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Rh as guardian or trustee, registrar, fiscal agent, administrator and others. These functions had been exclusively performed by trust companies, most states following the example of the National Bank Act and drawing a sharp line of distinction between their own state banks and their trust companies. The Federal Reserve Act authorized the assumption of fiduciary powers by national banks upon permission of the Federal Reserve Board. Such permission when granted by the Board was promptly questioned in the courts, but was upheld by the Supreme Court of the United States. This decision led to an extension of the scope of the fiduciary functions so that national banks were shortly placed upon a basis of competitive equality with trust companies. The situation led various states to modify their laws in such a way as to permit state banks to take on fiduciary functions likewise. Thus the distinction which had previously existed between national banks, commercial state banks, and trust companies was gradually wiped out. By the end of 1920 about 1,200 national banks had been granted permission to exercise trust functions. The time has not yet been sufficiently long to permit an accurate judgment of the effect of these changes upon the general banking situation, the full exercise of fiduciary functions being usually a process of comparatively slow development.

Organizing for Foreign Trade.—One of the principal defects of the old national banking system was that it did not function well in connexion with foreign trade. Neither national nor state banks had been in the habit of using bankers' acceptances, which had become the standard basis of foreign business in Great Britain. This defect was remedied in the Federal Reserve Act, which authorized the making of acceptances by national banks up to an amount equal to 100% of the capital and surplus of the accepting bank (50% in the original Act confined to foreign trade, but later amended to 100% of which not to exceed 50% might be domestic acceptances). Several of the states in which banking had assumed the greatest development made a similar change in their legislation at about the same time, so that at the opening of the World War, with its great impetus to American foreign trade, the banking system, both national and state, was in position to finance business on the acceptance plan. It was seen, however, in the formulation of the Federal Reserve Act that in order to develop foreign banking successfully the use of the branch system would be necessary. Branch banking had never been permitted in the United States under the National Bank Act, and although it sporadically existed under various state laws such systems were only local and not particularly successful. It may broadly be said, therefore, that there had been no development of the branch bank principle prior to 1913. Although at one time it was proposed to insert in the Federal Reserve Act permission to establish domestic branches of national banks, and although the Act gave to Federal Reserve banks power to establish branches within their own districts and at their own discretion, it withheld from national banks power to create domestic branches. It, however, did vest them under certain conditions with the power to establish branches abroad. This power was used by only one or two of the larger national banks, and early in 1915 the demand for action which would allow national banks to subscribe to the stock of foreign trade banks to be jointly owned by them became very strong. Accordingly Congress in 1915 modified the Federal Reserve Act to the extent of permitting the organization of foreign trade banks. The plan, however, did not meet with much favour and few such banks were organized. Those which were brought into existence did a fairly successful business, but not enough were established to give the plan a commanding place in American financial life. The subject, however, of financing foreign trade was unavoidably thrown into the background by the advent of the war and the conditions growing out of it. Foreign countries financed their purchases of American goods upon what was practically a cash basis prior to the time that the United States itself entered the war and after that date practically the whole export trade of the United States was financed upon the basis of Government credits for

which the U.S. Treasury furnished the means. The result was to make the whole foreign banking question far less urgent or immediate than it would otherwise have been. Not until the war had closed, and indeed, not for some considerable time after, did the subject receive discussion. Such discussion, how- ever, became general about the middle of 1919, and at that time it seemed to the Federal Reserve Board that a plan of action modelled upon the British investment trust might serve as a basis for the general long-term financing of American exports. This export financing was regarded as essentially a problem which involved the shipment of goods upon long-term credit, it being recognized that much time must elapse before foreign countries could send to the United States enough goods to keep their American trade in current balance. Accordingly the so-called Edge Act was passed Oct. 1919. It and the regulations subsequently issued by the Federal Reserve Board provided for the establishment of foreign trade financing corporations of two classes, the one vested with very large powers of acceptance and really differing in no essential way from the foreign trade banks already referred to, except that the stock of the Edge Act corporations might be held by individuals or commercial establishments and not exclusively by banks. The other type of corporation was to be organized for the purpose of providing credit in the export trade, the securities and evidences of indebtedness which it received being employed as a basis upon which debentures or bonds would be issued and offered to the public, thereby restoring to the corporation issuing them the funds which it required, for still further dealings and advances of the same kind. At first but little interest was shown in the idea of such corporations. Prior to the close of 1920 only one had been actually organized although several were under consideration, and early in 1921 the formation of two additional enterprises of the same sort was announced. The most important of the early undertakings under the Edge enactment was a corporation projected by the committee representing the American Bankers' Association, whose capital was to be $100,000,000 and whose stock was offered to the public early in the year 1921. The Edge Act may be summarized in the statement that it was in effect a plan to provide for the financing of foreign trade apart from domestic banking operations, and with a very much greater latitude in respect to the granting of credit than could properly be allowed to domestic institutions.

Growth of a Discount Market.—The use of the acceptance function to which reference has already been made progressed comparatively slowly during the early years of the Federal Reserve system, being retarded by the various disturbing conditions attendant upon the war. The expansion of the acceptance proceeded most rapidly and reliably in connexion with foreign trade, where this type of paper speedily assumed a position of some importance. Its growth was, however, greatly restricted as a result of the lack of branch banks maintained by American institutions in foreign countries. At the close of 1920 it was estimated by the Federal Reserve Board that the total amount of acceptances made by member banks of the system and then outstanding was probably a little under $650,000,000. The bulk of these acceptances had been made by a comparatively small number of acceptance-issuing institutions located for the most part at points whose interest carried them in considerable measure into the export trade. Some interior banks had attempted to develop the domestic acceptance, but with no great success, while the commercial, or trade, acceptance, or “domestic bill” as known in other countries', had shown but slight signs of assuming importance. This was partly due to the existence of the well-known system of offering cash discounts which, if it did not originate in the United States had attained by far its greatest development there. Under the cash discount system, while invoice prices were strictly maintained, a second or reduced invoice price was offered to those who were able to make an immediate or “cash” payment within a specified number of days from the date of the invoice, while to those who preferred to enjoy the full period of credit the full face value of the