The Bank Acceptance

Among the many radical changes in the mechanism of national and international finance which the war has brought about, few', if any, have been as important as the creation of the American bank acceptance, the recognition of the trade acceptance, and the establishment of the American discount market.

In this connection, before taking up the treatise on bank acceptances, their uses and advantages, it might be of interest to briefly review the historical aspect of this new form of credit and to learn the experiences gained by other nations while the use of the acceptance was in the process of evolution in this country.

Historical Aspect Of The Bank Acceptance

The acceptance may be said to be the simple and logical product of generations of trade and banking experience. The greatest advance in the acceptance method has been made by the leading European countries, which long ago proved to themselves that the acceptance is capable of meeting all the requirements of commerce and trade. Along these lines, therefore, have the systems of banking in Europe been worked out. The acceptance established a system under which commercial credit assumed a position of pre-eminence as a controlling attraction for liquid capital,-a position in the money market to which that form of credit was rightly entitled.

England The First Country To Develop Sound Banking System

To England, however, must fall the honor of being the first to realize the great advantages in the employment of the acceptance as the basis of its credit system, since they were the peoples to lend their credit to others through the medium of this form of paper. As a result, that country today foreshadows all the others in having developed a sound financial system on the basis of a sound credit system.

The London Merchant Bankers

The merchant bankers of London were originally import merchants of exceptionally high standing, who paid for their imports by "accepting" long time drafts drawn upon themselves by shippers in foreign countries. After these drafts had been accepted by them, they were discounted with Deposit Banks or Private Bankers at rates which had a distinct relation to the standing of the acceptors. In this way, the acceptance was created.

Merchants of a moderate standing then endeavored to follow the procedure of the larger houses but were unsuccessful in the early stages, which made the financing of their importations a hardship. They either could not borrow against their own acceptances at all, or, if they could, the rates charged for interest and commission to insure the risk were so high that the final cost of the imported wares left too small a profit to compensate them for their labor.

These merchants discovered that by borrowing the signature of one of the leading merchants, they could finance their imports more advantageously. They found that in this manner they could acquire advantages far more valuable to them than the small commission paid for the service rendered by such leading merchants. At the same time, the leading merchants realized the opportunities for profit to themselves in lending their signature by way of accepting drafts for other merchants. This encouraged them to continue the process on a larger scale. On account of the knowledge which they were able to acquire, by reason of their extended facilities and experience, on conditions of trade, as well as their knowledge of various kinds of merchandise which were to be imported and which were pledged as security, of values, seasonal demands and markets, the leading merchants were indeed qualified to grant such credits, that is, to lend their signatures for a consideration.