the dollar draft. For in- stance, a draft for $100.00 would bring ;^ 20-9-2 in Great Britain, Frs. 514.35 in France and Switzerland, Mks. 418.85 in Germany, Lire 515.60 in Italy, Kroner 371.75 in Scandinavian countries. Guilders 246.90 in Holland, Kronen 490.20 in Austria and Rubles 193.25 in Russia, and other countries at current rates. This credit differs from similar instruments issued by other institutions, inasmuch as it names the European banks on the face of the instrument where it can be cashed. On the following page will be seen a fac- simile of this instrument. ^^ The issuance of the Dollar Letter of Credit has been a most important step toward mak- ing New York the financial clearing centre of the world. 45 THE Equitable trust Company of New York .1^:0000 -' y « /// r/ f/ /f ^y//^rr/^//'/ /<- /////i f///f/ /f re. /' y/f/'//' . v//y/ r/'^^^^2UlHL^rJ^^Z&M:td.;a^Z.4'^^ '7o^C~^''^~^-'~^'~~7 r. S. DOLL A ns .,'fr//y// , ^^!i/ /)<•/////•/// /f> /A/ _;-V'/Av' z/. //frAryf/u// /,ijf//f//ff r/''///(//tf/fA/rf('rfAt/Af^)^f//f/- z^'/ ^'/ft/Zf //<■ ff/'r. /j/////r/y//// , THE EOOIJABLE TrUSTXOMPANY OF New YORK. CoMPTOiR National d'Escompte Credit Lyonnais SCHWEIZERISCHE KrE DITANSTALT Ban^ue d'Anvers Deutsche Bank Dresd«er Bank M, 0000 .///; GyuzAfAA;' .//■', By courtesy of the Equitable Trust Company of Xew York Facsimile of Letter of Credit issued in dollars \ \ 46 Bills of Exchange on China Chinese foreign trade with the United States is as yet in its infancy; this, and the fact that of all the Occidental nations America occupies a most favorable position with regard to Chinese trade, opens excellent opportunities for larger intercourse between China and America. Our export to the great sister Republic consists mainly of flour, cotton goods, oil, ceipt of shipments. Such cheques are generally drawn on Hongkong in Hongkong dollars local currency (see specimen) or on Shanghai in Shanghai taels. Exporters of American goods to China sell their drafts drawn at 30, 45, 60 days or longer with documents attached to the bank in this country, which has been authorized by its cor- '|li«BIBW!HWtkWW»lMlll l Klllt B W|,WKl(BKKKM|( |l KI(li|(| ( WKMIKK r/\ ^K^iA^^-t4^ /o. /.0/s- /A. <'/'./j^y/rf /• fo'SS, ex ^/y///f/:j . //^f/// //, Courtesy of Redmond & Co., New York Sight Draft on China > Jt^ Courtesy of Redmond & Co., New York Chinese Endorsement machinery, ginseng, etc., whereas we import rice, silk, tea, bristles, furs and skins. The American importer of Chinese goods will in most cases procure a Letter of Credit issued by a bank in this country in U. S. dol- lars, which the shipper presents to a bank in China to which he sells his documentary draft in cover of his shipment. There are also many importers of Chinese nationality in this country who settle by remitting cheques to China on or before re- respondents inChinafor account of the Chinese buyer, to negotiate such drafts (see letter of authorization on following page). If no credits are opened, American banks and bankers will take such drafts for collection or will discount them if the drawers or endorsers are good. The Chinese banking system has no central banking institution; the financing of trade is done largely by foreign banks, which have branches in the important seaports, and by many local Chinese bankers. COMMERCIAL PAPER AND BILLS OF EXCHANGE RUSSO-ASIATIC BANK. Hongkon, 25th jN^^^^^er ,^ 14 Messrs Redmond & Co., New York. Advice No 5/266 Particulars drafts drawn by drawn on for account of ■ ■ . for the sum of • • ■ in all or revolving . usance of drafts ■ ■ with Policy of Marine In surance, Bills of Lading and Invoice for .... deliverable against • In force till We authorize you to buy on our account: A. R. Jones & Co., New York. C. K. Smith, Hongkong. G$2 7,ooo (Twenty seven thousand only). The first two shipments to be about G$4,5oo per month and the rest about $2,300 till exhausted. In all. 30 days after sight. Cotton to Hongkong. Documents against payment. 31st December, 1915. With interest at J^. % per annum added thereto from date of drafts to approximate due date of arrival of cover in ^^^ ^^^ : Conditions Courtesy of Redmond & Co., New York Drafts must bear R.A.Bk. advice No 5/266 ^^| LETTER OF AUTHORIZATION Bank Acceptances as Defined by the Federal Reserve Board Chapter VII Circular No. u Bankers' Acceptances Washington, April 2, 1915. An amendment of the Federal Reserve Act, approved March j, igis, made an alteration in paragraphs j and 5 of section 13, which are quoted at length on pages jg and 40. " A CCEPTANCES" are dealt with in the Federal Reserve Act in two different sections — sections /-\ 13 and 14, (mentioned in preceding chapter). Section 13 deals with the "acceptance" as -*- ^ one of the forms of paper in the discount of which Federal Reserve Banks may engage, restricting the d'scount of acceptances to such as bear the indorsement of a member bank. Section 14 invests the Federal Reserve Banks, under regulations to be prepared by the Federal Reserve Board, with power to engage in open-market operations, of which the "banker's acceptance" is one of the most important. _ Careful study has led the Federal Reserve Board to the conclusion that, at any rate in the first stages, so far as practicable, priority should be given to operations under Section 13. " The acceptance is still in its infancy in the field of American banking. How rapid its develop- ment will be cannot be foretold, but the development itself is certain. Opportunity is given by the Federal reserve act to assist the movement in this new direction; the present regulations are to be regarded as a first step and will be extended as circumstances and a reasonable regard for the other uses and needs of the credit facilities of the Federal reserve system may warrant. "It is believed that it would unduly restrict the development of the acceptance business to keep it altogether confined within the provisions of section 13, which require that acceptances, in order to be eligible for rediscount at a Federal reserve bank, must bear the indorsement of a mem- ber bank; particularly in view of the further fact that the law limits the amount of acceptances which may be taken with the indorsement of a member bank to 50 per centum of its paid-in capital and surplus. Having found it necessary to extend the scope of dealings in acceptances beyond these limits, the board has exercised the authority conferred upon it by section 14, and has formu- lated regulations covering the purchase of acceptances without invariably requiring the indorsement of a member bank. "The acceptance is the standard form of paper in the world discount market, and both on this account and because of its acknowledged liquidity universally commands a preferential rate. By reason of its being readily marketable it is widely regarded as a most desirable paper in the secondary reserves of banks and will help to provide an effective substitute for the 'call loan.' Its growth, however, will depend upon the ability of the American market to adjust its rates efifectively to those prevailing in other markets for paper of this class." Fixing Rates "Recognizing these facts, the Federal Reserve Board has determined to allow the Federal reserve tanks latitude in fixing rates for acceptances: Federal reserve banks may, from time to time, submit for the approval of the board maximum and minimum rates within which they desire to be authorized to deal in acceptances; within such limits and subject to such modifications as may be imposed by the board Federal reserve banks will be allowed to establish the rates at which they will deal in acceptances. "The board believes it to be in accordance with the spirit of the act to accord preferential treatment to acceptances bearing the indorsement of member banks, offered for rediscount under section 13 — even to the point of allowing lower rates for such acceptances, inasmuch as under the terms of this section, such acceptances are available as collateral against the issue of Federal reserve notes; and the board will sanction a slight preferential in favor of acceptances bearing the indorse- ment of member banks. "When acceptances bearing the indorsement of member banks are not obtainable in adequate amount or upon satisfactory terms, Federal reserve banks desiring to purchase acceptances should restrict themselves as far as possible to such acceptances as bear some other responsible signature (other than that of the drawer and acceptor) and preferably that of a bank or banker." The regulations of the board on banker's acceptance follow: 47 COMMERCIAL PAPER AND BILLS OF EXCHANGE Definition Regulation j, April 2 In this regulation the term "acceptance" is defined as a draft or bill of exchange drawn to order, having a definite maturity and payable in dollars in the United States, the obligation to pay which has been accepted by an acknowledgment written or stamped and signed across the face of the instrument by the party on whom it is drawn; such agreement to be to the effect that the acceptor will pay at maturity according to the tenor of such draft or bill without qualifying conditions. Statutory Requirements Under Sections 13 and 14 Section 13 of the Federal reserve act provides that (a) Any Federal reserve bank may discount acceptances (i) Which are based on the importation or exportation of goods; (2) Which have a maturity at time of discount of not more than three months; and (3) Which are indorsed by at least one member bank. (b) The amount of acceptances so discounted shall at no time exceed one-half the paid-up capital stock arid surplus of the bank for which the rediscounts are made. (c) The aggregate of notes and bills bearing the signature or indorsement of any one person, company, firm or corporation rediscounted for any one bank shall at no time exceed ten per centum of the unimpaired capital and surplus of said bank; but this restriction shall not apply to the dis- count of bills of exchange drawn in good faith against actually existing values. Section 14 of the Federal reserve act permits Federal reserve banks, under regulations to be prescribed by the Federal Reserve Board to purchase and sell in the open market bankers' accept- ances, with or without the indorsement of some member bank. "Eligibility" The Federal Reserve Board has determined that, until further order, to be eligible for dis- count under section 13 by Federal reserve banks at rates to be established for