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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