Borrowers in the open market have opposed the registration of their paper. Only a few have voluntarily made arrangements for registration. Usually they do not care to divulge their trade and financial secrets to the degree required. Those borrowers who now enjoy nearly a monopoly of open-market borrowing feel no reason for registering their paper. The note-brokers are not inclined to give to the public information about their clients. The brokers also avoid the red tape that accompanies registration.
Registration would simply require a resolution from the board of directors of the borrower, declaring that paper bearing its name is not valid unless registered with its registrar and stamped and signed to that effect. The registrar is authorized and instructed to keep a close record of the amounts, maturities, rates, etc., necessary to identify the paper, and to furnish any applicant a statement of the amount and maturities of the paper outstanding at any time.
Although repeatedly urged by prominent bankers and others from time to time for more than a decade, registration has made little progress toward general adoption. In 1908 a committee of the American Bankers' Association made an exhaustive study of the subject and recommended : (r) the supervision of the issuance of paper offered in the open market, (2) an annual audit of firms issuing paper, and (3) the registration of paper under the super vision of the clearing houses in New York, Chicago, St. Louis, Philadelphia, and Boston. The clearing houses opposed the plan, and it failed of adoption. Four years later there was proposed to the association a central bureau of credit information, which was to be capitalized and supported by fees and which had for its object the safeguarding of paper issues by furnishing informa tion relative to credits, but which would have had the registration performed by selected banks and trust companies. This plan was not adopted.
Registration could be provided under one of three institutions: trust companies, clearing houses, and federal reserve banks. Registration with a trust company has been adopted by a few corporations on their own initiative. The registration includes notes issued, notes indorsed, and drafts accepted. Daily reports are made to the corporation and by the corporation, and the amount of paper outstanding at any time is accurately known.
Registration under the clearing house or federal reserve bank would provide that concerns in the city or district should register paper with the clearing house or federal reserve bank.
The Assignment, Hypothecation, and Guaranty of Accounts Receivable Another form of credit operation which has grown out of the open book account system is the assignment, hypothecation, and guaranty of accounts receivable. In lieu of borrowing on his single-name unsecured note to the bank or discounting bills re ceivable with the bank, the manufacturer or dealer can borrow on his accounts receivable. Few banks undertake such loans, since they are too risky. The business has devolved upon special ized brokerage or discount houses, and the banks, instead of lending directly by discounting accounts receivable, lend to the discount house on the security which it can provide.
The terms upon which a merchant or manufacturer assigns his accounts receivable vary largely with the nature of the accounts and the standing of the assignor. In case such borrower cannot secure accommodation from banks, he goes to the discount company and, upon assuring it that he has bona fide orders from dealers to purchase goods from him, the company agrees to ad vance him, say, 8o per cent of the face of the order when it is completed and shipped to the buyer; it makes him pay 6 per cent per annum for the money, 3 per cent commission for transacting the business, and anywhere from r to 3 per cent for stationery, legal fees, etc. In order to obtain money in this manner the cost there fore ranges from 9 to r 2 per cent per annum, and is too expensive and not resorted to when other methods of borrowing are possible.
The discount company provides him with triplicate bills to be made out when shipments are made, one of which he sends to the discount company and another to the buyer. It is stipulated on these bills that the account is assigned to the discount company and that payment for the same should be made to it. The buyer therefore notifies the discount company of the receipt of goods and accounts to it for them. The third copy of the bill is retained by the borrower for his own records.