purchase of bankers' and prime merchants' bills and to rediscount same when cash funds are needed-these are among the principal aids to a freer system of financing the foreign business than that prevailing in the United States. In the United States paper discounted for a bank's customers is held until maturity and is so much dead weight in the bank's vaults, the operations being, therefore, necessarily restricted; in fact, it is only because American bankers are able to discount bills purchased from American exporters in the foreign money markets that they are at all in a position to negotiate such bills for their customers*).

To sum up the review of the American manufacturer's credit problem, the following facts may be pointed out: 1. A large proportion of American exporting manufacturers have given careful study to the subject of foreign credits.

2. With a growing tendency to deal direct with the foreign customers and an increased familiarity with foreign conditions, many American manufacturers have been granting reasonable credit accommodations to customers in many countries.

3. The major portion of American manufacturers willing to grant credit abroad are wisely in favor of restricted credit terms, sufficient to allow the customer to receive his goods, examine them, and place them in stock. The advisability of granting unduly long credits is doubted, for the length of credit as selling argument is apt to appeal to the least desirable class of customers.

4. American manufacturers, in spite of the disadvantages of the American banking system pointed out, nevertheless do not seriously suffer from any disability either in discounting their bills on foreign points or in having them collected on reasonable

terms.

5. Nevertheless the entire system of financing American export shipments, as distinct from the question of discounting of individual drafts by manufacturers of standing, suffers in comparison with the German and British methods with regard to elasticity and scope, making it impossible for American manufacturers to undertake the financing of foreign accounts on so large a scale as is done by German and British export merchants (and to a lesser degree by German and British manufacturers), as the banks under American conditions (lack of open discount market and bank acceptances) can not co-operate with them to the same extent as the German and British banks co-operate with the export merchants and manufacturers of Germany andl England. The lack of rediscounting facilities necessarily restricts the service of American banks in this respect*).

6. The old-time rigid policy of "cash against documents" at the port of shipment is being more and more retired in favor of a rational liberality, and is now restricted mostly to novices in the export trade, manufacturers without a foreign sales organization, and occasional exporters, or else applies to certain lines which are by trade usage cash lines.

CHAPTER XVI.

D. THE AMERICAN BANKS AND THEIR SERVICE TO EXPORTERS SINCE THE ENACTMENT OF THE FEDERAL RESERVE ACT.

I. THE FEDERAL RESERVE SYSTEM AS AFFECTING THE FINANCING OF FOREIGN SHIPMENTS.

The Federal Reserve Act was approved December 23, 1913. It was entitled "An Act to provide for the establishment of Federal Reserve Banks, to furnish an elastic currency, to afford means of re-discounting commercial paper, to establish a more effective supervision of banking in the United States, and for other purposes." It has been revised and amended on several occasions, the last being on March 3, 1919. The act authorized the Secretary of the Treasury, the Secretary of Agriculture and the Comptroller of the Currency, acting as "The Reserve Bank Organization Committee" to designate not less than eight, nor more than twelve Federal reserve cities, having divided the continental United States and Alaska into as many districts. A Federal Reserve Bank was to be organized in each of these cities. At the present time the organization is as follows: District No. 1, Boston; No. 2, New York; No. 3, Philadelphia; No. 4, Cleveland (branches at Pittsburgh and Cincinnati); No. 5, Richmond (branch at Baltimore); No. 6, Atlanta (branches at New Orleans, Birmingham, Jacksonville); No. 7, Chicago (branch at Detroit); No. 8, St. Louis (branches at Louisville, Memphis, Little Rock); No. 9, Minneapolis; No. 10, Kansas City (branches at Denver, Omaha); No. 11, Dallas (branch at El Paso); No. 12, San Francisco (branches at Portland, Seattle, Spokane, Salt Lake City). The ruling body is the Federal Reserve Board, with the Secretary of the Treasury and the Comptroller of the Currency as ex-officio members, a Governor, a vice governor, two members at large, a secretary, two assistant secretaries, fiscal agent, statistician, general counsel, director of the division of analysis and research and director of the division of foreign exchange.

There is also a Federal Advisory Council with a member in each of the 12 districts. Every national banking association or national bank in each district was required and every eligible bank and trust company was authorized to subscribe to the Federal Reserve Bank in its district a sum equal to 6% its paid-up capital stock and surplus.

Section 13 of the Act, as variously amended and here quoted in extract, thus describes the powers of Federal Reserve Banks:

Sec. 13. Any Federal reserve bank may receive from any of its member banks, and from the United States deposits of current funds in lawful money, national bank notes, Federal reserve notes, or checks, and drafts, payable upon presentation, and also, for collection, maturing notes and bills; or solely for purposes of exchange or of collection, may receive from other Federal reserve banks deposits of current funds in lawful money, national bank notes, or checks upon other Federal reserve banks, and checks and drafts, payable upon presentation within its district, and maturing notes and bills payable within its district; or, solely for the purposes of exchange or of collection, may receive from any non-member bank or trust company deposits of current funds in lawful money, national-bank notes, Federal reserve notes, checks and drafts payable upon presentation, or maturing notes and bills: Provided, Such non-member bank or trust company maintains with the Federal reserve bank of its district a balance sufficient to offset the items in transit held for its account by the Federal reserve bank: Provided, further, That nothing in this or any other section of this act shall be construed as prohibiting a member or non-member bank froin making reasonable charges, to be determined and regulated by the Federal Reserve Board, but in no case to exceed to cents per $100 or fraction thereof, based on the total of checks and drafts presented at any one time, for collection or payment of checks and drafts and remission thereof by exchange or otherwise; but no such charges shall be made against the Federal reserve banks.

Upon the indorsement of any of its member banks, which shall be deemed a waiver of demand, notice and protest by such bank as to its own indorsement exclusively, any Federal reserve bank may discount notes, drafts, and bills of exchange arising out of actual commercial transactions; that is, notes, drafts, and bills of exchange issued or drawn for agricultural, industrial, or commercial purposes, or the proceeds of which have been used, or are to be used for such purposes, the Federal Reserve Board to have the right to determine or define the character of the paper thus eligible for discount, within the meaning of this Act. Nothing in this Act contained shall be construed to prohibit such notes, drafts, and bills of exchange, secured by staple agricultural products, or other goods, wares, or merchandise from being eligible for such discount; but such definition shall not include notes, drafts, or bills covering merely investments or issued or drawn for the purpose of carrying or trading in stocks, bonds, or other investment securities, except bonds and notes of the Government of the United States*).

The aggregate of such notes, drafts, and bills bearing the signature or indorsement of any one borrower, whether a person, company, firm, or corporation, rediscounted for any one bank shall at no time exceed ten per centum of the unimpaired capital and surplus of said bank; but this restriction shall not apply to the discount of bills of exchange drawn in good faith against actually existing values.**)

Any Federal reserve bank may discount acceptances of the kinds hereinafter described, which have a maturity at the time of discount of not more than three months' sight, exclusive of days of grace, and which are indorsed by at least one member bank.

Any member bank may accept drafts or bills of exchange drawn upon it having not more than six months' sight to run, exclusive of days of grace, which grow out of transactions in