The Washington herald., 1922-04-02
FINANCIERS FAVOR
ACCEPTANCES OVER
PURE BANK LOANS
More Use Would Prevent
Repetition of Frozen
Credit" State.

During the past few years bank
ers. merchants, manufacturers and
farmers have become acquainted
with a new banking term. frozen
credit" The sudden drop in prices
for commodities of all kinds that
occurred during the period OF de-
hation resulted in freezing many
loans. Many have had their bank
accounts frost bitten as a result
Some of these loans, despite the
coming of spring and warm wealth
er, give no indication of thawing.
increased prices and renewed busi-
ness activity afford the only mode
Of liquidation. While the frozen
loan" situation is not nearly as
acute today as 1t was some months
ago, due to the increase in prices
for certain products. nevertheless
the volume of such obligations is
fairly large throughout the coun-
try.
hquIdIty of Acceptance.
the liquidity OF the acceptance
loan or so called open book ac-
toners were large during and
shortly after the war. The sudden
drop in prices that took place after
the war left the banks, in many in
stances, high and dry with loans
secured by collateral with a value
much below the amount advanced
upon it,
The period OF deflation with its
severe price drop has taught bank
ers and business interests the i'm
portance and advantage Of hnanC-
ing operations through the trade
or bankers acceptance. Straight
bank loans made for the so. so. 90.
l2O and $50 day periods in many
instances called for renewal upon
renewal
Had such obligations been
financed through the medium of
acceptances the bill or acceptance
would automatically have been due
at its maturity and would have
been paid. Acceptances are redis-
countable with reserve banks,
Holders of such paper in need of
ready funds can obtain them upon
presentation OF bills for rediscount.
That the volume of frozen
loans" recently ClogginE the banks
would not have been so enormous
had acCeptanCes been used more
freely. goes without saying. That
they were not used more liberalIy
was not due to lack of educational
campaigning in the past.
Bankers Favor Discount Market.
Bankers agree that America
should lend every effort to promote
the use of acceptances. The
American Acceptance Council was
formed for this purpose. Paul w.
Warburg. a great believer in the
future discount market of the
United States, is one of the impor-
tant factors behind that acceptance
body
]. p. Morgan, A. II. wIgEin.
Seward Prosser. F. L. Hine, Gates
w. McGarrah. c. II. Sabin. G. W.
Dawson and c. +. Mitchell are be-
levers in charging the discount
market in this country. They are
behind the Discount Corporation of
New York. Paul NJ warburg Is
head Of that new bank known as
the International Acceptance Bank.
1t Is leading banking opinion
that the acceptance or discount
market in London accounted large
ly for her commercial supremacy
before the war. That America
should now base her trade reIa-
tions on the use of acceptances is
essential for bOlstering trade and
keeping credit on a more even
keel. is the belief of cIear-thinking
fnanCiers.
European countries, especially
England and France. as well as
Japan and China. will finance trade
more freely in the future through
commercial acceptances. according
to American bankers. They admit
that now j. the time for bankers
and merchants to use this instru-
mcnt of credit on broader scale.
or at least acquaint themselves
with its .desiTability.