Home Stock Buying Money Basics Banking Wealth Nature of Rent Economic Theory

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Operation Of The System
Land Banks
Services Performed By Banking Institutions
Commercial Paper
Foreign Exchange
Classification Of Banking Institutions
State Banks
Domestic Exchange
Adequacy And Economy Of Service

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The Origin And Functions Of Money
The Early History Of Money
Qualities Of The Material Of Money
Legal Tender
The Greenbacks
International Bimetallism
The Silver Question In The United States
Index Numbers
Banking Operations And Accounts
The Use Of Credit Instruments In Payments In The United States

Common Features

The central banks differ considerably in organization and business
methods, but perform essentially the same functions; that is, they act
as financial agents for their respective governments; discount
high-grade commercial and bankers' bills for other banks and usually
for private persons; administer the cash reserves of the entire
country; and furnish the greater part and, in some cases, the entire
supply of bank notes.

The other large banks do most of the business with the public, the
central bank's relations being chiefly with them and with the
government. They conduct checking accounts with merchants,
manufacturers, farmers, and others; receive and invest savings
deposits, and deal in certain classes of investment securities;
conduct the domestic and foreign exchanges; discount various kinds of
commercial and banking bills, frequently those not available for
discount at the central bank; and make advances on personal and other
kinds of security. Their main offices are located either in the
central money market of the country or in important financial centers,
and their branches are extended to all places in which banking
facilities are supposed to be needed. As a rule, they are less
restricted by legislative provisions than are the national and state
banks and trust companies of the United States, and are less carefully
supervised and inspected by public officers.

Commercial and bankers' bills are widely used as credit instruments
between buyers and sellers and between bankers and their customers. A
common method of procedure, when a sale is made on time, is the
drawing of a bill for the amount due, by the seller upon the buyer,
payable at the end of the credit period agreed upon, and accepted by
the buyer, and the discount of the bill by the seller's bank. In
foreign and in some branches of domestic trade, the banker's bill is
used on account of its more general acceptability as an object of
discount, such bills usually being discountable by the central bank
and by banks far distant from the place in which the bill originated.

In case a buyer desires to furnish his creditors with bills of this
kind, he arranges with his banker for a line of "acceptance" credit,
which permits people who sell goods to him to draw bills upon his
banker instead of himself, the banker agreeing to accept the bill and
guaranteeing its payment at maturity. The seller will usually have no
difficulty in discounting such a bill at his own bank, no matter how
far removed it may be from the home of the buyer, the character of the
accepting bank being known throughout the financial world. "Acceptance
lines" are usually granted only on condition that the customer agrees
to supply the bank with the funds necessary for meeting the accepted
bills as they fall due, and to pay a fee for the accommodation. Ample
security that these obligations will be met is usually demanded.

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