paper he may want
discounted, if in his opinion it is good, nor should he be offended if
his banker refuses to take it even without giving reasons. A portion
of the loans of many banks consists of investments in solid bonds, but
the bulk of the loans of banks is made on commercial paper. Time and
demand loans are made upon collaterals of many descriptions. The
larger banks loan on an average from $50,000 to $100,000 a day. Banks
_discount_ paper for their depositors--and simply term the operation
discounting; but when they go outside of their line of depositors in
making investments in time paper they call it _buying_ paper. They
generally buy from private bankers and note brokers. National banks
are prohibited from loaning over ten per cent. of their capital to any
one individual or corporation except upon paper representing actually
existing merchandise.

WHAT ARE COLLATERALS?

If a business man borrow $1000 from a bank on his note and give ten
shares of stock to the bank, to be held by it simply as security, the
stock thus given would be termed collateral. These collaterals are not
the bank's property and the bank is responsible for their safe
keeping. If coupons mature while bonds are being held as collateral,
the owners are usually allowed to collect the amount for which they
sell. Sometimes one note is given as collateral security for another
which is discounted.

ACCOMMODATION PAPER

Notes and acceptances that are made in settlement of genuine business
transactions come under the head of regular, legitimate business
paper. An accommodation note or acceptance is one which is signed or
indorsed or accepted simply as an accommodation and not in settlement
of an account or in payment of an indebtedness. With banks
accommodation paper has a deservedly hard reputation. However, there
are all grades and shades of accommodation paper, though it represents
no actual business transaction between the parties to it and rests
upon no other foundation than that of mutual agreement. No contract is
good without a consideration, but this is only true between the
original parties to a note. The third party, or innocent receiver or
holder of a note, has a good title and can recover its value even
though it was originally given without a valuable consideration. An
innocent holder of a note which had been originally lost or stolen has
a good title to it if he received it for value, the law justly
protecting such a holder again