In Accommodation Paper, the person for whose accommodation, the drawing, indorsing, or accepting, is done is bound to provide the funds to meet the bill, or to indemnify the person who gives his name. In the most usual form of Accommodation Paper, that of an acceptance, the acceptor is a mere surety, the drawer is the real principal debtor.

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Now suppose as before, that A gets ten of his friends to accommodate him with their names, and discounts these bills at his banker's, it is A's duty to provide funds to meet every one of these bills at maturity. There is in fact only one real principal debtor and ten sureties. Now these ten accommodation acceptors are probably ignorant of each other's proceedings. They only give their names on the express understanding that they are not to be called upon to meet the bill: and accordingly they make no provision to do so. If any one of them is called upon to meet his bill, he immediately has a legal remedy against the drawer. In the case of Real Bills then, the Bank would have ten persons, who would each take care to be in a position to meet his own engagement: in the case of Accommodation Paper there is only one person to meet the engagements of ten. Furthermore, if one of ten real acceptors fails in his engagement, the bank can safely press the drawer: but if the drawer of the accommodation bill fails to meet one of the ten acceptances, and the bank suddenly discovers that it is an accommodation bill, and they are under large advances to the drawer they dare not for their own safety press the acceptor, because he will, of course, have immediate recourse against his debtor, and the whole fabric will probably tumble down like a house of cards. Hence the chances of disaster are much greater when there is only one person to meet so many engagements, than when there are so many each bound to meet his own.

We see, then, that the real danger to a bank in being led into discounting Accommodation Paper is, that the position of principal and surety is reversed. They are deceived as to who the real debtor is, and who the real surety is, being precisely the reverse to what they appear to be, which makes a great difference in the security to the holder of the bills. To advance money by way of Cash Credit, or by loan with security, is quite a different

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affair; because the bank then knows exactly what it is doing, and as soon as anything occurs amiss, it knows the remedy to be adopted. Moreover it never permits the advance to exceed a certain definite limit; but it never can tell to what length it may be inveigled into discounting Accommodation Paper until some commercial reverse happens, when it may discover that its customer has been carrying on some great speculative operation, with capital borrowed from it alone.

Such appears to us to be the true explanation of the real danger of accommodation paper, which we gave in the first edition of the Theory and Practice of Banking, and we may say that in his long and elaborate judgment in the case of the great leather frauds, Laurence, Mortimer, and Schrader, Mr. Commissioner Holroyd quoted this explanation, thereby giving his high authority to its correctness.

In order to explain how such things are possible, it will be as well to notice a delusion which is very prevalent among uninformed writers, namely that Bills of Exchange are paid in money. It is true that Bills of Exchange must always be expressed to be payable in money, but as the reader may see in the preceding chapter, very few bills are really ever paid in money. When a customer has a banking account, the banker discounts his bills by writing down the amount to his Credit, and this Credit is called a Deposit. The customer always pays his bills by drawing upon this Credit, and when it gets low the usual practice is for him to discount a fresh batch of bills. Thus in ordinary times, the previous Debts are always paid by creating new Debts. No doubt if the banker refuses to discount, the customer must meet his bill in money, but then no trader ever expects to do so. If his character be good, he counts upon discounts with his banker almost as a matter of right: and therefore to call upon him to meet his bills in money may oblige him to sell goods, &c., at a great sacrifice, or may cause his ruin.

However it is always supposed that the bills discounted are good ones, that is, they could be paid in money if required. Thus though in common practice very few bills are really paid in money, it is manifest that the whole stability of the Bank depends upon the last bills discounted being good ones.

