MR. BANKER: Certainly it will not be a cure-all, because it is only an added facility in our credit system, and therefore must be provided for precisely as a corresponding amount of loans should be. You see, don't you, that an acceptance by a bank is practically the same thing as a loan to the buyer and seller of the goods jointly, or to one of them with the other as an endorser. The only difference is this: that if a loan is made the money would be placed at once to the credit of one of them, subject to his check, while the acceptance is an agreement to pay the amount on a future day. The bank must take precisely the same precaution in securing or protecting itself, and should carry identically the same reserve against acceptances that it does against its deposits subject to check.
MR. LAWYER: That is true, for if the buyer and seller fail to make good, and meet the draft, the bank must pay it precisely as a bank must pay the checks of its depositors, even though the borrowers of those deposits do not pay their promissory notes when due. In reality and in fact the results are identically the same, therefore I agree with you, Mr. Banker, that a bank should carry the same reserve against its acceptance liability as against its deposit liability.
MR. MANUFACTURER: Mr. Banker, have Bills of Exchange and bank acceptances been used very long, or are they something quite new and modern?
MR. BANKER: The Lord only knows how ancient they are. However, it is undoubtedly true that the use of them, especially acceptances, has grown enormously in recent years. For it is now a universal practice at all financial centers throughout Europe.
The bank liabilities of the whole world were only $16,000,000,000 in 1890, while today they are upwards of $50,000,000,000, possibly as much as $55,000,000,000. This almost appalling increase is due not only to the growth of international trade and the expansion of the credit system in foreign trade, but to domestic production as well. Of course an acceptance is the natural counterpart of a Bill of Exchange.
Bills of Exchange, or something accomplishing the same purpose, were in use among the Greeks. The history of the subject is buried in much obscurity.