ARGUMENTS IN THE NEGATIVE 
or turned into a direct loan, were carried along by the banks by means of continued 
renewals of acceptances. A national bank should not commit itself regarding renewals 
of acceptances at the time of the opening of the credit. Each application for a renewal 
should be judged upon its own merits at the maturity of the acceptance. It is found, 
however, that some banks have agreed to one or more renewals at the time of the opening 
of the credit. There have been a number of cases where acceptances have been renewed 
as many as five or six times against imports or exports of both raw materials and 
finished products. The tendency in such cases is for the bank to furnish working 
:apital to concerns by means of acceptance credits rather than by making them 2 
direct loan. * * * Some member banks have not taken definite steps in connectior 
with granting acceptance facilities against export transactions to assure themselves that 
there were actual and definite shipments involved. * * * 
“In a general way the abuses which have come up in connection with the granting 
of acceptance facilities against export and import transactions apply in the case of 
credits governing domestic acceptances. * * * There have been instances when domestic 
acceptances have been given with practically no attention paid to the question of the 
accepting bank being secured during the life of the acceptance. * * * Domestic accept: 
ance credits have also been used for the purpose of securing continued finance. * * * 
“The above is a summary of the most common abuse of acceptances found in the 
recent examination of national banks. In view of the excellent material which has been 
issued by the Federal Reserve Board and the American Acceptance Council on the 
correct method of financing domestic and foreign business by means of acceptances, it 
would be quite useless to reiterate the clear and concise suggestions made by them. 
* * * In spite of this, scarcely an examination is made of use of the larger accepting 
banks without finding some violations of the intent and purpose of the Federal Reserve 
Act in connection with acceptances. It is very difficult for the federal reserve banks to 
discriminate between acceptances which are drawn in accordance with the law and 
those which are not, when member bank acceptances are offered to them for re 
discount. Furthermore, it is extremely awkward, if not impossible, for them to make 
inquiries regarding the transaction actually behind an acceptance when the bill is 
presented to them for rediscount through a third party, as it would necessarily have 
to he ”’ 
The preferences given to bankers’ acceptances by the federal reserve system have 
included liberal support through purchase. In the years from 1916 to 1923 there was 
a marked tendency for the reserve banks to hold approximately one-half of these 
acceptances which were outstanding. Since 1923 the volume of outstanding bankers 
acceptances has grown from the neighborhood of $650,000,000 to $1,284,000,000 at 
the end of 1928 and $1,541,000,000 at the end of October, 1929—the latest date for 
which these figures are yet available, although it is estimated that at the end of 
November, 1929, the total outstanding was about $1,600,000,000. At the end of 
1928 the holdings purchased in open market by federal reserve banks for their own 
account and the account of foreign correspondents were $816,000,000, of which 
489,000,000 were for their own account. On November 27, 1929, the total holding: 
were $766,000,000, of which $257,000,000 were for the account of the reserve banks 
themselves—this latter fizure having grown to $392,000,000 on December 31. 1929 
The government receives such services from the reserve banking 
system that there is no valid reason why the government, which con- 
tributes none of the capital, should take any part of the earnings of 
the reserve banks. 
Under the Federal Reserve Act the Secretary of the Treasury may use the reserve 
banks as the government's fiscal agents. ‘The Secretary utilized this permission and the 
(Continued on page 47° 
4 
Domestic Trade 
Bankers’ Acceptances 
Outstanding 
Earnings 
Fiscal Agency 
Operations