The Bank And Trade Acceptance

In Germany, the bank acceptance is used more than the trade acceptance, as merchants prefer to draw on the bank of the buyer for acceptance or for payment rather than to have the buyer's acceptance.

Relation of German banking to industry; credits. - In the acceptance of a bill, the individual credit standing of the firm is more a factor with the banks than anything else. The German banks participate to a large extent in the industrial enterprises of the country, and are represented on the boards of directors of numerous such enterprises. This enables the banks to know better the firms with which they are dealing. They are inclined to give special support to their financial and credit problems.

The bank acceptance; how created. - The bank acceptance arises in the following way: The seller, having shipped goods to the buyer will draw on the bank of the buyer, by arrangement, for the same. The bank accepts such bill and sells the same to other bankers or in the open market. In selling a bill of goods, the merchant or manufacturer will arrange with his brokers to draw on the latter for the amount, thus anticipating payment for the goods. When so accepted, the bill is sold to other bankers or in the open market, and after indorsement, it becomes prime paper eligible for rediscount at the Reichbank. These acceptances constitute eighty per cent, of the paper held by banks. They are readily discountable in the discount market. The system of contraction and expansion in Germany is similar to that of England, where, if there is an over extension of credit, the market reacts, and vice versa.