The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1910-09-05

loans. Speculative movements DO not
halt because OF a small rise in the call
loan rate. Moreover, foreign funds are
not attracted because OF this very IN
certainty of the call rate and the alb
senee OF bankers bills as form Of In
vestment.
New York is in a class by itself With
out bank-accepted bills it can have no
discount market. Without a discount
market funds can not move to 1t as they
do between the financial centers OF Eu-
rope. because there are no bank-accepted
bills in which foreign banks can invest
This weakness Of our banking system
results In a serious economic loss TO the
country. Only the strongest ant largest
American concerns can take advantage
Of low foreign discount rates. without
bank acceptances we are also at a dis
tinct disadvantage in our foreign trade.
The English importer can instruct his
creditor 70 draw upon his London bank
AS this bank-accepted bill is OF first
quality 81 can be sold at a high rate,
thus giving the English importer the best
Of terms in competition with the Ameri-
can, who can offer no such security.
The American exporter. as well. IS at
a disadvantage. Since our system does
not allow the creation Of a supply Of
exchange on New York. foreign debtors
must pay with bills on Paris. Berlin. or
London. the exporter being forced to
value his goods I'm francs or marks or
sterling. He is thus obliged to assume
the risk Of exchange, a serious handicap
when competing, for instance. with Brit
ish exporters.
Detrimental to Banks.
The prohibition OF bank acceptances is
detrimental 20 our banks. particularly
the small country bank The country
bank finds the employment of its sur
plus funds n serious problem. Deposits
with a reserve agent yield but a low in
terest return; investment In bonds par
takes OF the nature Of speculation. and
the purchase OF commercial paper in
wolves risk and the tying up OF the
banks funds for a fixed period IF ma
tionai banks were permitted 10 accept
time bills the country bank could then
invest its funds IN paper bearing the
guaranty OF some great bank with whose
standing Il is perfectly familiar. Risk
such as now has 70 be taken would be
eliminated. What IS vital. however. Is
that with a national discount market an
investment in a bank-accepted bill is
one which could be realized upon imme-
diately"
The New York banks are also injured
because Of the prohibition of bank ac-
oeptances. They are forced 10 put their
surplus funds into day-to-day loans on
the stock exchange. In this field there IS
often the keenest competition. compe-
tition which lis not only OF little benefit
20 trade, but which. through the lowering
Of the money rate, actually stimulates
speculation.
steady Money Rate Needed.
Moreover, the absence Of a steady
money rate. such as exists abroad, de-
prives New York banks Of a reasonable
and satisfactory basis upon which 10
fix a rate OF interest on the deposits OF
country banks. In London the interest
paid on deposits is fixed at certain per-
centage below the discount rate OF the
Bank OF England. changing as the dis
count rate changes. In the United States.
however. country banks receive a fixed
rate Of interest on their deposits. usually
2 per cent, the year around regardless
OF fluctuations in the value Of money.
Consequently. when the call-loan rate
is high country banks do not get the IN
terest their deposits earn: when the call
rate is low the Injurious competition al
ready mentioned results
The remedy for these evils VIII be
found, in the opinion OF the author. IN
the insertion OF a paragraph or two IN
the national bank act, giving the national
banks power TO make acceptances. To