The liabilities of a bank to creditors take four chief forms:
2. Bank Notes
3. Acceptances And Letters Of Credit
4. Bills Payable
Deposits are rights to draw on the bank for money. A depositor commonly gets such rights in one or more of the following possible ways:
1. By The Deposit Of Cash Or Cash Items.
2. By Depositing Time Items For Collection And Credit.
3. By remitting securities or other property to the bank for sale and credit.
4. By The Process Of Loan And Discount.
5. By the sale of securities, real estate, personalty, or services to the bank for credit.
Bank notes are promises of the bank to pay money on demand; issued in round denominations and transferable without indorsement, they are designed to circulate in lieu of metallic money. The transferee becomes the noteholder and creditor of the bank; the bank note may come into his hands in the ordinary transactions of his business, or through any one of the five methods described above by which a depositor gets deposits.
Acceptances are bills of exchange drawn on the bank, which, for a commission, it obligates itself to pay, but to provide funds for which payment the person for whom the letter of credit is procured is obligated to the bank. Letters of credit are agreements by the bank to accept, and to pay at maturity or demand, bills of exchange drawn under certain specified conditions.
Bills payable are promissory notes, secured or unsecured, interest-bearing, and running for a period of time, by which a bank borrows in large, irregular sums, at various times.
Sometimes the borrowing is done by selling some of the bills receivable, acceptances, or other commercial paper which the bank has in its portfolio, a process which incurs the contingent liability of indorsement or agreement to repurchase.
Bank credit extensions more commonly take the forms of deposits and bank notes, and therefore the theory of these two forms will be fully developed.