e United States there is no single
central institution, but a small group of banks in New York City are
the real centers of the system. Around these are grouped the banks in
the other large cities of the country and these in turn perform
important services for banks in the surrounding smaller towns and
country districts.

CHAPTER II

THE NATURE AND OPERATIONS OF COMMERCIAL BANKING

In the preceding chapter commercial banking has been defined as the
conduct of exchanges by means of a world-wide process of bookkeeping.
We must now describe this process. Its essential features are the
discount of commercial paper, the conduct of checking accounts, and
the issue of notes.

_1. Commercial Paper_

By commercial paper is meant the credit instruments or documents which
the credit system now in general use throughout the commercial world
regularly brings into existence and liquidates.

The essence of this system is buying and selling _on time_. The farmer
buys seed, implements, fertilizer, labor, etc., and pays for them
after the crops have been harvested and sold. The manufacturer buys
raw materials and pays for them after they have passed through the
transformation process which he conducts and the completed goods have
been marketed. He frequently sells them to jobbers or wholesalers on
time and these in turn sell them on time to retailers and these to
consumers. Farmers, manufacturers, and merchants both buy on time and
sell on time, and are thus both debtors and creditors, and each
expects that his sales will ultimately pay for his purchases.

The obligations involved in these transactions are represented and
recorded in the form of book accounts, promissory notes, or bills of
exchange, the latter being written or printed, or partly written and
partly printed, orders of creditors on debtors to pay to themselves or
to third parties the sums indicated. These documents are being
constantly made and constantly paid as the processes of agriculture,
industry, and commerce proceed. Indeed, their creation and liquidation
is a normal phenomenon of our modern economic life.

The term commercial paper, as we are using it, applies to such
promissory notes and bills of exchange as belong to this credit
system. It does not apply to such notes and bills when they owe their
existence to credit operations of a different kind, such for example
as accommodation loans or investment operations. Indeed, the
essential characte