bankers' acceptances: (a) Acceptances must comply with the provisions of Paragraph II (a), (b), (c), hereof; (b) Acceptances must have been made by a member bank, non-member bank, trust company, or by some private banking firm, person, company or corporation engaged in the business of accept- ing or discounting. Such acceptances will hereafter be referred to as "bankers' " acceptances; (c) A Banker's acceptance must be drawn by a commercial, industrial or agricultural concern (that is, some person, firm, company or corporation) directly connected with the importation or exportation of the goods involved in the transaction in which the acceptance originated, or by a "banker." In the latter case the goods, the importation or exportation of which is to be financed by the acceptance, must be clearly specified in the agreement with or the letter of advice to the acceptor. The bill must not be drawn or renewed after the goods have been surrendered to the purchaser or consignee. (d) A banker's acceptance must bear on its face, or be accompanied by evidence in form satis- factory to a Federal reserve bank, that it originated in actual bona fide sale or consignment involving the importation or exportation of goods. Such evidence may consist of a certificate on or accom- panying the acceptance to the following effect: "This acceptance is based upon a transaction involving the importation or exportation of goods. Reference No. . Name of acceptor ." (e) Bankers' acceptances, other than those of member banks, shall be eligible only after the acceptors shall have agreed in writing to furnish to the Federal reserve banks of the respective districts, upon request, information concerning the nature of the transactions against which accep- tances (certified or bearing evidence under III (d) hereof) have been made. (f) A bill of exchange accepted by a "banker" may be considered as drawn in good faith against "actually existing values," under II (c) hereof, when it is secured by a lien on or by transfer of title to the goods to be transported; or in case of release of the goods before payment of the acceptance, by the substitution of other adequate security. (g) Except in so far as they may be secured by a lien on or by transfer of the title to the goods to be transported, the bills of any person, firm, company, or corporation, drawn on and accepted by any private banking firm, person, company, or corporation (other than a bank or trust company) engaged in the business of discounting or accepting, and discounted by a Federal reserve bank, shall at no time exceed in the aggregate a sum equal to five per centum of the paid-in capital of such Federal reserve bank. COMMERCIAL PAPER AND BILLS OF EXCHANGE (h) The aggregate of acceptances of any private banking firm, person, company, or corpora- tion (other than a bank or trust company) engaged in the business of discounting or accepting, discounted or purchased by a Federal reserve bank, shall at no time exceed a sum equal to twenty- five per centum of the paid-in capital of such Federal reserve bank. To be eligible for purchase by Federal reserve banks, under section 14, bankers' acceptance must comply with all requirements and be subject to all limitations hereinbefore stated, except that they need not be indorsed by a member bank: Provided, however, that no Federal reserve bank shall purchase the acceptance of a "banker" other than a member bank which does not bear the indorsement of a member bank, unless a Federal reserve bank has first secured a satis- factory statement of the financial condition of the acceptor in form to be approved by the Federal Reserve Board. Policy as to Purchases While it would appear impracticable to fix a maximum sum or percentage up to which Federal reserve banks may invest in bankers' acceptances, both under section 13 and section 14, it will be necessary to watch carefully the aggregate amount to be held from time to time. In framing their policy with respect to transactions in acceptances, Federal reserve banks will have to consider not only the local demands to be expected from their own members but also requirements to be met in other districts. The plan to be followed must in each case adapt itself to the constantly varying needs of the country. Acceptance by Member Banks Regulation k Any member bank may accept drafts or bills of exchange drawn upon it, having not more than six months' sight to run and growing out of transactions involving the importation or exportation of goods up to an amount not exceeding the capital and surplus of such bank, provided that — (i) Every such bank shall possess an unimpaired surplus of not less than 20 per cent, of its paid-in capital; (2) Every such bank shall file formal application with the Federal Reserve Bank of its district, which shall report to the Federal Reserve Board upon the standing of such applicant, stating also w'hether the business and banking conditions prevailing in the district warrant the granting of such applications in said district. (3) Every such applicant shall first have been approved by the Federal Reserve Board. Approval of any such application may be rescinded, and modifications of this regulation may be made, by the Federal Reserve Board upon notice of 90 days to the bank or banks thereby affected. Bills of Exchange Drawn Against Sales of Goods and Accepted by Pur- chasers; Hereinafter Referred to as "Trade Acceptances." Circular No. 16 Regulation P. Washington, July 75, /p/j. Definition IN THIS regulation the term "trade acceptance" is defined as a bill of exchange of the character hereinafter described, drawn to order, having a definite maturity and payable in dollars in the United States, the obligation to pay which has been accepted by an acknowledgement, written or stamped, and signed, across the face of the instrument by the company, firm, corporation, or person upon whom it is drawn; such agreement to be to the effect that the acceptor will pay at maturity, according to its tenor, such draft or bill without qualifying conditions. 49 COMMERCIAL PAPER AND BILLS OF EXCHANGE Character of Paper Eligible A trade acceptance to be eligible for rediscount, under section 13, with a Federal Reserve Bank at the rate to be estabhshed for trade acceptances (a) Must be indorsed by a member bank, accompanied by waiver of demand notice and protest. {b) Must have a maturity at the time of discount of not more than 90 days. {c) Must be accepted by the purchaser of goods sold to him by the drawer of the bill and the bill must have been drawn against indebtedness expressly incurred by the acceptor in the purchase of such goods. Method of Certifying Eligibility A trade acceptance must bear on its face, or be accompanied by, evidence in form satisfac- tory to the Federal Reserve Bank, that it was drawn by the seller of the goods on the purchaser of such goods. Such evidence may consist of a certificate on or accompanying the acceptance, to the following effect: "The obligation of the acceptor of this bill arises out of the purchase of goods from the drawer." Such certificate may be accepted by the Federal Reserve Bank as sufl&cient evidence; provided, however, that the Federal Reserve Bank, in its discretion, may inquire into the exact nature of the transaction underlying the acceptance. Definition of Commercial Paper Eligible for Redis- count With the Federal Reserve Banks Chapter VIII Commercial Paper Washington, January 25, igi^. THE Board has formulated in Regulation B, hereto annexed (paragraph III), a new method for certifying the eligibility of bills for rediscount. While banks will not be required to comply with the provisions of paragraph III until after July 15, the new method prescribed is made a part of this regulation in order that advance notice may be given to all banks, so that those which are equipped to do so may begin to operate under its provisions as soon as possible. The Board suggests, furthermore, that Federal Reserve Banks insist that the accompanying regulation be applied as promptly as possible to all so-called "purchased paper" — that is, paper bought through brokers or others with whom the purchasing bank has no direct business relations. Where such direct connections do not exist the requirement that statements, both as to business conditions and methods of borrowing, be furnished appears to be a matter of prudence and should not be postponed. In such cases as these, where borrowers' statements in the required form are not available until after the close of the business year, statements for the previous year may be accepted, pending receipt of new statement in required form, even though such statements may not contain all the desired data. While it has been thought best not to insist upon a written statement in the case of limited borrowings by depositors, when ofiicers of member banks, from their own personal knowledge, certify to the eligibility of the paper for discount, it is urged, nevertheless, that member banks do their utmost to accustom their borrowers to furnishing such statements. The word "bill," when used in this regulation, shall be construed to include notes, drafts, or bills of exchange, and the word "goods" shall be construed to include goods, wares, merchandise, or staple agricultural products, including live stock. I. Statutory Requirements The Federal reserve act provides that a bill, other than an acceptance (see Circular No. 5 and Regulation D, to be published shortly), to be eligible for rediscount by a member bank with a Federal Reserve Bank, must comply with the following statutory requirements: (a) It must be indorsed by a member bank, accompanied by a waiver of demand, notice, and protest. 50 ^ COMMERCIAL PAPER AND BILLS OF EXCHANGE {b) It must have a maturity at the time of discount of not more than 90 days, except as provided by Regulation C, accompanying Circular No. 4, Series of 1915. (c) It must have arisen out of actual commercial transactions; that is, be a bill which has been issued or drawn for agricultural, industrial, or commercial purposes, or the pro- ceeds of which have been or are to be used for such purposes. (d) It must not have been issued for carrying or trading in stocks, bonds, or other invest- ment securities except bonds and notes of the Government of the United States; but the pledge of goods as security for a bill is not prohibited. 