Credit system

“ They also greatly economize in the use of money by saving cost of counting and of transfer, and by securing against losses. If the system offered no more advantages than this safe and ready use of good money, the banks would be practically indispensable. But they have a still greater use in a safe extension of credit. The perfection of system in banking makes it possible for one who habitually fulfils his promises to purchase anywhere in the world on the shortest notice with the simple guaranty of credit in the bank where he does business. ”

“ The expansion of credit facilities by the Federal Reserve System and the Reconstruction Finance Corporation has been of incalculable value. The loans of the latter for reproductive works, and to railways for the creation of employment; its support of the credit structure through loans to banks, insurance companies, railways, building and loan associations, and to agriculture has protected the savings and insurance policies of millions of our citizens and has relieved millions of borrowers from duress; they have enabled industry and business to function and expand. ”

“ Many sound heads consider it indispensable that the system of credit, should be, in many respects, amalgamated with the financial system of the State. This is no rash speculation, or untried novelty. In the Southern and Western States, which, like France, are chiefly agricultural, the principal banks are dependent on the State governments, they are employed in collecting the taxes, and transferring funds on account of the State treasury. ”

“ In the end a well established bank in close association with a system of banks is expected to do any service that has to do with either money or credit, so long as the credit approximates cash transactions, and has not drifted into overdue debts requiring courts and officials for collection. ”

“ The dangers from over expansion of credit are lessened when all the people clearly understand the essential conditions for maintaining credit. The final perfection of a banking system depends upon the interest of the whole people, with a fair knowledge of the growth already made. ”

“ It is the most fluid and volatile means of payment yet devised, and is subject to dangers and abuses. In the last analysis business based upon such a system of credit rests upon confidence in the honesty of individuals and in the enforcement of the law governing contracts, and also in the ability of those who have pledged themselves to future payment to make good their obligations. In times of panic credit fails and resort is had to money. ”

“ Such a system and such a standard also give free scope for the use and expansion of safe and conservative credit, so indispensable to broad and growing commercial transactions and so well substituted for the actual use of money. If a fixed and stable standard is maintained, such as the magnitude and safety of our commercial transactions and business require, the use of money itself is conveniently minimized. ”

“ Whatever advantages may inhere in non-notification financing which might have made Congress reluctant to jeopardize it, the system also has characteristics which make it impossible for us to conclude that it is to be distinguished from the secret liens Congress was admittedly trying to reach.
Receivables often are assigned only when credit in a similar amount is not available through other channels. [14] Interest and other charges are high, [15] and an assignment often is correctly understood as a symptom of financial distress. ”

“ Without going into the matter closely, which is aside from my present purpose, I leave before the reader the main facts of the case: that the system of credit centred in the modern banking system plays a vast and increasing role in our civilization; that while of a utility not easily overstated, it affords peculiar opportunities of fraud and exaction ”

“ The only way, really, in which our system differs from yours is that every one starts the year with the same balance to his credit and that this credit is not transferable. As to requiring deposits before accounts are opened, we are necessarily quite as strict as your bankers were, only in our case the people, collectively, make the deposit for all at once. This collective deposit is made up of such provisions of different commodities and such installations for the various public services as are expected to be necessary. ”

“ The main point on which one system of credit differs from another is 'soundness.' Credit means that a certain confidence is given, and a certain trust reposed. Is that trust justified? and is that confidence wise? These are the cardinal questions. To put it more simply—credit is a set of promises to pay; ”

“ The bank or banks which hold the reserve may last a little longer than the others; but if apprehension pass a certain bound, they must perish too. The use of credit is, that it enables debtors to use a certain part of the money their creditors have lent them. If all those creditors demand all that money at once, they cannot have it, for that which their debtors have used, is for the time employed, and not to be obtained. With the advantages of credit we must take the disadvantages, too ”

“ With a given amount of money a certain proportion of it can be used for bank reserves on which to build credit transactions. For a time the volume of business will increase more rapidly than the money supplies, so that the proportion of credit business to the whole will increase, the improvement of the credit machinery in the meantime facilitating the movement. But the perfection of the facilities for utilizing to the utmost a given reserve, or a slowly increasing one, will come to a stop after a time, and it will be necessary to increase the money supply for any further expansion of credit. ”

“ The disadvantage of the credit basis is the expense of bookkeeping which, of course, has to be added into the price of the goods sold. Our losses through unpaid bills have been negligible. Our customers are honest. But it has seemed unfair that the customer who pays cash should have to bear the cost of the credit accounts.
As our business has worked out more than fifty per cent. of our whole trade is on the cash basis. ”

“ Of course, only those banks can furnish such credits which possess a surplus of credit more than they can sell in the ordinary way, and these credits are safe and useful only in small communities, in which men are well known to each other. Some friends of the parties thus accommodated always guarantee the bank against loss; but the losses have proved to be insignificant, the gains to be marvellous; and this form of credit issued on the basis of no previous transaction in the way of deposits illustrates better than any other the radical principle, that Credit is Capital. ”

“ Merchant: Now, gentlemen, why all this frightful agony, this terrific straining, this ever-recurring tragedy and universal ruin, simply because we persist in being utterly ignorant of the simplest economic truths which our own actions on every such occasion have demonstrated—that there is absolutely no difference between a bank book credit and a bank note credit, except that the people want something that passes current in greatly increased quantities, when loaning stops or credit is checked. ”

