The Acceptance As A Basis Of A Liquid Currency

It is to the bankers' great advantage that credit conditions always remain sound throughout the country, as this is the basis for sound finance. In our system of note-issues by the Federal Reserve Banks, the security is of two classes, the first being gold, and the second commercial paper of recognized standing. On account of their high commercial character acceptances are included in the class of commercial paper taken as security for note-issues. The banker is consequently able to use his acceptances to obtain Federal Reserve Notes. In other words, acceptances are as good as cash to the banker. It would, therefore, seem that every banker should be interested in constantly improving the quality of commercial paper used as a basis for the issuance of these notes.

Acceptance Creates More Business For Banks

It is doubtlessly true that trade acceptances would create a larger volume of bankable paper and as a result a larger volume of business for the banker. Businessmen would allow more of their transactions to pass through the bank, such as collections, discounts, rediscounts, affording a better means of employing their funds, and a consequent benefit of wider banking activity.

Acceptance Benefits Local Community Whereby Bank Is Directly Benefited

Local manufacturers and jobbers have experienced at times great difficulty in the course of their business, either through inability to secure sufficient working capital or in the high rates of interest exacted by the local banks. The use of trade acceptances will enable the banks to employ their resources safely and will permit them to encourage the local manufacturers and jobbers in the safe and reasonable expansion of their business, thus aiding in the economic and business development of their locality. The banker moreover will be more inclined to discount trade acceptances bearing at least two names, in preference to single name paper, and will generally allow a lower rate for discounting than on other classes of commercial paper. In this way a more regular system of earnings with less loss may be established to the benefit of the banker.

The Acceptance Acts As An Economizer Of Time And Expense

It has been stated by a number of people questioning the acceptance as a saver of time and lost motion, that bookkeeping would be greatly increased by the use of acceptances. This is not so, for the banker himself knows that the amount of work involved in the clearing of checks could not be increased through the handling of trade acceptances. Furthermore, two name papers, because of its better security, will reduce losses to the bank.

The Banker Considered From The Standpoint Of Investments In Acceptances

As an investment, the banker is benefited both directly and indirectly. He is able to utilize his spare funds, thereby making them productive. He is able to obtain short loans from the Federal Reserve Bank of his district on his own acceptances while not being required to rediscount them. He is able to deal with banks and brokers direct in the distribution of commercial paper, to his benefit.