CHAPTER XV

BANKING POLICY

The importance of short loans. — The relative merits of different types of commercial
 paper. — The discount rate.

ACCOMMODATION loans, subject to repeated renewal, bulked large
in our early banking experience. American bankers, Cooper
wrote in 1826, contrary to English practice, discount accommodation
 loans regularly.! Raguet ascribed the suddenness of the
crisis of 1837 to the lengthening of bank loans from the sixty-day
tenor, which he believed was prevalent at the beginning of the
century, to four and six months.?
The earliest sentiment seems to have been that banks should
serve all classes alike with their loans, regardless of whether or
not liquid assets result. Yet, coupled with this thesis, was a
realization of the impolicy of the practice from the point of view
of sound banking. Thus there was not a little opposition to early
commercial banks on the ground that they are unable to extend
their credit to farmers in loans for periods suitable to their purposes.?
 In order to obviate the difficulty, some wished to supplement
 the banks by establishing loan offices, after colonial example,
and the state “property” banks in the South and Southwest were
the results of efforts along this line. But others denied that advances
 for long periods are inconsistent with commercial banking
 itself. A committee of the Virginia legislature argued in 1816
that the experience of every American banker proved the contrary.
 Smith’s dictum that a bank can advance only that part of
the merchant’s capital “which he would otherwise be obliged to
keep by him, unemployed, and in ready money, for answering
L Cooper, Lectures (1826), p. 136. See also, Edward Clibborn, American Prosperity
 (1837), p- 20; Dewey, State Banking Before the Civil War, p. 155.
? Raguet, Letter to Bronson (May 11, 1838), Financial Register, ii, 9; Currency
and Banking (1839), p. 96. Likewise, C. F. Adams, Further Reflections, etc. (1837),
p. 10; Duncombe, Free Banking (1841), p. 53.
8 See supra, Chapter IX.