Many banks keep the dollar deposit balances of foreign individuals in the foreign department for the reason that transactions in these accounts are essentially of foreign origin. Many of the larger foreign firms, as well as some individuals, find it very convenient to have dollar balances with American banks, just as many of our corporations with international business find it convenient to carry balances in foreign banks in the foreign currencies.
This is the dollar value of the overdrafts in accounts which this bank keeps with foreign banks in their currencies. These overdrafts are frequently, of course, more apparent than real as the actual situation in an account abroad would be greatly modified by the paper in transit, either of remittance or draft character.
This account is similar to item 6 of the assets, previously explained, except that it represents the amount due by the bank for exchange which it has purchased and for which payment is made, generally in accordance with steamer sailing dates or foreign payable dates.
This item represents the amount due to brokers for their commissions earned on purchase and sale transactions made by the bank through them. Bills are rendered by brokers usually monthly, and until the time of payment the amounts due accumulate in this brokerage account. The details showing the amounts due the various brokers are shown on the auxiliary records.
Many travelers and some merchants pay cash in advance for letters of credit issued by banks. These funds are essentially deposits and are carried in the cash letters of credit account pending their use. Checks which come in under travelers' credits, or documents which are received and paid for under commercial credits, cause reductions in the balance of the cash letters of credit account.
As has been said, customers for whom acceptances have been made usually place the bank in funds before the maturity date of the acceptances. Some customers make payment considerably in advance of maturity. The funds are held in what are called anticipated acceptances accounts and they are in effect prepayments which are held until the acceptances mature, at which time the funds are used by the bank to pay the maturing paper.
The preceding account represents prepayments covering acceptances made by this bank. This account is the same, except that the funds received are in cover of the acceptances made for this bank by other banks.
There are some transactions for which banks receive payment a day or more before they in turn pay out the funds, such as, for example, cables and telegrams which are sent for customers. The customer may pay for the cable at the window or the bank may pay the telegraph or cable company on receipt of the bill.
Foreign banks use American correspondents in exactly the same way as American banks use banks in other lands; that is, dollar drafts are sold by foreign banks to their customers for the purpose of international remittance and payment. Advices are, of course, sent at the time of drawing by the foreign bank and it has been the custom among larger banks in the United States, as it is on the continent abroad, to charge foreign accounts on receipt of the advice. That is, they charge the foreign bank dollar account and they credit foreign drafts outstanding until the draft comes in, at which time foreign drafts outstanding is debited and the funds paid is credited.
The manager of the foreign department must issue checks in payment of exchange and for various other purposes. These checks are credited to the manager's checks account until they are paid by the bank, at which time they are charged to the manager's check account.
These have been previously explained as the liability of the bank on account of the acceptances made by or for it. This acceptance paper passes from hand to hand much like treasury notes or other short-time investment paper, and is of course tendered on its due date to the bank which accepted it. At the time of payment these outstanding acceptance figures are reduced accordingly, likewise the corresponding asset accounts.
This is a control account corresponding to the expense account on the asset side. It is supported by all of the earning accounts of the foreign department, some of which are commissions on travelers' and commercial credits, profits in the sale of exchange, and profits made through the purchase and sale of foreign currency.
These items have been previously explained as the dollar liability of the bank covering its commitments of purchase and sale in the foreign exchanges.