The Birmingham age-herald., 1913-01-12

Transit lrOHl the producer 10 the con-
sumer. and dependent for payment, in
the last analysis not merely upon the
commercial integrity of the men who
made it, but upon the ability of the pub
lie to consume the goods 1t represents.
In the case of one-name paper, the wis
dom of bank granting loan depends
upon what it knows of its client If the
total amount desired Is moderate in COM
parison with the clients total assets, AMI
especially In comparison with his current
receipts, 1t is a good loan. There Is none
safer. 1t should be understood that the
selection by banks of such paper should
be carefully made. They must have the
facts about the business of the concern
asking the loan. Usually banks have a
bureau of information devoted to this
purpose, called a credit department,
thoroughly posted as regards the COM
mercial paper offered to it,
/ This department may in some in
stances, call for a full statement of the
concerns business, or max even employ
outside accountants to go over its books
1t may. IL It sees fit demand TO know
whether the loan required is based upon
an actual commercial transaction, and
may demand evidences of the transaction
1t is often found advisable i'm eases of
large loans on commercial paper to split
the loan into number of notes." which
are sold by note brokers to differ ent
banks. 1t not infrequenty happens that
small bank will buy four or five pieces
of we'll known commercial paper in this
way as investment for idle funds
and in that case, If some unexpected de-
mand Is made upon the bank so that il
needs funds promptly, 1t will send as
much of this paper as may be require |
to fill its need, to its city correspondent
for rediscount.
Lower interest Rates
But by establishing a broader market
Tor such paper, interest rates would be
lowered in this country. If the market
were stil further broadened. to become
International as well as national in scope.
interest rates obviously would be stll
further lowered. The American merchant
would have to pay less for the capital
necessary for his business. 1t Is obvious
that the cost of borrowed capital must
enter into the expense of conducting
every large business. II interest rates
are increased the cost must be increased
of every article into whose production
or distribution tha use of borrowed CAPT
tai enters.
The lower interest rates prevalent in
England and on the continent give mer-
| chants and manufacturers there am un-
mistakabe advantage over their colffpeti-
tors in the United States England's un-
rivaled monetary system and her low
ar large factors in her commercial
rates of interest to industrial enterprises
supremacy.
The Panama canal, opening vistas Of
new business opportunities to America,
is on the verge of completion. VIII we
permit it to become an added help 10
foreign nations, or will we, by adopting
a scientific banking system. equip our
selves to reap full advantage of it? That
| Is question for the people of the
| United States to answer. 1t should be
| answered before the canal is completed.
The answer should be in the form of
| competent and expert remedial legisla-
ton.
Commercial Loans Paid In 1907
Commercial paper already has proven
of such value to us that not to broaden
its field is FOLLY. 1t is now liquid within
certain fields, being convertible into cash
with more or less ease at times of in
dustrial confidence. And even In times OF
stress 1t has demonstrated its worth
| was immensely impressed with this
during the panic of 1907 At that time
we had large outstanding commercial
accounts, which, although they were not
secured by commercial paper, were
closely akin to 1t. We simply stopped
buying goods and as we had always
paid cash for everything, we had nothing
turity of our current accounts, those who
could not pay in full would send us, say,
one-half and a little later another re-
mittance and so on. l apprehend that
not two per cent of the commercial paper
floating at that time went unpaid, or
was renewed.
1t is, readily apparent that commercial
paper bridges the interval between the
production and the consumption of goods,
and RiNaS the n1nrPhant manufacturer
ready funds for the continuance of his
business, without waiting for the pur
chaser or consumer, to whom he has ey-
tended 30, 60 90 days credit to make
payment Further than that, 1t en-
courages him to use his money more
freely in the way of experiments in..im-
proved methods and improved machn-
ery-feeling confident that he can be
safe from financial embarrassment in
so doing. I know of case in which
the manufacturer of one of the impor-
tant products of the country so inn
proved his processes as to reduce the
cost fully one-third. This was made
possible solely by the fact that, through
the use of commercial paper, the manu-
facturer was enabled to ge the money
with which experiments were made to
eevise Heretofore unknown mechanical
appliances.
A National Credi. Bureau
Commercial paper is so important a
part of our Industrial fabric that be-
lieve the American Bankers association
should establish some kind of a bureau Of
information to scrutini2e the business of
the concerns issuing it. In this way a
great deal of reliable informationg could
be placed at the service of those desiring
to invest in such paper-particularly
banks-information not only as to the
concerns assets and current receipts,
but as to the extent of the loans extended
to It from various sources. Commercial
paper would then become the most de-
sirable paper any bank could buy, so far
as regards safety.
believe that when he have new
banking system-for we must have one
If we are to avert another panic-it viii
be perfectly proper to have some ar
rangement-under careful provisions and
regulations-whereby the bank may re-
discount their commercial paper with
cooperative agency. This would provide
them with prompt relief in times o.
stress. and would nelp to prevent money
panics Such provision certainly should
be a part of any measure looking TO a
revision and improvement of our present
banking system.