11. Character of Paper Eligible The Federal Reserve Board, exercising its statutory right to define the character of a bill eligible for rediscount at a Federal Reserve Bank, has determined: (a) That it must be a bill the proceeds of which have been used or are to be used in pro- ducing, purchasing, carrying, or marketing goods in one or more of the steps of the process of production, manufacture, and distribution ; (b) That no bill is "eligible" the proceeds of which have been used or are to be used: (i) For permanent or fixed investments of any kind, such as land, buildings, machin- ery (including therein additions, alterations, or other permanent improvements, except such as are properly to be regarded as costs of operation). It may be con- sidered as sufficient evidence of compliance with this requirement if the borrower shows, by statement or otherwise, that he has a reasonable excess of quick assets over his current liabilities on open accounts, short-term notes, or otherwise ; (2) For investments of a merely speculative character, whether made in goods or otherwise. III. Methods of Certifying Eligibility Any member bank applying for rediscount of a bill after July 15, 1Q15, must certify in its letter of application, over the signature of a duly authorized officer, that to the best of its knowl- edge and" belief the bill was issued for one of the purpDses mentioned in the above paragraphs and conforms to section 13 of the Federal Reserve Act and to this re2;ulation. (3) . . It is recommended that every member bank maintain a file which shall contain original signed statements of the financial condition of borrowers, or true copies thereof, certified by a member bank or by a notary public, designating where the original statement is on file. State- ments should contain all the information essential to a clear and correct knowledge of the bor- rower's credit and of his method of borrowing. A schedule specifying certain information, which it is desirable that such statements should include, is hereto appended. Member banks shall certify in their letters of application for rediscount whether the paper offered for rediscount is depositor's or purchased paper, or paper rediscounted for other member banks, and whether statements are on file. When it does not appear that such statements are on file, except as hereinafter provided under (i), (2), and (3) below, the Federal Reserve Bank shall satisfy itself as to the eligibility of the paper offered for rediscount, and member banks will be expected to use such statement forms, identifying stamps, etc., as may be prescribed by the respective Federal Reserve Banks. Any member bank rediscounting with a Federal Reserve Bank paper acquired from another member bank, with the indorsement of such member bank, may accept such member's certifi- cation regarding the character of the paper and the existence of the necessary statements. Statements of the borrower's financial condition may be waived where bills offered for rediscount have been discounted by member banks for any of their depositors in the following cases: (i) If the bill bears the signatures of the purchaser and the seller of the goods and presents prima facie evidence that it was issued for goods actually purchased or sold; or (2) If the aggregate amount of obligations of such depositor actually rediscounted and offered for rediscount does not exceed $5,000, but in no event a sum in excess of 10 51 COMMERCIAL PAPER AND BILLS OF EXCHANGE per centum of the paid-in capital of the member bank; or (3) If the bill be specifically secured by approved warehouse receipts covering readily mar- ketable staples: Provided, however, That the bank shall certify to these conditions on the application blank in a manner to be designated by the respective Federal Reserve Banks. APPENDIX. Information Desired in Credit Files of Member Banks The credit files of member banks, referred to in the above regulation, should include infor- mation concerning the following matters: (fl) The nature of the business or occupation of the borrower; {b) If an individual, information as to his indebtedness and his financial responsibility; (c) If a firm or corporation, a balance sheet showing quick assets, slow assets, permanent or fixed assets, current liabilities and accounts, short-term loans, long-term loans, capital and surplus; {d) All contingent liabilities, such as indorsements, guaranties, etc.; (e) Particulars respecting any mortgage debt and whether there is any lien on current assets; (/) Such other information as may be necessary to determine whether the borrower is entitled to credit in the form of short-term loans. New Rules on Agricultural Paper The following regulation supersedes old regulation No. 5 on six months' agricultural paper. "The word 'bill' when used in this regulation shall be construed to include notes, drafts or bills of exchange. " Each Federal Reserve Bank may receive for discount bills which have a maturity of more than three but less than six months in an aggregate amount equal to a percentage of its capital stock to be fixed from time to time for each Federal Reserve Bank by the Federal Reserve Board. "Provided, however, that such bills are drawn or issued for agricultural purposes or are based on live stock; that is, that their proceeds have been used or are to be used for agricul- tural purposes, including the breeding, raising, fattening or marketing of live stock; and "Provided, further, that such bills comply in other respects with each and every provision of Regulation B, series of 1915." Concerning the waiver of demand, notice and protest which is required on paper offered for discount, the board notified the banks: "Attention is called to the fact that the waiver of demand, notice and protest by the bank procuring the discount does not release the holder of the note or bill discounted from the duty to protest such note or bill in order that those indorsers who have not executed such a waiver may be held liable. "If tha. holder should fail to protest an indorsed note or bill at maturity the Federal Reserve Bank might, in such circumstances, hold the member bank liable on account of the waiver executed, but other indorsers would be legally released. "Federal Reserve Banks are, therefore, cautioned to take all necessary steps to insure the protest of all maturing notes and bills which are in their possession or have been sent for collec- tion through any correspondent bank wherever such notes or bills contain any indorsements not accompanied by a waiver of demand, notice, and protest. To insure this the bank or agent presenting any note or bill, held by the Federal Reserve Bank, at the place of payment at ma- turity should be instructed, if the same is dishonored, to immediately protest such note or bill and to have all necessary notices sent to the indorsers." 52 Bills of Exchange in England Chapter IX BY reason of the fact that a debt due in London can be collected in gold, and by virtue of the vast aggregations of capital centered there, and the world wide affiliations of British trade, London has become not only the greatest gold market of the world, but the great clearing house of all nations. England's colonial policy, her free trade, the adherence to the gold standard, her accumulated wealth, and her trade rela- tions everywhere have established her firmly as the financial leader of the world. The result has been that London is the chief market for bills from all over the world. And controlling the instruments of credit, she controls the gold supply. London bills are held in large quantities on the continent; sold when rates are low and purchased when high, thus bringing to or taking from London, the money used in her financial operations. The London Money Market The notable feature of the London money market is the large annual fund available for outside investment, estimated by the London Statist to be about a billion dollars yearly, after providing for home requirements. The London money market is confined to an area less than a square mile, the heart of which is the Bank of England. Then follows the eighty-two great joint stock banks, with over seven thousand branches employing over $680,000,000 in capital, and deposits of over five and a half billions; the forty Colonial banks with $750,000,000 out on call or short time loans, the thirty Foreign banks, which together with the Colonial banks practically cover the world with their branches, the great finance houses which make a specialty of accepting bills growing out of imports and exports, the stock brokers, about twenty bill brokers, the stock exchange and its affiliations ; the insurance companies, and lastly the private lenders, who in the aggregate compose the great money-holding interests of London and what is ordinarily known as the London money market. Seventeen of the largest English banks have an average capital of over $50,000,000. The Bank of England The most important of all is the Bank of England, since it has virtual control of the gold market, and by its discount rate and market operations can influence the monetary affairs of the world. The Bank of England is a private corpora- tion with over 10,000 stockholders. While it is the fiscal agent of the government, the latter has no control over its affairs, holds no stock, and has no supervisoral powers. It operates through eleven branches, two in London and nine in the Provinces. Its capital is now about $72,000,000, reserve (or surplus) $16,000,000. Note Issue Aside from note issues of twenty-three Provincial banks, amounting to only £300,000, the Bank of England has the sole right of note issue in England. It issues notes against securities up to $18,450,000, and notes to any amount against gold coin or gold and silver bullion; but the silver held must not exceed one-quarter of the gold coin and bullion. No silver bullion, however, has been held for many years. It does not issue notes against commercial paper, as do the Banks of Germany and France, and an English note is equivalent to a gold certificate. There is, however, practically very little bank note circulation in England, business being carried on quite largely through checks, the English check system being more highly developed than that of any other country. The circulation of the Bank of England is normally about £30,000,- 000, two-thirds of which is in the hands of the banks. Bank Reserves It holds the reserves of the other banks, and utilizes about forty per cent, of such balances in its loaning operations. Such reserves are considered the same as cash by the depositing banks. All the large London banks, and most of the Scotch and Irish banks have accounts with it. It carries no fixed reserve by law, but usually has over forty per cent, of its liabilities in gold, never in its history running below thirty per cent, until the outbreak of the War in 1914, when the 53 !''i^^ ^•^ M" 7/ ' /r/y ^ f , ^^^ oUlcio i^L^Zt^ /l^^ y/ //uj iiMMmJ) By courtesy of Brown Bros. & Co., New York. STERLING BILL OF EXCHANGE (TRADE BILL) ON LONDON These are always drawn in duplicate (formerly in triplicate) and sent by different steamers to avoid loss in case of accident. By reason of this precaution an ocean disaster such as the loss of the Titanic, does not materially affect international monetary transactions. Note that this bill is in terms substantially the same as the bill drawn in 1835 by the same firm. ■ N| NO yz/4- s^0n. ./or X J^^ /y t"*!