“ Commercial banks are unique among financial institutions in that they alone are permitted by law to accept demand deposits. This distinctive power gives commercial banking a key role in the national economy. For banks do not merely deal in but are actually a source of, money and credit; when a bank makes a loan by crediting the borrower's demand deposit account, it augments the Nation's credit supply. ”

“ Nearly every enterprising business man needs bank credit. The granting of credit involves the exercise of judgment of the bank officials; and however honestly the bank officials may wish to exercise their discretion, experience shows that their judgment is warped by the existence of the all-pervading power of the Money Trust. He who openly opposes the great interests will often be found to lack that quality of “safe and sane”-ness which is the basis of financial credit. ”

“ Every private company which is instituted with a view to the purposes of banking may indeed issue promissory notes, which meet with a voluntary credit from the country; but these are distinguished from the public banks instituted by the authority of Government, and where credit does not depend upon the goodwill of any individual, as every man must accept in payment their notes when tendered to him. ”

“ Those notes of B's amounting to $100,000 are a bank Credit Currency. They are issued against, or upon B's credit. They pass from person to person, from hand to hand and are currently redeemed every day. While the deposits at A's bank amounting to $100,000 are against A's credit, and the checks against them are redeemed every day. It is perfectly evident that if the capital of A and B combined is ample to meet the business requirements of that town, the form of credit offered by [Pg 65] them will also adapt itself to the peculiar needs of each citizen. ”

“ As a result of interchangeability of book and note credits, a bank could always protect its coin reserve, for if the customer was just as well satisfied to take the bank's notes, instead of coin, or its reserves, it must be apparent to all of you that the cost to the bank would only be from one-sixth to one-fourth as great, and that the bank would have several times as much credit to loan, and at the same time be in a much stronger position. ”

“ No bank shall grant credit to a person if as a result thereof:
a. the aggregate outstanding principal amount of all of the bank’s credits to that
person would exceed the equivalent of fifteen percent, or such lower percentage as
specified by regulations issued by the CBI, of the bank’s unimpaired capital and
reserves (large credit exposure) , without obtaining prior approval of the CBI ”

“ To protect the credit company, frequently such invoices, as they go out to customers, bear a notation to the effect that payment of the bill is to be made to the credit company and not to the merchant selling the goods. An obvious and serious objection to this practice is that it gives the customer information as to the method of financing to which the seller has been reduced. In view of this objection a few bankers are willing for payment to be made as usual to the merchant, who must in turn transfer the identical item or the merchant’s own check for an equivalent amount to the banker. ”

“ I say approximately because M ́ (defined by Professor Fisher as "bank deposits subject to check") , if it be made to express an accurate measure of circulating credit, should include not only open bank accounts, but certain other values which constitute current means of payment, such as bankers' bills, trade bills, cashiers' checks, and certified checks....
The relation which Professor Taussig has pointed out between M ́ and T (the value of negotiable credit and the contemporary volume of trade) is not only possible, but, in any community of modernized commerce, is actual. ”

“ It has been argued that the volume of credits granted by the banks depends upon business activity and upon the consequent demand for credit and not upon the power of the banks to grant credits, and, therefore, that low interest rates have little effect in causing an expansion of bank credits. ”

“ The custom of keeping the spare cash reserved for immediate use, or against contingent demands, in the hands of a banker, and making all payments, except small ones, by orders on bankers, is in this country spreading to a continually larger portion of the public. If the person making the payment and the person receiving it keep their money with the same banker, the payment takes place without any intervention of money, by the mere transfer of its amount in the banker's books from the credit of the payer to that of the receiver. ”

“ Again, the terms offered by the bankrupts to their correspondents seem to us to promise the appropriation of a specified fund to the draft as little as they promise to apply the money received by them to that end. They are to provide the drawee banks with sufficient funds for the payment of the drafts by transfer of credit from our balance 'or otherwise.' They are to provide, that is, as convenient to themselves, for payment by the drawee banks, not to give them an earmarked corpus to be handed over. ”

“ The law which we apply to this case consists of principles of established credit in jurisprudence selected by us because they are appropriate to effectuate the policy of the governing Act. The Corporation was created and financed in part by the United States [15] to bolster the entire banking and credit structure. The Corporation did not simply step into the private shoes of local banks. The purposes sought to be accomplished by it can be accomplished only if it may rely on the integrity of banking statements and banking assets. ”

“ A State could not incorporate a company to coin, because it is forbidden to do so itself; nor could it incorporate a company to issue bills of credit. "To constitute a bill of credit within the Constitution, it must be issued by a State, on the faith of the State, and designed to circulate as money. It must be a paper which circulates on the credit of the State, and so received and used in the ordinary business of life. The individual or committee who issue it must have power to bind the State. ”

“ They have ultimately to pay for no more credit than they actually use, because the drawer will pay back to the payee, in case he has bought and paid for the entire credit drawn, the cash difference; while on the other hand, arrangements can always be made beforehand, by which money need not be deposited with the banker at home any faster than it is actually called for abroad; and while also a good customer of the bank drawing the credit, one who keeps ordinarily a good line of deposits, may pay for whatever credit he has used when he returns from his trip. ”