208. Export Letters Of Credit

As for export letters of credit, they are a different thing, being rather like the advances bankers are continually making to their mercantile clients. A machinery firm in Detroit, for instance, wanting to sell mowing machines in Argentina may get its bank to advance the money and assign the payment of the invoices over to the bank. All sorts of business of this kind is being carried on and under various arrangements. Strictly speaking, however, these advances have nothing to do with commercial letter of credit business. They are more in the line of the business of the banker who advances money to a client for the purpose of building an addition to his plant or for any other valid purpose.

209. Growth Of Commercial Credit And Facilities

Owing to the large number of bankers now engaged in commercial credit business and the fact that even the big banks are willing to open little credits of £100 to £200, the use of these facilities by importers has become very general. It is a common thing for a bank to grant an importer with resources of $100,000 a letter of credit for £20,000, thus enabling him to double his business. And it is to this that the great increase in our foreign trade during the past ten years is undoubtedly due. Where importing is made so easy there will be plenty of people who want to engage in it.

What influence does this mass of credit exert on the stability of the commercial structure? Is there any ground for the mistrust of the old-line importer who thinks that the merchant should use his own capital and not the banker's? Very little - that was shown beyond doubt by the panic of 1907 and the bad times which followed. Failures among importers occurred but they were comparatively few - certainly nothing like what was feared. Bankers lost some money on commercial credits during that time but the amount was not very great. The merchandise imported by any but the strongest houses is usually all sold before the letter of credit is even applied for; and so, as long as the importer is honest, the banker takes little risk of not getting his money.

The commercial credit business as it has developed during the past few years has, in fact, become an integral part of our banking system and is growing more and more important all the time. It is a development, indeed, which is a long step toward the bringing about of those ideal relations between the banker and the business man which tend to use the accumulated savings of the country, not for speculation but for carrying on the country's legitimate business.