It is, therefore, evident that the banks began to do the regular business of buying and selling commodities through sheer force of circumstances. Such a course is followed also by modern European banks when they are forced to do so. For instance, if a merchant borrows a large or small sum on the security of his cargo or any other property, and if he does not pay up after repeated demands, the bank has a perfect right to sell the security and realize on the property the amount given out on the loan. If the cargo or property realizes more than the amount of the loan the balance is handed over to the merchant; in the alternative case the merchant will still be owing the difference between the amount of the loan and that realized on the sale of the cargo or property. Thus, whatever trading is undertaken by modern European banks, either in China or in any other part of the world, limits itself to the realization of the amount lent by them. It is unnecessary for me to state that when granting loans the banks take care that there is sufficient margin in the security to permit of easy realization of the loan. Sometimes, however, values change so rapidly and prices fall so heavily that the contemplated margins no longer exist; then, of course, the banks have not only to realize on the security but also to follow the regular process of trade in order to obtain the most advantageous terms for themselves as also for their embarrassed client. When the banks are thus obliged to do business in competition with the regular trade, they do so with the utmost reluctance; hence they generally avoid entering into transactions which may lead them to adopt a course which they dislike -a course which cuts into the business of their clients.
The position with native banking is not on all fours with that of foreign banks. In contradistinction to the situation with regard to foreign banks, native banks have a small capital to do a big trade with; hence they expect a rapid turnover with the money they loan out through the medium of native orders; they expect to receive it at as early a date as possible - that is as soon as the goods are sold by the dealer at the ports to the dealer at the outports and in the interior. In principle, of course, there is no credit in business among Chinese; in practice there is a vast system of credit on a very loose basis. In other words, the native banks, which would like very much to do business without any credit whatsoever, have been obliged to extend a vast system of credit in order to keep their business going. When the trade was of fairly small proportions the dealers were few and well-to-do; they availed themselves very little of the credit offered by the banks, and whenever they had an obligation they were able to meet it scrupulously. But when trade grew bigger, both the number of dealers and the banks increased; while the system of credit had been extended considerably the merchants were not able to meet their obligations scrupulously. Whatever causes may have controlled the position, the problem in front of the banks was how to let the trade go on - as also prevent dislocation of business. When huge profits were made out of the import business every dealer - who had any capital whatsoever -presented a huge vista of profits to the banks and obtained the loan for the value of the goods on nothing more than the security of the goods alone. There was thus no margin for the bank to fall back upon in case of trouble. But there was a general belief or hope that the goods bought from the foreign merchant could be sold immediately after the purchase - and at a large profit. Of course, these hopes and beliefs were, for a while, justified; but very soon it was found that import cargoes were not always gold mines to the native banks or to the Chinese dealers. Thus, the accumulation of unsold cargo for which the banks had granted orders was growing bigger every day.