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ISSUE OF CREDIT INSTRUMENTS

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sells to the bank at a discount his own or some one else's note or draft; while the long-term borrower sells mortgage notes, mortgage bonds, or other acceptable instruments of indebtedness. It is customary for manufacturing and mercantile companies to establish with their bankers a line of credit, that is, an arrangement whereby the bank agrees up to a certain amount to discount a stream of short-time commercial paper (notes or drafts arising from or in preparation for actual sales of goods). A bank also with proper security lends its credit in the form of acceptances and commercial or travelers' letters of credit, engaging itself to pay drafts drawn against goods or money obtained by the one who arranges the credit. One is thus able to substitute bank credit for private credit. (See 80-90, 99-110, 122-173.)

5. Payments by check. The existence of banks enables a depositor to pay his bills by check. A check saves time and risk in the use of money especially where payments of large sums are to be made. The check register or the check stub is a convenient record of expenditures, and the canceled check serves as a receipt. When checks are used credit and not money is the means of payment. One's individual credit at his bank thus circulates as currency. This has given rise to the expressions "credit-currency and deposit-currency." (See 49-70.)

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A bank issues

6. Issue of own credit instruments. its own credit instruments. These are of great service in making payments beyond the zone of circulation of personal or business checks. The drawer of the check or draft may be unknown or some rule of business may exclude the use of personal credit. A bank issues, besides notes, almost any form of instrument desired. Among these are cashier's or treasurer's checks, certified checks, bankers' drafts, letters of credit, travelers' checks, and

money orders. Such banking service has made it unnecessary for individuals to assume the expense and risk of transmitting money from one part of the world to another. Harvey can write his check for $1000, hand it to the proper bank clerk, and get a piece of paper that is good for the equivalent of $1000 almost anywhere in the world, and which is yet worthless when lost, provided it is properly drawn. (See 38, 62, 158, 161-165, 168, 236, 243, 244.) 7. Adjustment of money in circulation. A bank takes in whatever money is offered and ordinarily pays out whatever kind is called for; it thus enables a business house to have in amount and kind the currency it needs. 8. Collectional services. A bank collects checks, notes, drafts, bills of exchange, money orders, coupons, bonds, and invoices, and credits the proceeds to the account of the owner. Many of the above instruments such as checks, money orders, and prime sight drafts can be deposited as if they were cash. Whether they are credited at once or after collection, the owner is saved a great amount of trouble and expense, as their collection involves connections in all parts of the world. (See 53, 57-59, 166–173.)

9. Information and financial advice. A bank is a source of valuable information concerning the financial strength and standing of commercial houses and individuals, concerning all kinds of investments, trade conditions, methods of raising capital, people who have surplus funds to invest, and other business matters. Some banks thus supplement the work of financial and investment rating agencies not only in domestic, but also in foreign trade. When the National City Bank of New York opened its branches in South America it established means for the dissemination of credit and general trade information, the making of special credit reports, and the general assistance of exporters who are their customers. A bank without such an organization will upon request make spe

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cific inquiries through its correspondents. This service constitutes one of the best avenues of information concerning foreign business houses. The man with a bank account can get expert advice upon stocks, bonds, commercial paper, or evidences of value which he is considering for purchase, or he can get a financier's counsel as to his own business matters. A few banks go so far as to establish facilities for giving aid in the solution of problems in industrial and sales management. The pamphlets and booklets issued by banks promote a better understanding of all business problems.

10. Trust and agency powers. A trust company in addition to its banking service, or a bank in so far as it has power, does a variety of trustee and agency work. It administers estates, guardianships, mortgages, and other trusts; it acts as agent, fiscal agent, assignee, receiver, registrar, transfer agent, and in an escrow relation; it may act as a reorganizer of a failed or bankrupt corporation, or as a depository for the stockholders and bondholders under plans of reorganization. Trust companies and banks have absorbed a great deal of the above business which was formerly done entirely by private persons because (1) they possess capital and are responsible, (2) they are examined by state or national bank examiners as well as by the courts where the latter have jurisdiction, (3) they possess experience and conservatism, (4) their charges are reasonable and fixed, and (5) individual deaths do not interrupt their trusts. (See 174-181.)

11. Dealing in investments.- Trust companies and some banking houses deal in securities, underwrite sales of securities, and promote business enterprises. The banker possessing wisdom as to investment conditions and values is a potent factor in bringing together the lender and the borrower of capital. The business which needs large amounts of money for a long time must prove its

merits through the medium of a third party to the lending public. The competent investment banker or broker has a clientele which absorbs the securities upon which he places the stamp of his approval, whether he has first bought them himself, or is merely selling them as an agent. To the borrowing corporation the investment banker does the service of laying down the conditions of the loan such as interest with a view to their sale above, at, or below par, date of maturity, and security, in order that the sale to investors and speculators may succeed. To the lender of the money, the buyer of the security, the banker does the service of investigating every possible phase of the property, which may affect the value of the security. (See 248-260).

12. Kinds of banks. The services a banking institution may perform are determined by the terms of its authority to do business. It may have been created by a special charter, as were the Federal reserve banks, but most banks have been established according to the terms of a general law. As to the source of their power banks may be classified as private (without special creation), state, and national; as to the services they perform they may be called rediscount banks, commercial banks, savings banks, trust companies, land banks, agricultural credit banks, mortgage-loan companies, and investment companies. Commercial banks deal mainly in short-term loans. Most banks and trust companies combine to a greater or less degree the functions of commercial and savings banks and investment and trust companies. (See 204-226.)

13. Social services. The aid in business rendered by banks and trust companies to individuals and corporations produces certain results which are social

(1) The stimulation of savings among the masses of the people increases thrift, promotes happiness, and organizes the small savings of the many for use in business

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enterprises, thus adding to the world's capital and putting it under the control of those persons who are most experienced in its management.

(2) Domestic and foreign exchange are facilitated. The bill of exchange or draft which is one person's demand for payment is utilized as another's means of payment. The economic waste of cross payments between communities is avoided.

(3) The risk, expense, and waste incident to the use of precious metals as money in circulation are minimized. (4) The currency of the country is adjusted to the needs of each community.

(5) Banks and their connections make such a wide market for commercial paper and securities that interest rates tend to become stable, and credit tends to flow where it is most needed.

(6) Banks on account of their responsiveness to changes in business conditions furnish a good medium for the issue of bank notes. These supplement 'the supply of money in the country and make it possible to provide restrictions which cause the quantity of bank notes to fluctuate according to the needs of commerce.

(7) The use of banks as depositaries permits the surplus specie of a nation to accumulate. The banking systems of the world are devised so as to mobilize their reserves and enable them to flow from center to center according to the demand for the surplus as a basis for the issue of notes or for credit.

(8) Banks by lending credit convert the property of their customers into means of payment, thus increasing many times the fluid capital of a nation, which promotes enterprises and prosperity.

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