Deposits, Discounts, Loans and Banks.

Deposits, Discounts and Loans.-- It is very important for merchants requiring credit accommodations of banks, that they place their deposits in the kind of banking institution that can most certainly and conveniently accommodate them in the matter of discounts and loans. Depositors are given preference over outsiders on the loanable funds of the bank in which their money is deposited.

The State Banks, that is to say, banks organized under the laws of a State instead of under the National banking act, are not, in most of the State, required to hold a reserve against savings and time deposits, and therefore, are usually in better position than the National banks to accommodate their depositors by advances to them on notes, drafts, bills of exchange, and collaterals of various descriptions.

The National Banks are required to maintain a certain portion of cash reserves to their liabilities, and when their reserves fall to a certain point they must stop loaning.
Under the new Federal reserve system (see page 462) only those National Banks that are not situated in a central reserve city may make loans on real estate, while in most of the States all State Banks may advance such loans. This makes patronage of State Banks generally desirable in locaties where loans on real estate are common.
Where, however, business is to be transacted with persons in other States, the National Banks have an advantage over the State Banks, since the residents of one State are not acquainted with the provisions of the banking laws of another State, while they know the general character of the provisions of the National Bank Act.




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In Time Transactions

In Time Transactions Credit is given either in goods or in money. By the former mode goods are supplied to a purchaser, for which the payment is deferred for some fixed period, or indefinitely, and the person who supplies them idemnifies himself for the delay by an increased price. By the latter mode, money is advanced, upon security or otherwise, and interest is charged upon the loan. Both these modes are used, in conjunction with each other, in the large transactions of commerce. A manufacturer, for example, sells to a merchant, for exportation, goods to the value of a thousand dollars. The merchant however is unable to pay for them until he has received remittances from abroad; and the manufacturer, aware of his solvency, is contented to receive in payment a bill of exchange due at some future period. But in the meantime he is himself in need of money to carry on his business, and instead of waiting for the payment of the bill when it shall become due, he gets it discounted by a banker or other capitalist. Thus, having given to one person credit in goods, he obtains credit from another in money.

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