Iowa County democrat. [volume] (Mineral Point, Wis.) 1877-1938, 1917-02-22
BIC AID TO TRADE
"Acceptances" Are Attracting
Merchants and Investors.
BROADER FIELD FOR BUYING.

Enable Seller to Handle His Business
at Smaller Operating Cost-One Fern
Of Acceptance Consists Of Extension
Of Banks Credit to Customer Upon
Agreed Basis.
New York-Rapid increase in the use
of bank and trade acceptances marks
the development Of a new form of
financing in this country, which is at
tracing the attention Of bankers, bust
ness men and investors. Opportunities
for trade expansion, increased credit
and desirable investment all accom-
pany it and invite study.
Prior to the passage Of the Federal
Reserve Act, one of the particular OBJ
jections to our existing banking sys-
tenn was the absence of a discount
market like those of London, Paris,
where bankers acceptances could be
readily sold. Owing to a construction
Of the National Banking Act by the
Supreme Court, our national banks
were not permitted to make accept
ances, because an acceptance is in eff
feet the lending Of banks credit.
Today that situation is radically
altered. There is in this country
healthy and constantly expanding mar
ket for acceptances. According to the
combined statements of the report Of
December 81, 1916, national banks in
New York City showed customers liza
bility on account of acceptances at $780,
218,8OO The combined reports of New
York City trust companies, as Of No
vember 20, 1916, showed a total Of
$77,54O20O for customers liabilities on
acceptances. And according to the
November statements last year, ma
tional banks and trust companies of
New York City reported an aggregate
acceptance volume Of 6,S50,S00.
In an interesting booklet issued
by the Guaranty Trust Company of
New York, that institution explains the
details Of this method Of finance and
the growth of the acceptance market
In the fall Of 1914 the Guaranty Trust
Company Of New York was the only
institution in New York City accepting
sterling drafts payable at future date
When the London market had to re-
strict it's acceptances owing to condi-
lions arising from the war, the Guar
anty Trust Company Immediately be-
gan using dollar letters Of credit.
When bills were offered from abroad
drawn under these letters of credit, the
Guaranty Trust Company bid for them
So did other banks. AS a result, dis
count rates were lowered. With a
clearing of the situation in the Amer
lean money market in the beginning
of 1915, bankers and brokers began to
bid freely for acceptances, which Gre
ated the first basis of future discount
market Sufficient acceptances, how
ever, were lacking, and the Guaranty
Trust Company supplied this deficiency
with its own acceptances. So rapidly
were these absorbed that the discount
rate fell to about 21a per cent. Soon
the possibilities in this new line Of
financing were seen throughout the
country and thus a discount market
was quickly developed.
The superiority Of the trade accept
ance over the open account for the
purchase Or sale of goods is now per-
ceived; in fact, its power to broaden
the buying field of the merchant, and
to enable the seller to handle his bust
ness at smaller operating cost, is being
fully recognized throughout the coun-
try. Briefly, the trade acceptance is
everything that the open account is
not. 1t gives the buyer credit for
definite instead of an indefinite time
1t is of service to the seller, for he
can take the acceptance to his bank
and discount it at lower rate than is
accorded to any other commercial pa
per. The bank-not the seller-carries
the credit, and all parties to the trans
action are placed on an equitable basis
Another form Of acceptance is the
bank acceptance, which consists Of the
extension Of a banks credit to a Gus
toner upon an agreed basis. When
Brown, In New York, buys Of Doe, In
Galveston, and arranges with q bank
in New York to accept on presentation
the drafts Of Doe, with documents at
tached, Does draft on the bank be-
comes a bank acceptance. Again, the
customer can draw his own draft di-
rectly on the bank, the latter accept
ing it for payment at a future date
In this form the acceptance is a COM
mercial credit bill. The accommoda-
ton given the customer under an ac-
ceptance is merely loan Of the banks
credit responsibility until he can pro-
cure the funds elsewhere.
Issued for commercial purposes or
against actual business transactions,
banks and trust companies can finance
through acceptances legitimate bust
ness transactions Of their customers
properly and conveniently; while they
can also invest their surplus money
therein, at profitable rates, and with
the certainty of being able to convert
them at any time in the open market.