on this kind of security have in many cases exhausted payments. Furthermore, borrowers who resort to loans work in the handling of the loan and the collection of the every account assigned to the bank, as well as considerable volves a rigid investigation of the financial standing of

every other kind of borrowing asset, and, therefore, need watching.

Another form of collateral security which is extensively used, especially by traders on boards of trade and produce exchanges, is the warehouse receipt. These are receipts for goods such as grain, cotton or tobacco, stored in a warehouse under the regulation of a produce exchange or of the state authorities. They certify to the quantity and grade or kind of produce which will be delivered to the holder of the receipts when properly indorsed. The receipts are negotiable and when pledged for a loan at the bank are indorsed over to it, giving it a lien upon the goods. If the loan is not paid at maturity, the bank can take possession of the goods and sell them to satisfy the debt. If the borrower wishes to sell some of his cotton or wheat during the period of the loan he will generally be required to reduce his loan by a corresponding amount or to substitute other receipts.

On August 11, 1916, Congress passed the United States Warehouse Act, which was designed to establish a form of warehouse receipt for cotton, grain, wool, tobacco, etc., which will be more easily and widely negotiable as a delivery order or as collateral for bank loans. To this end warehouses are licensed and bonded under conditions which will insure the integrity of their receipts and make such receipts reliable evidence of the condition, quality, quantity and ownership of the products stored. The Act gives the Secretary of Agriculture authority to investigate the storage, warehousing, classification, etc., of these products, and to issue annual licenses for conducting warehouses in which such products may be stored for interstate or foreign commerce. Persons other than warehousemen may be licensed to accept agricultural products for storage in warehouses owned, operated or leased by any State. It is not compulsory, however, that any warehouseman shall be licensed by the Secretary of Agriculture. Under an amendment to the Federal Reserve Act permitting member banks to make domestic acceptances provision is

made for accepting bills of exchange having not more than six months to run "which are secured at the time of acceptance by a warehouse receipt or other such document conveying or securing title covering readily marketable staples. Some of the Federal reserve banks have encouraged the use of this so-called "commodity paper" by making a preferential discount rate on it. Merchandise stored under adequate warehousing regulations is a safe and convenient form of collateral, which is bound to have considerable development in the future.

A bill of lading is a written acknowledgment by a railroad or other carrier of the receipt of goods for transportation. A "straight" bill states that the goods are consigned or destined to a specified person and normally is non-negotiable. In an "order" bill the goods are consigned to the order of a person named in the bill, which is therefore negotiable. Since the bill of lading may be made negotiable and presumably represents actual merchandise in transit, it is comparable in importance with the warehouse receipt as a safe and satisfactory form of collateral upon which to make loans. These bills are used extensively in connection with bills of exchange or drafts which they serve to secure. For instance, A, of New York, sells a bill of goods to B, of Chicago, subject to draft at thirty days. A attaches the bill of lading given to him by the railroad when he ships the goods, to the draft drawn either in his own favor or in favor of his bank and takes them to the bank. The bank forwards the draft with the bill of lading to its agent or correspondent in Chicago, who presents the draft to B for acceptance. Upon being notified by the Chicago correspondent that B has accepted the draft, the New York bank advances the money to A. Possibly, A may get immediate use of the proceeds of the draft upon depositing it. Ordinarily the bank is safe in advancing the money to A, since it retains title to the bill of lading until its Chicago correspondent secures B's acceptance of the draft, which is his promise to pay in thirty days. B cannot, at least he should not, get possession of the

goods without the bill of lading which the Chicago correspondent surrenders to him only after he has accepted the draft. The "acceptance" is in effect double-name paper, secured by actual merchandise the evidence of which, the bill of lading, has passed through the hands of the bank. At maturity the acceptance will be collected by the Chicago correspondent of the New York bank and forwarded probably in the form of a bank draft. If B fails to meet the acceptance at maturity, the bank can recover from A.

Though the bulk of the cotton, grain and other crops moving to market has been financed on bills of lading, their use has been attended by grave abuses and frauds. They have presented an easy means of obtaining money fraudulently, and so have had a somewhat insecure value as collateral. The Southern cotton frauds of a few years ago may be cited as an instance. Bogus bills of lading were issued purporting to represent shipments of cotton to Europe, drafts were drawn, sold and forwarded to Liverpool for payment, only to reveal that no cotton had been shipped and that the bills of lading were forgeries.

For years the American Bankers' Association and other organizations strove to secure the necessary legislation to provide protection against the frauds attending the use of bills of lading, and many of the States enacted a uniform bill of lading law suggested by the Association. Finally Congress passed the Bill of Lading Act, August 29, 1916, which became effective January 1, 1917.. Among other features it provides for a uniform bill of lading; makes bills of lading easily and safely negotiable; shifts the burden of responsibility from the bank to the carrier; and makes fraudulent practices in connection with such bills misdemeanors, punishable by imprisonment or fine or both.

130. Loans on real estate.—Prior to the enactment of the Federal Reserve Act in 1913, national banks were prohibited from loaning on real estate, though state banks in most of the states are permitted to do so under certain limitations. National banks may, however, take real estate mortgaged or sold to it to secure debts previously con

tracted or due to them. Even then they are required to dispose of such real estate within five years.

The reason for this prohibition upon national banks, and the restrictions found in most of the state laws upon the proportion of a state bank's assets which may be loaned upon real estate, may be found in the disastrous experiences of banks prior to 1863 when real estate security was fluctuating and uncertain and heavy losses were incurred in lending on this seemingly solid basis. It is a sound principle and policy of commercial banking that the assets shall be kept "fluid." Since most of a bank's obligations are payable on demand it is necessary that the securities it holds shall be readily convertible into money. Commercial paper arising from actual business transactions and having from thirty days to four months to run is of this nature. Such paper, maturing constantly from day to day and being paid or renewed for similar short periods at the option of the bank, gives to the bank close control over its funds. Real estate, on the other hand, is not a “quick” asset, but often a very "slow" one. A mortgage upon real estate may be perfectly good security, but it cannot be turned into money immediately in case of an emergency. Personal securities and most of the forms of collateral security previously described can be quickly assigned and realized upon, but the transfer of real estate is usually attended with some delay. In the case of savings banks, trust companies and insurance companies there is not the same need for keeping the assets in a convertible form; indeed it is rather desirable that a considerable part of their investments shall be more or less permanent; real estate loans, therefore, are well suited to their purpose.

In the past, conservative bankers have regarded the restrictions placed by law upon real estate loans as wise and salutary. In recent years, however, there has been a persistent demand, mainly in the agricultural sections of the West and the South, where land and its products constitute the chief wealth, for more liberal laws regarding loans on farm lands. It is urged that a farm mortgage,