-^ y cSis^r/^^ //>»/ a^id M^ ^ /iie 4am6 ^ncf anc^ c/-ci/c im/i-cu'e/.J Aoa /o me ^rdcr / Bi H s II gp ♦£ ''^ :?"«?l I Per Pro Brown Brothers a Co. Duplicate unpaid. By courtesy of Brown Bros. & Co.. New York. BANKERS' CHEQUE (French form. Note, cheque must be dated in words.) deposits of securities, jewels, loans on col- lateral, issues letters of credit, transfers money, purchases and sells securities for its customers, pays the interest on the government debt, receives subscriptions to government security offerings, buys and sells bullion, discounts bills and issues notes. f^. Discounts With its 583 branches open to all, it covers all France, and does the same general line of business at the branches as at the head office. The most helpful feature of its operations lies in the fact that it discounts for any one who has obtained the right by opening ac- count with it. During 1913 the Bank of France handled more than thirty million bills, drafts, warrants, and other pieces of commer- cial paper, representing an aggregate face if in lieu of the third signature, securities of the class admitted for loans are deposited. Warehouse receipts are also received as collateral. By reason of its large gold reserve, its liberal discount policy, its branches, and its right to pay in either gold or silver, and the universal use of its facilities on the part of the public, the Bank of France has become the ideal central institution, and one of the greatest banks in the world. It was once a bank of banks; but since it has spread its activities throughout the country and lowered the minimum amount admitted for discount to five francs, and received deposits from all who would use its good offices, it has dealt more largely with in- dividuals than with banks. In each of the branches of the Bank of France, there is a 59 COMMERCIAL PAPER AND BILLS OF EXCHANGE discount committee conversant with the standing of borrowers, and on their advice bills are admitted to discount. Once the credit standing of the borrower is determined, he is entitled to discount without a new investigation. France is a land of the middle classes. Out of 38,000,000 taxable inhabitants, not more than from 500,000 to 800,000 enjoy an income of more than $1,000 a year. Stability, security, and cheap money is what a republic of small capitalists require, and under the broad and liberal policy of the Bank of France, the people get all three. France is less affected by panics than any other country. Every- body saves, and everybody uses the bank. It has been estimated that the investments of France outside the country are over 30,000,000,000 francs, making France creditor to an annual income of over a billion francs a year. The Bank of France is constantly extending its department for the purchase and sale of securities in order to safeguard the public from excess of speculation. All banks endeavor to have securities for sale that their customers will want. A forty or fifty million franc issue will sometimes be taken in a few days. Stability of the French Discount Market The wonderful stability of the French dis- count market may be appreciated by the fact that from 1870 to 1907, a period of thirty-seven years, the rate changed but 41 times against 273 times in the Bank of England. From 1890 to 1908 it changed only 17 times against 114 times for the Bank of England. And for the fifteen years between 1898 and 191 2 the average rate was 3.8, against 4.50 in Germany. The highest rate in the period was 4.50 per cent, in 1899, and since 1900 it has never exceeded 4 per cent, until the outbreak of hostilities in Europe last year, when the rate was 6 per cent, for discounts and 7 per cent, for loans. But by October 24 the rate was 5 per cent. Commercial Paper in Relation to Note Issue The Bank of France regulates the currency for the whole country and any bank needing cash may present its paper and receive bills in return. The need for cash by the banking institutions is met first by drawing down their reserves and then by rediscounting the paper at the Bank. To protect the gold supply the Bank has the right to pay in either gold or silver and by paying out the latter and holding the former, gold is really placed at a premium, which brings the metal from abroad. There is nothing in the law requiring it to hold a certain proportion of metal against its notes, the requirement being that it shall so apportion the coin to notes that the Bank can at no time be exposed to danger of delaying payment of its obligations; but as a matter of policy it maintains a large gold reserve, at times running as high as 73 per cent. It can issue notes only against cash or commercial paper, and every note is therefore based upon either the metal or short time commercial paper, or both. The note issue is influenced largely by the discount operations. The amount of bills presented for discount depends upon business requirements, and the note issues expand and contract with the demands of the commercial interests. The bills presented, therefore, reg- ulate, the amount of outstanding notes and circulation and discounts closely follow each other in volume. On account of this feature, the liquid assets of the banks of France consist of cash and bills discounted, the latter being quickly con- verted into cash by presenting to the Bank of France. Wherever therefore, a demand for money arises, the bank will meet it by discounting the paper offered from that section, giving in return the kind of money asked forJ In transferring funds, the bank utilizes its branch system. If a payment is to be made in one section of the country by a bank in another, bills may be presented to the Central Bank for rediscount, with instructions to make the payment at the place designated, which in a measure answers the same purpose as the Giro system in Germany. The rate for loans as distinguished from discounts is generally half of one per cent, above the discount rate; here as in Germany there being a distinction in favor of commer- cial paper. Other Banks in France The great financial institutions of France are eight in number, the four leading being, the Credit Lyonnais, the Comptoir National D'Escompte de Paris, the Societe Generale and the Credit Industriel et Commercial which have played an important part in distributing credit. Through their numerous agencies, their attractive conduct of business, their ^ courtesy and attention, they have gradually taught the people new habits of thrift, through 60 COMMERCIAL PAPER AND BILLS OF EXCHANGE the medium of investment and confidence in investment securities, so that he who yesterday hoarded in a stocking, now buys a bond or deposits in a bank. These banks buy all the paper they can get, turning to bonds only when paper is scarce. The joint stock banks lend on all classes of security, but the Bank of France lends only on French Government bonds, bonds of French Railways, and certain securities issued by departments, communes and municipalities. There is nothing in the law to restrict their operations. No legal reserve is required, and the aim of the French banks is always to keep a large amount of bills in their portfolios that the Bank of France will rediscount, which to all intents and purposes act as cash, and gives the banks at the same time the benefit of the interest earned. About 70 per cent, of the paper discounted by the Bank of France bears bank endorsements. It never purchases paper in the market. When commercial paper can be immediately discounted at the Bank of France up to any amount, it is needless to say that the banks do not hoard cash. They lend freely. The composition of the bank's portfolio is a better test of its strength than the amount of its cash holdings. The government does not examine the French banks or control their operations in any way. The private banks lend largely on two-name paper, and by adding their own indorsement make it three-name paper eligible for redis- count at the central bank. The Bank of France advances on two-name paper with collateral, and the signatures need not be of banks, for the Bank encourages direct discount operations. The private banks also discount each other's acceptances. They pay interest on practically all deposits, but at a nominal rate. The commission for accepting is a quarter of one per cent, for three months; sometimes as low as three-sixteenths. ' There is no competition between the bank of France and other banks, for they do not do the same kind of business. The banks use large sums on the Paris Bourse, in operations called "reports" which are purchases of securities for cash and a sale on account, simultaneously through a broker. The difference between the cost and the selling price for future delivery covers the interest for carrying and the profit to the bank. Securities are also purchased on the curb. Checks are not in use to any great extent in France, bank notes and coin being used quite entirely. Inasmuch as the Bank of France discounts for any one, to any amount, at any time, paper having three names, and running not more than go days it has become the bulwark of French credit operations. Most of the paper, however, comes to it through other banks. The bank check is supplanted by the commercial instrument, with which the tradesman pays his bill. The bank intervenes and furnishes the third indorsement, thereby making it eligible for rediscount at the Bank of France. Commercial Paper in Germany Chapter XII \T THE head of the German banking /-\ system, and in control of the German -^ -*- money