Evening star. [volume] (Washington, D.C.) 1854-1972, 1914-09-20
FINANCIAL AND OTHERWISE.
By A. FLEMING
What is commercial paper?
BY I. A. FLEMING

What is commercial paper?
This Is one of the topics of lntei. 60
in financial circles these days. IN anu
ipation of the early installment Oh IN.
| federal reserve system. Commere'"
paper is the chief asset that memDe'
banks may send up through their ols,
trict reserve institution to the ieoefa
reserve bank for rediscount.
In days not so long ago. obligations
of rated houses engaged in commerce
or manufacturing were generally term
ed commercial paper. together WIZ
acceptances of bills of exchange
drafts, etc, for merchandise OF one
kind or another purchased. There wax
little question as to whether the So
| called paper was actually issued ~
| the course of business or mercy
| matter of accommodation. Paper ina
| was well rated was usually salaple al
| current rates to banks that were 40
| surplus funds, and transferred TO othei
| banks in like condition when conoI'
lions suggested passing it along: ray
| ment was usually arranged ioi vi
maturity at some fiscal agency. Sc
Now, however, commercial paper ~
| to be defined. and by the 1eoerat -
serve board, which has l.seh
/ studying the intricate question:.
, Hereafter accommodation notes anu
acceptances will not be classea as
eligible to discount as commercial pe
per. When the new law goes !n.o
feet the member bank may continue ~
accommodate its customers IN as
counting notes, if it desires, put lne
rediscounting privilege OF the system
will be available only on actual ooeu
ments originating in due course VI
barter, manufacture ana saie So,
! than as provided with regard 10 farm
lands), notes, drafts and ollls OF eA
change. all arising out OF actuai
transactions"
Will Decrease Open Accounts.
The result of this provision of the
new law will be to lessen open ao
counts of manufacturers and ooooers,
and to increase payment by note ana
accepted drafts. 1t is probable tnat
bankers will insist on their custom
ers in business adopting this method.
to the abandonment of open accounts
In so far as possible. In return retalI-
ers In heavy and expensive lines may
be called upon to secure notes or ac-
ceptances from their patrons.
The general sale OF accommodation
paper will be thing Of the past; IN
deed, the custom has lessened greatly
during the last FEW years aTodnc IS
or other goods. wares or merchandise,
may be rediscounted. Ninety days Is
the limit for the life Of paper subject
to a discount other than that secured
by live stock or issued for agricultural
purposes, which may run six months.
Strict provisions as to rediscounting
are to be prepared by the federal re-
serve board.
Will Make for Money Plethora.
There can be little question but that
the installation of the federal reserve
system will make for more abundant
money, will cheaper it-that is, in nor
NAL times and under usual conditions.
Member banks of the federal reserve
system will be required to carry but
subject to check, and but per cent
against time deposits.
This will. very naturally. lead to
bankers favoring time deposits and
terest for them. Then. too, the redis-
count system will practically prevent
financial stringencies, owing to redis-
count opportunities. AS Senator SHAFT
roth told the District Bankers Assoc. Ia
ton, there need be no failures, for
every member bank may rediscount
until it liquidates all its assets"
This statement was right in way
pus .he .. aw ;,.a.t,.ants 80 ,ha,I
ponus, stliGty; insea. aiso 49, 49,, anan
nt;. otha. 49, I-n;taa s+atas J
sues.
ocks anu ponus eoid iia .o I loan ~
hanIs ouicislv chaneeabie for market
.'ai,,a uuio ny. 80 Ii,,,;d nc ~
appreciable extent.
rn,o-+onc. ~ rx.haooa.
W A6eo
This very thing nresses homo once
~. :,. a., $1,000.
more the Importance Vi the e1chahsee
the New York Stock Exchange, one of
tn. beet regu1a+ed .ssoci.+;ons :, ex;s-
nv - so
tence' 10 the Ohlteo states.
Remarks have been made by certain
lavmen to the effect that 1.-THE war had
taught the country that If could exist
'ne ~
without the New YORK eNchange, and
movements of lawmakers, state and
national, to hamper the New YORK
Stock Exchange and the cotton and
grain exchanges OF the nation have ire
quently been initiated.
Experiences Of today should put
action by lawmakers.
without exception, every dollar of Sc
curities that were in their vaults as
collateral for loans when the New
York exchange closed-so are the
banks of Washington with respect to
local collateral
Wi+bomt these exchanges or regulated
MARKET places. where one may at all
tinas-save under such conditions as
exist today-purchase or sell securities,
there would be no demand for them