In addition to its cash, a bank's resources should be in the form of some liquid readily saleable investments as a secondary reserve, and it is here that the acceptance can best play its part. Of course, the position of a bank as regards its holdings of acceptances depends upon the nature of its business. Some institutions are engaged more along specific lines, as distinguished from general commercial banking, for instance, making loans on mortgages of real estate, carrying investments in the form of public credit, in which may be included government and municipal bonds, and investing in building securities. But as a ready means of obtaining cash, next to its actual available means in the form of its legal reserves and cash in vault, the acceptance, being self liquidating at short intervals, and of high credit standing, is undoubtedly the best form of secondary reserve investment. Investments in acceptances and similar high grade commercial paper are advisable in the case of banks having large volumes of deposit liabilities and where a condition of uncertainty of drawings on the part of their depositors exists.

The acceptance may properly be considered as the next best reserve to actual cash, superseding the banks' investments in loans and discounts, and further down the line, in point of liquidity, in securities, and finally in fixed investments in buildings, etc.

The advantages of the bank acceptance as a form of liquid security have been recognized by a large number of States, which have passed laws permitting savings banks organized under their laws to invest in such bankers' acceptances. The fact that these savings institutions are investors has created a continuous demand for such paper, thereby furthering the growth of the acceptance. The acceptance as a form of investment for savings banks is most advantageous, in that stocks or bonds in either railroads, industrial, mercantile or commercial enterprises, do not always maintain their book prices. Savings banks are therefore compelled to dispose of their holdings with great losses. A proportion of their resources invested in acceptances will enable them to meet initial runs with confidence and ease, and with no fear of depreciation in value.

The third component of the discount market is the central redis-counting bank, which in this country is the Federal Reserve Bank. It cannot be expected nor assumed that a discount market would always produce an equal number of buyers and sellers. In cases where the situation becomes one that is not equalized by purchases between banks, the central rediscounting bank should operate as the stabilizer by the purchase or sale of sufficient quantities of paper to keep conditions normal. Frequently, the sales on the part of banks and dealers in acceptances more than exceed the purchases, and at such times the Federal Reserve Bank should purchase under such regulations as it deems wise, either direct in the open market, or from member banks a certain amount of bills, and vice versa.

The fourth factor in the maintenance of a discount market is the discount corporation and broker. These are middlemen. They act on behalf of the buyer and the seller at one time. The broker and discount corporation are always in touch with the market and know at all times the requirements of one bank as well as the objects of another to either buy or sell.

The brokers not only operate as middlemen but at times they also purchase for their own account large quantities of commercial acceptances, which they let out at intervals to the investing classes, banks, and others, thus constituting a floating supply without which a free open market would be impossible. On the whole, the broker and the discount corporation give to the discount market its effectiveness and importance, and may be considered as the white corpuscles of the acceptance market.