market stands the great Reichs- bank, a semi-public institution, privately owned but publicly managed. It is not only the bank of banks, but a bank for the industrial and commercial enterprises of the country. It is supervised by a board constituted of high state officials, and is presided over by the Imperial Chancellor, who is its nominal head. Its capital of $45,000,000 is all publicly subscribed. The chief business of the Reichsbank is the discounting of bills, which business is increas- ing every year. It is the general policy to discount only such bills as are in fact genuine mercantile bills, and to exclude credit and finance bills that do not represent a trade transaction. There is soundness in this prac- tice; for a bill based upon a real money claim is in a measure security in itself. It is secured first by the business capital already employed in the concern and when discounted it dis- charges the economic function of liquidating that portion of the producer's capital contained in the goods. The bill releases the fixed capital in the goods which becomes available for another operation. The chief merit of the Reichsbank as a help to industry lies in the fact that it extends credit liberally at all times, makes no distinc- tion and serves all alike. The fact that it loses money by thus extending its facilities makes no difference; it is there to serve the 61 COMMERCIAL PAPER AND BILLS OF EXCHANGE people. It has discounted at 3 per cent, when it had to pay a tax of 5 per cent, on the notes it issued to make the discount possible. Its interest to the public is considered as para- mount to that of making money. The Reichsbank is authorized to discount, buy and sell bonds of the Empire, of any German state or municipality, maturing at their face value within three months at the longest. It is also empowered to discount, buy and sell bills of exchange running for not more than three months, and bearing as a rule three, but in no case less than two names of well-known solvency. Bills are not renewed except in the case of farmers. It holds the balances of other banks which regard these deposits as cash. It handles the Giro system of payment, by which transfers of money are made between various places and persons in the Empire, a brief description of which is found below. It is the fiscal agent of the government and receives and disburses the public funds. It has 487 branches. It deals with any reputable merchant who will furnish the information asked for, and receives deposits as low as one mark. It ^pays no interest on balances and its deposits i are subject to check. It discounts as low as ten marks, and is exceedingly liberal in its lending methods. The strength of the whole German system lies in the fact that the Reichs- bank is a bank of the people as well as a bank of banks. It numbers its clients by the hundred thousand, and in 191 2 discounted bills to the amount of over $500,000,000 averaging only 37 days in duration." The Bank always has a large amount of bills payable in foreign countries in gold, and in times of need, these are allowed to mature thus bringing in the metal. At such times it makes advances without interest while the gold is in transit, thus materially accelerating exchanges. When the rates of exchange are favorable, the Reichsbank increases its holdings of foreign bills, and when funds are needed, or exchange unfavorable, the bills are sold or allowed to mature. It thus uses its foreign portfolio to regulate exchange rates and to bring in gold when gold is needed. A feature of both the German and French money markets is the presence of a vast amount of mortgage bonds, issued by the mortgage banks of these countries. These bonds are held largely by private investors, are traded in on the stock exchanges, accepted as collateral by other banks and form an important part of the market operations. Mortgages held by institutions in Germany are estimated at $6,000,000,000, besides a large amount held by individuals. Commercial Paper the Basis of Note Issue The chief distinction of the Reichsbank, so far as bills of exchange are concerned, lies in the fact that in Germany as in France, such instruments form, with gold, the basis of the note issue; Germany being extremely favorable to commercial paper as such a foundation. And being based on commercial paper, the notes expand and contract with the commer- cial needs. The note issues of the Reichsbank must not be greater than three times the amount of gold and silver on hand. The excess must be covered by bills running not over three months, and having three, but in exceptional cases two names. There is no absolute maximum issue, but there is a tax when the issue is in excess of the stipulated bounds. And as above stated, such tax is often borne by the Reichsbank, rather than place the burden upon the public. It maintains a strong reserve in metal against notes, running usually above fifty, and has been as high as 85 per cent. The cash reserves to notes and deposits run from 30 up to 67 per cent. In 191 3 the ratio of coin to notes was 68.98 and coin to notes and other obliga- tions, 51.43 per cent. Lombards The Reichsbank loans on collateral security, such loans being termed "Lombards." The following is accepted as security: Precious metals, merchandise within the country, municipal and corporate securities, bills re- ceivable of a character satisfactory for re- discount; bonds of mortgage companies. The rate on Lombard loans is usually about one per cent, higher than on discounts and such loans are not permissible as cover for note issue. These loans are as a rule not less than 500 marks, and the term not over three months. The loan may be recalled without notice. Merchandise Loans The Reichsbank is also authorized to loan on warehouse receipts. The storehouse and the date of appraisement are mentioned in the receipt and possession of the goods is vested in the bank. The storehouse may not be changed without consent of the Reichsbank, 62 COMMERCIAL PAPER AND BILLS OF EXCHANGE and ownership by the bank follows the goods. Title to the goods is in the bank, and not merely the control of the title as obtains in this country. Goods in all cases must be insured. The Reichsbank owns its own store- houses, but it does not become responsible for damages to the goods while therein. Next to cash and the balance at the Reichs- bank, bills and Lombard loans are considered the most liquid holdings of the German banks. The Bank Acceptance in Germany In Germany the direct trade bill has been displaced by the bank acceptance, due to the custom of merchants drawing on their bankers instead of the buyer, and using the banker's acceptance in paying their creditors. Most of the German bills are accepted on their credit merit and not against collateral as obtains in England. It is exceptional to have collateral. In selling a bill of goods, the merchant will arrange with his banker to draw on the latter for the amount, thus anticipating payment of goods. When so accepted, the bill is sold to other banks, or in the open market. When thus indorsed, it becomes "prime" paper and eligible to rediscount at the Reichsbank. Domestic exchanges in Germany of all classes are to a large extent adjusted by means of these bank acceptances. At the close of 1907, seventy-eight per cent, of the bills held by all banks were acceptances, and it is safe to assume that at present fully 80 per cent, of the bills held by the banks are acceptances. In 1907 the Deutsche Bank had no promissory notes. The amount of acceptances out is not reported in the weekly statements of the banks as a liability, these items being reported quarterly, and always yearly. But if the acceptances are too large for the capital, according to the notions of the Reichsbank, the credit of the over-expanded bank is with- drawn, or curtailed. The Reichsbank is the great scrutinizer and regulator of the accept- ance business. The following transaction is typical of the German method of financing imports by means of the bank acceptance. A Bremen buyer having arranged the terms of a trans- action, say with a cotton merchant in the South goes to his bank and gets the machinery ready for the operation. A bill credit account is opened for the Bremen firm by its bank, and the firm instructs its representative in the United States to allow the sellers of the cotton or their bankers to draw to the amount of the purchase price on the Bremen firm's bank in Germany. The bill, with the bill of lading attached passes from hand to hand in this country and is finally sent to the bank in Germany for ac- ceptance. At the time the bank assumes its liability by the acceptance, it has a guaranty in the bills of lading, that the goods have gone for- ward and it therefore controls the title to the same. Moreover, it has evidence that a trade transaction has taken place. In case the cotton has been sold before arrival, it will of course go forward; but if not, the cotton will go into warehouse and the bill of lading will be exchanged for a warehouse receipt. In case the goods have been sold, the goods are delivered in trust to the importer to be for- warded, and "blank credit" is granted him until the remittance in the form of an accepted bill has been returned by him. The returned bill of the spinner is discounted at the bank granting the acceptance credit, and the amount credited to the importer under date of its maturity; so that the bank is covered in due time before the bill it has accepted becomes payable. The importation of wool from Australia and the Argentine, corn and copper from America, rice from Asia, and ore from Sweden and Spain is conducted in the same manner. The risk is in forged documents, and bank- ruptcy on the part of the spinner and the importer while the goods are in trust, against which precautionary measures are taken. While the German acceptance has gained considerable popularity in international mar- kets, in certain countries of South America and in Australia and Asia, bills must even yet be in sterling, thus favoring London as the financial clearing house. In financing exports, the bank also plays an important role, in such cases really making an advance on the goods, as soon as they are despatched. A German merchant having sold a bill of goods to, say an Argentine merchant on six months' time, wants the immediate cash. He does not draw on the Argentine merchant, for this is not the terms of the sale, and the draft would not be accepted and would be of no use. He therefore solicits a loan from his banker; that is he arranges that the banker shall accept a draft drawn on the strength of the sale, which, after acceptance becomes a "Banker's acceptance" and therefore salable in the open market. The time is usually three months, and the rate is usually % oi 1 per cent, for three months. 