REDISCOUNTING. To foreigners it has always been a subject of wonderment that re discounting remained in American banking history a branch of financial service availed of little or not at all. Rediscounting has even been looked upon by American bank authorities askance as a "bad* practice and an evidence of weakness on the part of those establishments who had resort to it. What little work in this branch of the financial exchange business has been done was largely confined to country banks, chiefly in the southern States, who have had resort to the system to a small extent, re discounting with their depositary banks in the large cities as an accommodation. But of the total of loans and discounts the rediscounts have figured as a small item only. In Europe, on the other hand, rediscounting constitutes a very large proportion of the great banking business. The Bank of France at Paris and the Reichsbank at Berlin transact a great volume of business in the rediscounting department, and all the great central banks of Europe find it forms a most important branch of their serv ice. It is generally asserted that the main reason for non-usage of this form of exchange in our commercial life on a larger scale is, that the favored commercial instrument has been exchange the sin le-name promissory note, just as the bill of ex has always been the European standby. The consequence has been that, upon its being discounted by the bank, the promis sory note has lain as a "dead assets in the safety vault, as a commodity not capable of being converted into cash until the arrival of date of maturity. The great advantage of the bill of exchange or "acceptance,) as in such general use in Europe, is evident in its com mercial course. The bill, once drawn by a
customer and accepted by his bank, acquires the value of an instrument salable anywhere — it is freely discounted in open market and passes from merchant to merchant or bank to bank, accumulating fresh endorsements at each transaction until it at last reaches the counter of one of the central banks, Here it is appreciated as accommodating the banking business in the voluminous collecting and trans ference of funds as well as a source of cash supply for the general class of banks. A fundamental obstacle to the general use of a rediscounting system has, of course, been the fact that here we have had no central bank, the great rediscounting factor in European finance. The National Bank Law has not per mitted national banks to accept time drafts and the Federal Reserve Act failed to give relief here except for bills based upon foreign trade. But the Federal Reserve Act now enables the reserve bank's members to handle commercial paper and the rediscount system's future is brighter in the United States, and a dozen re gional banks in different sections of the country are enabled to pool and convert some of their assets into cash by rediscounting good commer cial paper as defined under the act. Now, the strength of the popularity in European banking concerns of rediscounting is the fact that the rediscounting makes the paper a surer asset and the more endorsements it receives the more the security is enhanced, except that each lapse of time makes the note more and more of a tem porary security. Al bankers acceptances are so liquid as to be a desirable investment of pri vate bankers.