50 TWENTY-FIRST REPORT. 



with foreign connections extended credits freely to their customers to replace 

 those formerly granted by European banks. 



From the very beginning of the acceptance market, the policy of the 

 Reserve Banks has been very liberal and they have purchased good accept- 

 ances whether the acceptor bank was a member bank or not. While there 

 was the possibility of driving the acceptance business into the hands of the 

 member banks by pursuing an opposite policy, it was felt that the broader 

 policy would be of greatest assistance in developing the necessary market in 

 the shortest period of time, so that eventually the best results would be 

 obtained. 



During the first year's history of the market, although the discount rate 

 was lower in the United States than in London, the amount of acceptance 

 cx'edits by American banks was quite small, and was conclusive evidence of 

 the difficulties which were met in the developing of a market. Some of these 

 difficulties were, "(1). The disinclination to bi-eak old banking connections, 

 (2). The difficulty of educating handlers of bills in distant places as to Amer- 

 ican credits, (3). The lack of bill buyers in foreign countries who will quote 

 as low rates on dollar as on sterling bills, (4). The natural prejudice of bill 

 buyers in foreign countries in favor of a bill of known currency as against a 

 bill of as yet unknown currency, (5). The lack of men trained to exercise the 

 judgment and financial responsibility required of them as managers of 

 branches or agencies which American banks might establish in foreign coun- 

 tries. (6). The inferior communications for both goods and mail between the 

 United States and foreign countries as compared with those between Great 

 Britain and foreign countries." Perhaps only much time, experience, and 

 patient effort will remove these handicaps to the elevation of dollar exchange 

 to its proper position in international finance. 



The year 1916 witnessed a great increase in the volume of business 

 financed by bankers' acceptances, — the total amount of acceptances bought by 

 Federal Reserve Banks during that year was $386,095,000, as compared with 

 $64,845,000 in 1915. The chief reason for this great increase was the fact 

 that it now became legal for national banks to accept bills covering domestic 

 shipments, — which caused large volumes of staples such as cotton and grain, 

 and metals to be carried within the United States under the Bank Acceptance 

 plan instead of umler direct bank loans. 



During this year, considerable progress was noted in the development of 

 a discount market. Several of the large banking and brokerage houses had 

 become dealers and specialists in the acceptance field, — purchasing the bills 

 as they were offered in the United States and contracting to buy them when 

 they arose in foreign countries as soon as they arrived in this country. The 

 demand for acceptances from banks and investors begah to demonstrate the 

 desirability of such paper as the prime and liquid banking asset, which fact 