63 COMMERCIAL PAPER AND BILLS OF EXCHANGE Other Banking Operations IN Germany The vanguard of the German banking system consists of five great Berlin institutions, which together with about forty aUied banks in which they hold stock and often controlling interest form five groups. Together with the Reichsbank, they form the commercial banking system of Germany, while the great mortgage banks, the Landschaften, and co-operative credit societies form the land and credit banks. Of the total funds of over 400 banks, nearly fifty per cent, is in the hands of the eight Berlin Banks. And with their affiliations and control more or less complete, they dominate the banking interest of the Empire. There are no brokerage houses in Germany such as we know them here, and the banks do a stock exchange business in connection with their regular banking operations. All banks are members of the stock exchange and have a number of men on the floor who buy and sell for customers. All these banks are closely affiliated with the Reichsbank in that the latter carries the reserves of the other banks, the banks carrying but a small amount of coin in their vaults, treating the deposit in the Reichsbank as a ' cash item. The reserves of these banks are not treated as a dormant balance, but a sum with which to do business — the rightful func- tion of a reserve. They pay more attention to the amount of prime paper on hand than 'J/' Oooh ^My/ ■ ^/yY/X-.'^^^^C^yu/. ^S^//^'j. liitKMiD,MK:i^ ^Ji-yuC^^^v^ ^' ^"^. iS^i^- ^^' Duplicate Unpaid. //^./^OJ^ (SPEOMiH) -^ By courtesy of Brown Bros. & Co., Naw York BANKERS' CHEQUE (German lorm. Note words "on account of funds due to us.") These banks have in a very large measure been responsible for the development of German industry, which development dates back to 1 87 1. All the great banks have been organized since that year, and through their activities trade has been fostered, and world wide commercial relations established. They actively participate in industrial development, forming syndicates, and financing various development enterprises. These banks work on the theory that to develop trade is just ! as important as to develop agriculture. /"At the end of 191 2 the bills discounted by these banks were three billion marks, one and one- half billions of which were absorbed by the six great Berlin institutions. The aggregate of the Reichsbank's discounts was two billion marks. About 60 per cent, of the discounts are for banks. the cash. They carry only enough money to do business with. The quick assets consists of cash on hand and on deposit, prime bills, short loans and choice securities, these items running as high as 55 per cent, of the liabilities. In addition, from 10 to 15 per cent, of the deposit liabilities is carried in short current accounts. It is the custom of these banks to send their maturing bills to the Reichsbank about ten days before maturity for collection. The funds are thus kept in a liquid state and constantly turning over. Thus the Deutsche Bank carries a large amount of commercial bills, of the highest class, about $2,000,000 maturing daily, not over three months to run, and an average maturity of under 75 days, and considers these part of the reserve. The Reichsbank is more restricted by law than the other German banks, and at the 64 COMMERCIAL PAPER AND BILLS OF EXCHANGE latter, the rate of discount may be less than at the Reichsbank. The private banker knows his clients, and may be willing to accept bills at a less rate than the official rate (which has been as high as 7>^ per cent.), and he might take bills the Reichsbank would not accept. It is only prime bills — those in the sum of 5,000 marks or more and maturing in from 56 to 90 days that command the private rate. TEe Reichsbank does not purchase securities but carries government and municipal bonds so as to have a supply for selling purposes. It does not buy railroad issues. Checks in Germany ' The operation of the Giro system of pay- ments has resulted in the restriction of the use of checks in Germany, and they have not had the development as in England and America. The people are not accustomed to having checking accounts, but they are gradu- ally adopting the check system of payments, the banks of the country aiding in this propa- ganda. The Reichsbank has not, however, led in this m.ovement, it having encouraged the use of bills of exchange more than the use of the check. The latter would seem the better of the two, for as one German writer well puts it: "A man who issues a bill of exchange needs , money; one who issues a check has money." The English system of "crossing checks" is in vogue, and is widely employed, the effect being to transfer the amount to the payee's credit and prevent cashing. Certified checks are not contemplated in the check laws. The rapid growth of the great banks, which have covered the country with branches, has done much to increase the use of the check. Germany's Unique "Giro System" of Money Transfers The most effective use of bank credit obtains in Germany under the Giro system of transfer, by which bank funds are transferred from one person to another, and from place to place with little ceremony and at trifling cost. It is one of the distinctive but not exclusive functions of the Reichsbank, and has developed to enormous proportions, the Giro transactions in 1913, aggregating 189,601,916,000 marks or nearly 48 billion dollars. The Giro system is possible because of the large number of branches of the Reichsbank, which makes it possible to transfer funds to any part of the country, and by reason of the large number of Giro depositors (26,148, January i, 19 14) a large clientele is served. The Giro account is available to anyone who will keep the balance stipulated, and is availed of by all classes of merchants, institu- tions, corporations, banks, and public authori- ties, but the banks participate in these opera- tions to the extent of over 50 per cent, of the total. No interest is paid on Giro balances, and no charge is made for the service except as noted below. To facilitate transfers, a list of Giro depositors is published, with the Giro number, s milar to the list used in the Numerical Tran- sit System in this country. Merchants and n anufacturers are advised to state that they are members of the Giro system on their stationery, giving their Giro number. Upon opening account, the depositor re- ceives a set of blanks together with an account bock in which is kept a record of the trans- actions. No other certificates are given. The blanks are to be carefully safeguarded so that only authorized Giro depositors shall come into possession of the blanks; but the burden is upon the depositor: Careless filling in of checks works to charge the depositor with the risk of forgery. Cash, bills of exchange, proceeds of collateral loans and checks are credited to the Giro account at once. Deposits may be withdrawn on demand. Cash withdrawals are required to be on white slips, made out to a designated payee, "or bearer" and the Reichsbank pays to bearer without verifying his right to it even though the check is drawn to order. Checks intended for settlement with the Reichsbank, or with another account holder must be marked "nur zur verrechnung " (for accounting only) and in this case the check will not be paid in cash. For transfers to the same or another bank- ing city, a red check is used. They must be made out to the order of a particular person and are not transferable. The depositor simply hands in a red slip, the result of which is to transfer from his account to another account, it may be in a distant city, the designated amount; and this without cost or delay. As above stated, no charge is made for this service, the compensation to the Reichsbank coming from the use of the free money; but red checks presented between 4 and 4:30 P. M. are charged a fee of 50 pfennings; and if delivered between 4.30 and 5 o'clock, are charged one mark. For withdrawing an order a fee of one mark is charged. Immedi- ate transfers are made upon paying a fee of one mark and postage. 65 COMMERCIAL PAPER AND BILLS OF EXCHANGE While depositors are encouraged to use the Giro system to its full extent, they are for- bidden to extend its use to non-members. Giro transactions are also performed by the other banks, to such an extent that they ultimately threaten to deprive the Reichs- bank of its place as the leader in this sphere of credit operations. The resulting benefits to Germany's com- merce and trade can be appreciated by con- templating the advantages accruing to the merchants and manufacturers of our country if money could be transferred anywhere with- out cost, except the loss of interest on a bank balance. But to become operative there would have to be a branch bank system or bank affiliations working together for mutual service; a condition that cannot exist in a series of several thousand distinct units, each looking for profit to itself, j Commercial Paper in Japan Chapter XIII THE methods observed in discounting commercial paper in Japan are sim- ilar to those in other countries. The business transaction being concluded, the pur- chaser of a bill of goods gives his note to the seller, payable at his (the buyer's) bank or at his own place of business. The payee indorses the same and discounts it at his bank; this bank in turn indorses it and rediscounts it with the Bank of Japan. The bill of exchange when drawn against a sale of merchandise operates the same, the drawee accepting it payable at his bank. After acceptance it is returned to the drawer who discounts it with his bank, which in turn may indorse and rediscount it at the Bank of Japan. At maturity bills of exchange and promissory notes are presented for pay- ment through the clearing house. Small banks not members of the clearing house make clearings through members. Where instruments are dishonored, they are handed to the notary and protested within two days. Paper to be eligible for rediscount at the Bank of Japan must have the indorse- ment of two parties, one of