21
THE CHICAGO BANKET
October 17, iço8]
Bank
Surplus
$2,000,000
Mercantile National
OF THE CITY OF NEW YORK
We offer the complete service of a safe, solid and conservative bank. Special and personal attention ¿iven to the business of banks and bankers
Willis G. Nash, Pres. Miles M. O’Brien, V.-Pres. Wm. Skinner, V.-Pres. Wm. H. Taylor, V.-Pres. Emil Klein, Cash.
Capital
$3,000,000
supplied by their own capital. If a house, therefore, which has been in the habit of putting out paper ceases to use its credit, it is sometimes misjudged; and I repeat that I believe the present method of issuing single name paper and disposing of it on the open market has come to stay. I am not ready to concur in the idea of forcing the registration of notes, as has been suggested, not only because the process would be cumbersome and expensive, but because it would drive a large number of the best concerns from the open market and we would thus be deprived of the privilege of securing their paper for investment. The largest and strongest borrowers in this country would resist the registration of their notes and the exposure of their business to public eyes. The primest class of borrowers that we should desire to retain would go out of the market by reason of their opposition to this system of registration and publicity. We must recollect also that many large and important borrowers are not confined to our American banking system for purposes of supplying their financial needs. They are not obliged to come to our American market for the sale of their paper and can circumvent entirely a scheme of this kind by filling their necessities in European markets. ״I know of many of the best houses in New York City, who under the present system are selling commercial paper in the American market, who do so only because they find it a convenience and not from necessity. These houses of the highest class would present at once the form" of registration and would drop out of the market and supply their wants in Europe. But what good can such registration accomplish as a guide to the amount of liabilities outstanding unless the loans made by customers from their own banks of deposit be registered also? Is it proposed to enforce such registration, and if not. do the framers of the scheme ignore the fact that the losses on bought paper "are insignificant as compared with the losses on banks’ customers? No plan will prevent men from being dishonest, but I claim that the percentage of dishonest failures in this country is constantly on the decrease.
A well-known writer has said that failures do not occur chiefly for want of knowledge of right principles; the trouble is that the principles are not kept fresh by frequent thought of them. And as bankers we must be constantly on the alert in connection with all matters pertaining to the credit of our depositors, or the paper we buy on the open market! Many bank officers do not want to buy paper because of the trouble and time it takes to investigate the credit of parties whose paper is offered. They would much rather invest their money in bonds, put them in their safe, and cut off the coupons. While bond investments may be labor saving, they have at times serious disadvantages. They make our assets less liquid and are least salable except at a great sacrifice when their proceeds are most needed.
I earnestly commend the whole subject of commercial paper to you for your investigation. The study of credit in any form is a fascinating one even outside of "the regular business of banking. The banking business,
besides your own, you can permit your own commercial paper which you have purchased to fall due, give the money to your customer, and you feel a degree of security about your assets which you have never had before.
A merchant who sells his paper must keep his assets dean and his stock of merchandise in salable shape in order to maintain the highest credit. One of the great experiences of the last panic was the splendid liquidation of commercial paper, giving to the banks which held it millions upon millions of dollars to in turn loan to their own customers, and the makers of these notes which they held were able to pay not only because they had good credit at home and abroad but because their assets were liquid and their accounts receivable and merchandise could be turned quickly, besides holding their banks in reserve for such an emergency. And this real liquidation resulted, as I have said, because the merchant was aware of the fact that when he sold his paper in the open market, he could not follow it to its resting place and ask for its renewal. The selling of commercial paper by first-class concerns has come to stay. There are very few large or reputable concerns doing business to-dav without borrowing, and I am unable to recall more than one or two instances of a firm or corporation of any prominence which does not borrow directly or use its credit in some other way. There may possibly be a few concerns in this country whose surplus is so large that they find it unnecessary to use their credit, but such cases are rare exceptions ; and in many instances large concerns cannot afford to discontinue the sale of their single name paper on the open market even though they have large sums lying idle in bank, as there are times in the history of all concerns when they need more money than can be
RECEIVER’S SALE of MORTGAGES
I have for sale the following first mortgages on improved, irrigated farms in Montana. All draw interest at six per cent (6%). The first six are in Yellowstone County, the last two are in Carbon County. They are due in 1911.
