loans; sometimes
he lends upon the mortgage of goods, houses, and other property, or of
shares in railways and government funds, in the way described; but this
is not a proper way for a banker to employ much of his funds, because he
may not be able to get back such loans rapidly enough when he needs
them. One of the simplest ways of lending money is to allow customers to
overdraw their accounts, that is, to draw more money out of the bank
than they have put in. But a banker naturally takes care not to allow
overdrafts unless he has great confidence in his customer, or has
received a guarantee of repayment from him or his friends.

#86. Discount of Bills.# The most common and proper way in which a
banker gives credit and employs his funds is in the discount of bills,
that is, in advancing money in exchange for a definite promise to pay it
back at a stated time. Suppose that John Smith has sold a thousand
pounds worth of cotton goods to Thomas Jones, a shopkeeper; several
months will pass perhaps before Jones can sell the goods over the
counter, and if he has not much capital, he agrees that John Smith shall
give credit for the thousand pounds but in the mean time draw a bill
upon Jones. This bill would very likely be somewhat in this form--

LONDON, 1st February, 1878.
L1000, 0s. 0d.

Three months after date pay to me or my order the sum of one thousand
pounds, value received.

JOHN SMITH.
To Mr. Thomas Jones.

John Smith is said to be the #drawer# of the bill; Thomas Jones is the
#drawee#, and the bill amounts to a claim on the part of John Smith that
Thomas Jones owes him the sum named. If the drawee acknowledges that
this is the case, he signifies it when the bill is presented to him, by
writing on the back the word "accepted," together with his name.

Now if the drawer and drawee of a bill are persons of good credit, a
banker will readily discount such a bill, that is, buy it up for the sum
due, after subtracting interest at the rate of say five per cent. per
annum for the length of time the bill has to run. The bill forms good
security, because, when accepted, John Smith is bound to pay the
thousand pounds when due, and if he fails, the drawee is liable. Such
bills are often bought by one person after another, being #endorsed# by
each to the next, that is, impressed with an order that the money shall
be paid to the next person named. When due the last owner must claim th