which must be the bank presenting. In case there is but one name, collateral approved by the Bank of Japan must accompany. In order to be dis- counted with the Bank of Japan, paper must be presented the day previous for examination before 10:30 A.M. Bills secured by collateral are not subject to this rule. Goods for Export A transaction between Japan and America would be handled as follows: The exporter in Japan presents to his local bank a draft on the buyer in America, with shipping docu- ments attached. The local bank will purchase the instrument and forward to the United States for collection. We are indebted to the New York Agency of the Bank of Japan for the two accompany- ing facsimiles, the promissory note and domes- tic bill of exchange, which are the two principal credit instruments used in commercial trans- actions. Both of these instruments are eligi- ble for rediscount by the Bank of Japan. The Bank of Japan The banking system of Japan centers in the Bank of Japan, which is organized and modelled after the Central Bank of Belgium, the purpose being to facilitate the handling and disposition of money belonging to the treasury, to supervise the national bond issue and to adjust the monetary conditions at hom^e and abroad. The business transacted by the Bank of Japan consists of discounting and purchasing government bills, bills of exchange and commercial bills, buying and selling bullion, making loans on security of metallic deposits, collecting bills for its regular customers, receiving deposits for account and on safe deposit, and making advances on various securities. The Bank of Japan works in conjunction with the ordinary banks, savings banks and Yokohoma Specie Bank in exchange transactions. The latter bank was organized to facilitate both exports and imports. The Bank of Japan makes ad- vances and rediscounts bills for the Yokohoma Specie Bank. The Bank of Japan never deals directly in foreign exchange or sends money abroad. Government transactions abroad are therefore handled by the Yokohoma Specie Bank for the Bank of Japan. The Bank of Japan must keep gold or silver coins or bul- lion as a conversion reserve equal to the convertible bank notes issued. The amount of M silver coins and bullion must not exceed one ™ quarter of the whole amount of the conversion reserve. Outside of the above quotations, it may issue convertible bank notes on the secur- V'* ity of government bonds or other bonds and ', commercial bills of a reliable nature. 66 COMMERCIAL PAPER AND BILLS OF EXCHANGE WO 1 it^ ft 5 • B 5 V a^e, rr BILL OF EXCHANGE We reproduce these instruments by courtesy of the Bank of Japan. O g^O re S 5 2 D ^4 PROMISSORY NOTE 67 The Origin of Commercial Paper and Bills of Exchange Chapter XIV THE mechanism of credit instruments is not a modern creation. The mak- ing of loans on promissory notes is as old as authenticated history. Instruments of credit were in use while yet coinage was unknown. Transfer of credit instruments was made in Assyria, Phoenicia, and Egypt long before the system attained full development in Greece and Rome. Manu, the Sanskirt law giver, speaks of judicial proceedings in which credit instruments were a factor. Such instruments were in use in Babylonian times, in business dealings. Promissory notes and contracts were inscribed on tablets of clay, evidently with a die, for each character is plain and distinct. The tablet was then baked or sun dried to prevent the obliteration of the inscription. History dates some of these tablets 2,000 to 3,000 B. C. From the frequency with which these tablets were used, their durability, and the care taken to preserve them in the tern. pies, which are known to have served as banks, and particularly from the inscriptions, there can be no doubt that these tablets correspond to the modern promissory note, and were common instruments in commercial trans- actions. When the debt was paid the tablet was broken. A large collection of these tablets, in perfect state of preservation, recording various busi- ness transactions during the Babylonian period are now in the Metropolitan Museum of Art in New York. The Origin of Bills of Exchange Uncertain The numerous commentators on the law of bills and notes have searched ancient history with great care to discover the origin of the bill of exchange. And yet it cannot be stated with any degree of certainty by whom they were invented or first used. It is said by Pothier that there is no vestige of them among the Romans, or of any contract of exchange. It appears, however, that Cicero directed one of his friends, at Rome, who had money due him at Athens, to cause it to be paid to his son at that place, and the friend accordingly wrote to one of his debtors at Athens and ordered him to pay a sum of money to Cicero's son; yet it is observed that this transaction amounted to nothing more than a mere order and was not that species of negotiation which is conducted through the medium of a bill of exchange. Origin Credited to the Jews Other historians credit the origin of the bill of exchange to the Jews, who used this method of transfer of property upon their banishment from France in the reign of Philip Augustus and Philip de Long, as a means of evading the confiscation of their property, by its prompt and secret transfer. They were shut out from the trades, and the acquisition of real property was denied them in nearly every European country. Exclusion from realty owners hip was not a hardship, if property was to be the subject of constant confiscation, since money or its representative could easily le transported. The transfer of money being expensive, its transfer by means of credit instruments was a natural consequence. Blackstone, the great commentator says: "This method is said to have been brought into general use by the Jews and Lombards when banished for their usury and other vices, in order to more easily draw their effects out of France and England into those countries in which they had chosen to reside. But the invention was a little earUer; for the Jews were banished out of Guienne in 1287, and out of England in 1290," while the use of paper credit was introduced into the Mogul Empire in China. Other writers assign the origin of bills of exchange to the GibeHns, on their being expelled from Italy by the faction of the Guelphs. The motives, in either instance were the same, namely, to withdraw their effects with the secrecy necessary to prevent con- fiscation. Therefore they gave bills on their friends for the sums agreed upon, the values being regulated by the values of the different coins exchanged. As many of the bills came back unpaid, it gave birth to the charge of re-exchange, first begun by the Lombards, 68 COMMERCIAL PAPER AND BILLS OF EX>'C''H.A>'N'GE' ' >V who, after different modifications, fixed it into a branch of the business. They retired on their first expulsion from Italy into Lyons in France and other kingdoms in Europe, so that it was these people who first sowed the seeds of such negotiations in the minds of the Belgick merchants, who duly cultivated and spread them all over Europe for the easier conduct of mercantile affairs. The Argentarii of Italy were first money changers, then the receivers of deposits, then lenders at interest, and purchasers of bills of exchange. Deposits were utilized as the basis of transfers of paper credit, and loans were made by these instruments without direct withdrawal of cash from the bankers' hands. To perscribere was to give a check on one's account, or transfer credit from one to the other. These orders, however, lacked the character of modern checks in not being negotiable. Interest as a legitimate charge for the use of money was denied by the church, but as early as the 13th century it was conceded that if usury was against the perfection of the Christian law, it was at least not contrary to civic interests. St. Thomas admitted that the loss resulting to the lender, who was deprived of the use of his money, gave birth to the word interest as a substitute for usury. The charge made for the transfer of money was, therefore, to cover the interest for its use; hence many continental codes of com- merce provided that bills of exchange should be payable in a different place from that drawn. The bill was converted into a direct loan in form called "dry exchange," by the borrower drawing on a fictitious person, in some foreign country at current rates, which bill was delivered to the lender. At maturity the bill was returned protested and borrower charged with exchange and expenses, amounting to from 20 to 30 per cent., the bill never having left the country. (Conant Principles of Money and Banking vol. II, p. 176) The ''Tally" Up to the beginning of the nineteenth century, there was in use a peculiar form of credit instrument called the "tally," which took the place of both coin and private tokens. The "tally" was a stick of square hazelwood notched in a manner to indicate the amount due. The name of the debtor and the date were written on opposite sides of the stick, which was split down the middle in such a way that the notches were cut in half, but the name and date appeared on both halves. The split was stopped by a cross cut about an inch from the base, so that one piece was shorter than the other. The buyer kept one piece, the seller the other, and the. deb tor was thus protected by keeping the "stock" or stub, so that while both had a complete record of the transaction, one was protected from fraud by reason of his "stock." These tallies were transferable and negotiable just like bills of exchange. The Great Fairs of Europe Bills of exchange did not circulate as freely in England as on the Continent, due to the supposed non-alienability of debts in the Common Law of England. On the Continent debts were as salable as any other property, bills of exchange circulating as freely as money. At several great trading centers, Antwerp, Lyons, Brussels and many other places, there were held great fairs at certain periods. The Continental merchants instead of making their bills payable at their own houses, where cash must have been kept to meet them, made them payable only at these fairs. Their bills circulated freely until fair time when they were redeemed. The merchants met at these fairs and adjusted their mutual claims, and by this means an enormous commerce was carried on without the aid of specie. It is said by an eminent economist that over 