The herald. [microfilm reel] (Los Angeles [Calif.]) 1893-1900, 1897-12-17
OFFICE OF THE HERALD,

OFFICE OF THE HERALD,
Los Angeles, Dec. 16, 1897.
The theory Of the cash credit system
~ carried on by the Scotch banks Is that
1t enables men Of talent and character
but without means or bankable collat-
eral of their own to get capital. The
system finds eulogists wherever 1t Ia
mentioned, for to the ordinary observer
there are few things more praiseworthy
than the offer Of financial assistance to
deserving persons. But 1t should not be
imagined that the Scotch banks, by their
cash credit system, give reign to benevo-
lent instincts which banks nowhere else
display. Except that the Scotch banks
charge interest upon the money actually
drawn by the borrower from his credit,
the operation does not differ from similar
operations continually carried on by
banks everywhere.
According to Gllbart, says the Ameri-
can Banker. cash credit Is an under
taking on the part Of the bank to ad-
vance to an individual such sums Of
money as he may from time to time re-
Quire, not exceeding in the whole a GER
tain definite amount; the individual to
whom the credit Is given entering into
bond with securities. generally two In
number, for the repayment on demand
Of the sums actually advanced, with in
oI, Io n
which 1t Is made. Such credits are rare
ly given for sums below $500; and they
range from $1,000 to $4,000. It will be
noted that the negotiation Is in the ma
ture OF a call loan, and that the bor-
rower's credit Is backed UP by at least
two surcties. The rate Of interest is
based upon the sum actually used each
day instead of the discount being drawn
upon the whole credit at the time when
It is established.
Our correspondent wishes to know
whether business of this character can
be transacted by banks in this country
without conflicting with the law. But as
the operation involved in the granting
Of a cash credit does not get outside OF
the regular business in which banks are
engaged, we can see no legal objection
to the system. 1t differs from similar
transactions here only in the basis on
which the interest is computed. And
while this fact may operate to diminish
the interest rs compared with discount
on the whole amount Of the credit. yet it
must not be overlooked that 1t Is a call
involve lower rate than that imposed
on other negotiations. OF course, the
granting of such credits amounts prac-
tically to the supplying borrowers with
capital to carry on their business, which
Is in many cases an Objectionable and
dangerous form of banking. But aside
from the restriction which the national
banking act and the laws Of several
states place upon the amount of money
which a bank may advance to an indi-
such advances as the Scotch system pro-
vtdes for. And then the loans are gen.
orally moderate In amount and solidly
secured. 80 that the cash credit system
regarded from q business point Of view
is a safe one. In a well-settled country
like Scotland, where neither trade nor
population develops so rapidly as here,
and where the danger Of business re-
verses Is not so great as among US. the
banks may avail themselves Of such OPP
erations with less fear of misfortune.
And yet a large part Of our bank credits
are based on personal security Of prac-
ideally the same character. The bor-
rover will include in his note the sigma
lures of one or more Of his neighbours
these names and the known integrity of
the principal compromising quite the
whole Of the banks guarantee that its
money will be returned when due. I'm
less our banks are generally averse to
making loans in such small amounts as
$500, there is. with the exception of the
mode of computing interest, no import
ant difference between the Scotch cash
credit system and a large part Of the
customary business which our own
banks carry on.
+ 4 +
Chicago's bank ciearings for Novem-
Der reached the aggregate Of $45S. 900 900,
the highest in four years and half. No
month has had such an aggregate since
May, 1898, when the clear1ngs amounted
to 1851. 100000 There has been q steady
gain for four months. During the first
seven months Of the year the clearings
fell behind last years record every
month. The decrease varied from $10,-
000, 900 to 81. 000, 900 a month, and the total
for the seven months up to August was
$685., 200, 900. The last four months have
shown increases over the corresponding
months of last year, varying from $72,-
000, 900 to $101, 100000.
+ 4 =
The London financial press notes as a
weak point in the accounts of the A. r.
Pears limited. the big soap firm, the
smaller amount snent in working ox-