Amount	Description	
$2,000	NW A 19-2-24	
1,300	E V2 NE 33-1-25	
1,300	Lot 3 & SE 14 NW % 6	-2-25
2,200	Lots 4 5, 6-2-25	
2,500	SE A 14-1-24	
2,500	NW A 33-1-25	
2,000	Lots 8 «Sc 12, Sec. 5.	Lots
	1, 4, 5, Sec. 8, 3-24	
1,500	SE 14 SE !4 Sec. 9. N ^ NE	
	A & SW A NE X,	Sec.
	16-5-16	
Name
Vaught
Van Zyl
Jones
Jones
Malmberg
Boshart
Kolstad
Reynolds
These Dans were personally inspected by an officer of the Minnesota Title Insurance and Trust Company before making them, and are believed to be choice.
Ditch stock accompanies each loan,insuringample supply of water.
Further information may be obtained by addressing the undersigned.
Bids for one or more mortgages will be received and may be made to
JAMES D. SHEARER, Receiver
Minnesota Loan and Trust Building
MINNEAPOLIS -	- MINNESOTA
the brokers and receive a check for the proceeds. The exercise of the option privilege to return paper bought should be strictly confined to the desire on the part of the bank not to assume the credit risk. Bank officers should be careful not to return confessedly good paper on account of an advanced or tightened money market or for any reason other than the undesirability of the risk from a credit standpoint. Never solicit paper direct of concerns which are selling through brokers. This is courting trouble back-handed, as you are causing the concern to put out paper which cannot be kept track of, and you will be called upon by them very often to take paper when you cannot very well say NO. They will claim that as a favor to you, at some given time, they gave paper to your bank, and now as a favor to them you must take it. In the meantime, you may have discovered something about them which you would not care to disclose to them, and it places you in a very awkward position. Insist on the note broker acting as a go-between and if for any reason you do not desire to keep a note which you have taken on option and you return it to the broker, you have made no enemies and the maker is none the wiser.
Much has been said about note brokers soliciting a bank's customers and taking away business from the banks, thus making the obtaining of credit too easy. I disagree with this attitude altogether. I would be glad to have every one of my customers sell their paper on the open market, as I feel that now most all of the good banking institutions of this country have credit departments with keen, active credit men in charge. If my customers can stand the scrutiny of a good note broker and anywhere from twenty-five to fifty keen credit department men, besides my own examination, then I maintain my risk is very much less. I would say to all good merchants:	Sell
your paper, get the best rates obtainable, keep a good balance in bank without interest and when vou can not sell your paper in the market, your bank will discount for }־on in proportion to the noninterest average balance you have kept with them.
Every firm or corporation which sells its paper should use great care in making it mature in well-distributed amounts in any given month. When a merchant sells his paper he is much more apt to use prudence regarding his own credits, as his paper is scattered all over the country and he does not know who holds it; consequently he must be prepared to pay it at maturity. Whereas, if his paper is held bv a given number of banks and his customers are delinquent and come to him desiring further time, he goes to his banks and asks for a renewal, with the result that his portfolio is likely to be filled with slow accounts and the bank has secured a permanent loan. But by selling paper. I contend that the merchant makes better sales of his own merchandise, makes better collections. and by meeting his paper promptly at maturity keeps the assets of commercial paper buying banks in more liquid condition. If a merchant keeps a large account with you, without interest, and does not call upon you. you can buy other paper and thus keep your resources liquid and your monthly maturities right so that when he comes to you for money and vou know he has been investigated by a large number of banks