80,000,000 transactions were settled at the great fair of Lyons without the use of a single coin. This, of course, was before the era of banking. Great fairs were also held in England, at which mutual debts were settled by the ex- change of tallies, justices being set over the fairs to settle commercial disputes and to prove the tallies according to the commercial law. The greatest of these fairs was that of St. Giles in Winchester, while the most famous in Europe were those of Champagne and Brie in France. They were also held in Greece, Rome, India, Mexico and Egypt. It was the custom everywhere in drawing up contracts to make them payable at these fairs. Bills of Exchange in England Bills of Exchange were in use upon the Continent before they were introduced into England, where they first came into vogue about the middle of the seventeenth century. At first the term "bill" was synonymous with "note," and it is difficult to determine from the early cases whether one or the other was in suit. Lord Holt (1704) is reported to have 60 r ^^^'':"€Oi\iME!R'ClAL PAPER AND BILLS OF EXCHANGE said that he remembered when actions on inland bills first began, and declared that the effort to place bills and notes on the same footing ''proceeded from the obstinacy and opinionativeness of the merchants who were endeavoring to set the law of Lombard Street above the law of Westminster Hall." The controversy terminated in the statute of Anne, 1705, which made promissory notes assignable or endorsable over in the same manner as inland bills of exchange, according to the customs of merchants. Some authorities con- tend that the Statute of Anne merely declared their existing status, and Professor Parsons concludes that "these notes were, at the time the statute was made, negotiable by the law merchant of England, which was and is as much a part of the law of England as the laws relating to marriage or murder." These "customs of merchants" grew out of the usages and practices of merchants, who were numerous in the towns and cities of England during the Hanseatic league, and who engaged in foreign trade, and brought with them the usages of the Continent relating to bills, the main features being negotiability, days of grace and consideration. The Bills of Exchange Act of 1882 in Eng- land codified the laws of the United Kingdom relating to bills of exchange, notes and checks, reference to which has already been made. Promissory Notes in England and France In many of the dealings merchant with merchant, a less complicated mode of payment was needed than the ordinary bill of exchange. A trader needing credit with his manufacturer or wholesaler might not have the facilities to furnish a bill on another man, but his own responsibility might be such that his simple promise to pay in writing might be accepted with equal confidence as such a bill; and the promissory note followed. The period of their introduction was about thirty years prior to the reign of Queen Anne, 1670. These notes were first considered merely written evidences of debt, it being held they were not assignable or endorsable over, within the cus- tom of merchants, to any other person. And if indorsed over, the person to whom indorsed could not maintain an action against the drawer; and that the payee could not main- tain such action. But they were at length put on the same footing as inland bills, as above stated. As early as 1670 the law and practice as to bills of exchange was fairly well defined in France. The French law rigidly keeps in view the theory that a bill of exchange in its inception is an instrument by which a trade debt is transferred to another. In England bills have developed into a paper currency of perfect flexibility. In France a bill represents a business transaction; in England it is an instrument of credit. English law permits accommodation paper; France endeavors to stamp it out. England requires no "value received" to be stated on the bill, the law presuming consideration. In France the na- ture of the consideration must be stated, or the contract is void in the hands of any party with notice. An English bill may be payable to bearer; a French bill to order only. Bills of exchange are known to have been used in this country in the early days of the Newfoundland fishing industry. Fishermen sold their catch to traders at the market price in English coin, and received credit on their books to be traded in for supplies. Balances due from the traders were paid by ;^ra| England or France. V Bills of Exchange in Ameri As early as 1727 "tobacco notes" were issued in Virginia. These were notes issued by official inspectors against tobacco in government ware- houses — warehouses receipts, that passed cur- rent in the district in which they were issued. Bills of credit in various forms were used by the colonies for numerous purposes, such as in paying the wages of soldiers, govern- ment expenses, etc., but these were intended to circulate as money itself, and were not bills of exchange or promissory notes in the sense that they represented a transaction in trade, or a debt, other than a public obligation. The numerous devices used in lieu of metallic money in the early days in this country were in form but not in substance, true commercial paper, for commercial paper arises out of business transactions and circulates as money without the intent on the part of the maker that it shall supplant metallic money. 70 THE AMERICAN ASSOCIATION OF PUBLIC ACCOUNTANTS Incorporated under the Laws of New York, 1887 EXECUTIVE OFFICE. 55 LIBERTY STREET, NEW YORK The National Organization of Public Accountants practising in the United States of America CONSTITUENT SOCIETIES: California State Society of Certified Public Accountants Colorado Society of Certified Public Accountants Connecticut Society of Certified Public Accountants Delaware Society of Certified Public Accountants Georgia Society of Certified Public Accountants Illinois Society of Certified Public Accountants Kentucky Society of Public Accountants Louisiana Certified Public Accountants, Society of Maryland Association of Certified Public Accountants Massachusetts, Certified Public Accountants of, Inc. Michigan Association of Certified Public Accountants Minnesota Society of Public Accountants Missouri Society of Certified Public Accountants Montana, Association of Certified Public Accountants of New Jersey, Society of Certified Public Accountants of the State of New York State Society of Certified Public Accountants Ohio Society of Certified Public Accountants * Oregon State Society of Certified Public Accountants Pennsylvania Institute of Certified Public Accountants Rhode Island Society of Certified Public Accountants Tennessee Society of Certified Public Accountants Texas State Society of Public Accountants Virginia Society of Public Accountants, Inc. Washington Society of Certified Public Accountants Wisconsin Society of Certified Public Accountants EXTRACT FROM CONSTITUTION. ARTICLE I. The name of the association shall be "The American Association of Public Accountants." Its objects shall be to unite in one organization the public accountants practising in the United States, to advance the science of accountancy, aid in securing uniformity of legislation affecting the profession and the business com- munity, uphold the high standard of the profession, and encourage cordial inter- course among public accountants. PUBLICATIONS: THE JOURNAL OF ACCOUNTANCY (Monthly) 20 Vesey Street, New York $3.00 per annum YEAR BOOK CONTAINING TEXT OF ALL C. P. A. LAWS. LISTS OF MEMBERS, ETC. $1.60 delivered Issued by the Association. Edited by the Secretary A. P. RICHARDSON 55 Liberty Street', New York THE INFLUENCE OF ACCOUNTANTS* CERTIFICATES ON COMMER- CIAL CREDIT 50 cents delivered « If it were not for credit many people who possess capital but have no means of utilizing |; I it themselves would find it useless and profitless. — John Stuart Mill LV ATLANTIC NATIONAL BANK OF THE CITY OF NEW YORK 257 BROADWAY FORMERLY MERCHANTS EXCHANGE NATIONAL BANK Capital, Surplus and Undivided Profits $1,750,000.00 OFFICERS PHINEAS C. LOUNSBURY, President HERMAN D. KOUNTZE, Vice-President GILBERT H. JOHNSON, Vice-President EDWARD K.CHERRILL, Vice-President EDWARD V. GAMBIER, Vice-President KIMBALL C. ATWOOD, Vice-President FBANK E. ANDRUSS, Cashier WILLIAM F. FITZSIMMONS, Assistant Cashier I DIRECTORS PHINEAS C. LOUNSBURY, President JOHN H. HANAN, Hanan & Son, Shoe Manufacturers GILBERT H.JOHNSON, Isaac G. Johnson & Co., Iron Founders EDWIN E.JACKSON, JR. President, Boorum & Pease Co. KIMBALL C. ATWOOD, President, Preferred Accident Insurance Co. J.WALTER EARLE. President, Remington Typewriter Co. JOSE M. DIAZ, President, Preferred Havana Tobacco Co. DAVID L. LUKE, Vice-President, W. Va. Pulp & Paper Co. LORENZO BENEDICT, President, Worcester Salt Co. GEORGE A. GRAHAM, John H. Graham & Co. EDWARD K. CHERRILL, Vice-President AUGUSTUS F. KOUNTZE, Kountze Bros., 141 Broadway HERMAN D. KOUNTZE, Vice-President W. DE LANCEY KOUNTZE, Kountze Bros., 141 Broadway T. IRVING HADDEN, Hartsdale, N. Y. A Commercial Bank in a Commercial Centre Accounts Solicited Q \ w\\\\\\\\\\\\\\\\\\\\\\\\\\\\^^^^^ I I If you were ignorant of this, that credit is the greatest capital of all towards the acquisition | ^ I of wealth, you would be utterly ignorant. — Demosthenes. | RETURN TO the circulation desk of any University of California Library or to the NORTHERN REGIONAL LIBRARY FACILITY University of California Richmond Field Station, BIdg. 400 1301 South 46th Street Richmond, CA 94804-4698 ALL BOOKS MAY BE RECALLED AFTER 7 DAYS To renew or recharge your library materials, you may contact NRLF 4 days prior to due date at (510) 642-6233 DUE AS STAMPED BELOW DEC 12 2007 ^ DD20 12M 7-06 1 I^I>2l-100«..7,.39(402s) VE 02669 .«fci **'■ (A ^ w fUB/ • CI THE UNIVERSITY OF CAUFORNIA UBRARY .^ciiv >>r LrjHiuU»i'j :;-' ir:l!v;»«i4rWffa|||H|MMil >lillM l lt J MI>l ( lta,MW*aia-»i»WHIii»MHMitHUHmmillBIIBfiratofcfii i ""■"""""" THE LIBERTY NATIONAL BANK of New York CAPITAL - $1,000,000 SURPLUS AND UNDIVIDED PROFITS 3,000,000 DEPOSITS 44,000,000 OFFICERS THOMAS COCHRAN PRESIDENT DANIEC G. RCID Vice-PRESIDCNT HARVEY D. GIBSON VICE-PRESIDENT CHARLES W. RIECKS • • VICE-PRESIDENT & CASHIER ALEXANDER M. HALL, 2nd .... VICE-PRESIDENT FREDERICK P. MCGLYNN - - - ASSISTANT CASHIER THEODORE C. HOVEY ... . . . ASSISTANT CASHIER ' nai» wii«w i Kii i liwiiiiiiiii i |K » w:w i M MWi(iMWii'^^ mmm