a few London banks suspected of having
"accepted" too great a quantity of American loan-bills, to make it
impossible to go on loaning profitably in the New York market. In order
to make loans, long bills have to be drawn and sold to somebody, and if
the discount market in London will take no more American paper, buyers
for freshly-created American paper will be hard to find.
To get back to the part foreign loaning operations play in the foreign
exchange market here, it is plain that as no actual money is put up,
the business is attractive and profitable to the bank having the
requisite facilities and the right foreign connection. It means the
putting of the bank's name on a good deal of paper, it is true, but
only on the deposit of entirely satisfactory collateral and only in
connection with the assuming of the same obligation by a foreign
institution of high standing. There are few instances where loss in
transacting this form of business has been sustained, while the profits
derived from it are very large.
As to what the foreign department of an American bank makes out of the
business, it may be said that that depends very largely upon whether
the bank here acts merely as a lending agent or whether the operation
is for "joint account," both as to risk and commission. In the former
case (and more and more this seems to be becoming the basis on which
the business is done) both the American and the European bank stands to
make a very fair return--always considering that neither is called upon
to put up one real dollar or pound sterling. Take, for instance, the
average sterling loan made on the basis of the borrower taking all the
risk of exchange and paying a flat commission of three-eighths of one
per cent. for each ninety days. That means that each bank makes
three-sixteenths of one per cent. for every ninety days the loan
runs--the American bank for simply drawing its ninety-day bills of
exchange and the English bank for merely accepting them. Naturally,
competition is keen, American banking houses vying with each other both
for the privilege of acting as agents of the foreign banks having money
to lend, and of going into joint-account loaning operations with them.
Three-sixteenths or perhaps one-quarter of one per cent. for ninety
days (three-quarters of one per cent. and one per cent. annually) may
not seem much of an inducement, but considering the fact that no real
cash is involved, this percentage is enough t
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