EXCHANGE. 



lity, and have no resourse, except on 

 the drawer. If an accepted bill is re- 

 fused payment, it is a proof that the ac- 

 ceptor is insolvent. The holder may 

 either proceed against the acceptor, or 

 he may send back the bill to the last 

 indorser, or if there be no indorser, to 

 the drawer. The drawer, or last in- 

 dorser, as the case may be, is pledged 

 to refund the amount immediately to the 

 holder. This mode being- generally the 

 speediest means of reimbursement, the 

 holder always prefers it when he can ob- 

 tain payment by it ; but in case of the in- 

 solvency of both drawer and acceptor, the 

 holder retains the bill, and gets what he 

 can from the estates of both. 



When the Bank of England finds that 

 a merchant has suspended payment, their 

 rule is to examine all the bills drawn up- 

 on him, which have been discounted by 

 different persons at the Bank, and to send 

 notice to these persons that the Bank ex- 

 pect the bills will be taken up, and the 

 money refunded. It is disreputable not 

 to comply as early as possible with this 

 intimation. 



.Accommodation Bills. By this term are 

 understood bills drawn, not on occasion of 

 a real transaction, but for the purpose of 

 affording- a temporary supply of money, 

 or accommodation to the parties. Such 

 bills obtain currency for several reasons. 

 It is often difficult to distinguish a real 

 from a fictitious bill : even when a bill is 

 considered fictitious, it will still obtain 

 currency, as the holder of it has the dou- 

 ble security of the drawer and acceptor. 

 It is as valid as a real bill, the law consider- 

 ing only whether the holder has given va- 

 lue for it, and protecting him in the reco- 

 very of that value : the shortness of the 

 term also (seldom exceeding two months, 

 and never almost exceeding three) natu- 

 rally induces persons to think, that, al- 

 though the drawer and acceptor be of 

 doubtful credit, they will not fail quite so 

 soon ; and, in the worst event, the holder 

 has the prospect of a double chance of 

 recovery from the estates of both parties. 



In the United States of America, the 

 Banks avowedly sanction the practice of 

 accommodation, and discount notes which 

 they know to be fictitious. These notes 

 are understood to be renewable, not so 

 much at the pleasure of the bank, as 

 of the borrowers of the money, and the 

 consequence has been, that the banks 

 have lost sight of the object of their 

 institution, and, instead of confining their 

 loans to the anticipation of funds, for 

 short periods, have resolved themselves 



into permanent loan offices. Now there 

 can be no doubt but that a bank, like 

 an individual, has a right to lend its capi- 

 tal to whom, and for as long a period, 

 as it pleases ; but on the other hand it 

 is evident, that the profitable nature of 

 the banking business consists in its lend- 

 ing to a greater amount than its capi- 

 tal. If it does not do so, its expenses 

 will diminish its dividends below the 

 legal interest. But how is a bank to 

 lend more than its capital ? We answer, 

 in two ways, first, by lending the money 

 of depositors, and secondly, by lending 

 its credit in the shape of bank notes. 

 This latter operation is performed by 

 a bank's giving its promissory note, pay- 

 able on demand, without interest, in ex- 

 change for the promissory note of an 

 individual, payable in a specified time, 

 for which the interest is charged. If, then, 

 a bank note is kept in circulation with- 

 out being presented for payment, until 

 the note, in exchange for which it was 

 issued, becomes due and paid, the bank 

 has gained the interest, without any ad- 

 vance of capital. Now it must be plain, 

 that the faculty of a bank to trade thus 

 upon its credit, without the danger of 

 stopping payment, depends upon the 

 length of. time for which it makes loans. 

 The shorter the period at which it dis- 

 counts bills and notes, the greater is 

 the extent to which it can safely loan, 

 in as much as the command of its re- 

 sources is more within its reach. If a 

 bank, for instance, were to limit its 

 loans to thirty days, it would have the com- 

 mand of all its capital and means with- 

 in that short space of time, and thus 

 be enabled to defend itself against any 

 run which would be likely to be made 

 by the presentment of its notes for pay- 

 ment, or the drawing out of the money 

 of the depositors. But, on the other 

 hand, if a bank were to give its notes, 

 payable on demand, in exchange for the 

 notes of individuals, payable in six 

 months, its excessive issues over and 

 above the amount of its capital must be 

 very limited, or it will be in danger of 

 more immediate demands than it is able 

 to meet, from its immediate resources. 

 Now this has been precisely the situa- 

 tion of the banks in many parts of the 

 United States. Although the notes dis- 

 counted by them have been usually 

 drawn at 60 days, (which has been the 

 term adopted in Great Britain and A- 

 merica, and elsewhere, as the longest at 

 which banks should anticipate commer- 

 cial capital,) yet the implied understand- 