Now let us suppose that for some time a customer brings good bills to the bank, and acquires a good character, and thus throws the banker off his guard: meeting some temporary embarrassment, perhaps, he is in difficulty to meet his bills. In order to get over this difficulty, perhaps he goes to some man of straw, and perhaps for a trifling consideration, gets him to accept a bill without having any property to meet it. He then takes this fraudulent bill to his banker. Thrown off his guard, perhaps, by his previous regularity, the unsuspicious banker buys this bill, and gives him a Deposit for it. This Deposit goes to pay the former bills. In the meantime the rotten bill is falling due, and must be met. The acceptor has manifestly no means to meet it, and the only way to do so, is to create some more of these rotten bills. Now the drawer may be speculating in trade and losing money every day but his bills must be met, and there is no other way of doing so but by constantly creating fresh rotten bills to meet the former ones. By this means the customer may extract indefinite sums of money from his banker, and give him in return so many pieces of paper! Now when times are prosperous and discounts are low, this system may go on for many years. If traders are in a considerable way of business, they may actually establish a number of sham houses doing a fictitious business for the very purpose of creating these accommodation bills. But at last a commercial crisis comes. The money market becomes "tight." Bankers not only raise the Rate of Discount, but they refuse to discount as freely as formerly; they contract their "issues." All these rotten bills are in the bank and must be met, but if the banker refuses to discount they must be met with Money. But all the property which the conspirators ever had may have been lost twenty times over, and consequently, when the crisis comes, they have nothing to convert into money. Then comes the crash! Directly the banker refuses to discount any more bills he finds that he has been paying all his customer's bills for many years with his own money!

This is the rationale of Accommodation Paper; and here we see how entirely it differs from Real Paper. Because with Real Paper, and bond fide customers, though losses may come, still

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directly the loss occurs there is an end of it. But with Accommodation Paper, the prospect of a loss is the very cause of a greater one being made, and so perpetually in an ever-widening circle, till at last the canker may eat into a banker's assets to any amount almost. It is also clear that if a man, having got a good character, may sometimes do so much mischief to a single banker, the capacity for mischief is vastly increased, if from a high position and old standing, he is able to discount with several banks, for he is then able to diminish greatly the chances of detection. It would not be suitable to the limits of this work to enter into particular details of these cases, but those who wish to have more information we may refer to our Theory and Practice of Banking.

18. From these Accommodation Bills to forged bills there is but one step. It is but a thin line of division between drawing upon a man who is notoriously utterly unable to pay, and drawing upon a person who does not exist at all, or forging an acceptance. In practical morality, and in its practical effects, there is none. Traders sometimes do not even take the trouble to get a beggar to write his name on their bills, but they invent one. The case of traders dealing with a number of small country connections affords facilities for such practices. They begin by establishing a good character for their bills. Their business gradually increases. Their connections gradually extend all over the country. The banker, satisfied with the regularity of the account, cannot take the trouble of sending down to enquire as to the acceptor of every bill. The circle gradually enlarges until some fine morning the whole affair blows up. The ingenuity sometimes exercised by traders in carrying out such a system is absolutely marvellous.

It is in times of speculation in great commodities that Accommodation Paper is particularly rife. In a great failure of the harvest, when large importations are required, and it is expected that prices will rise very high, every corn merchant wishes to purchase as much as possible. But if no sales have taken place there can be no real trade bills. They therefore proceed to manufacture them in order to extract funds from bankers to speculate with. No banker in his senses would actually advance

money for them to speculate with, with his eyes open. Nevertheless, they must have the funds from the bankers, and this they do by means of cross acceptances, which they go and discount with their bankers. They then perhaps buy a certain amount of corn, or any other goods, and many bankers will discount their bills with the collateral security of the Bill of Lading. And this they may repeat many times over, till the quantity of credit created is something astonishing. In the Crimean War there was a great demand for shipping, and there was an enormous amount of accommodation bills manufactured by the Liverpool shipowners and discounted all over the kingdom. The results were frightfully disastrous.

The insurmountable objection, therefore, to this species of paper, is the dangerous and boundless facility it affords for raising money for speculative purposes. And there is much reason to fear that this pernicious system prevails to a much greater extent than is generally supposed. The Legislature has imposed bounds upon the issue of Notes by banks, but there is much greater reason that some attempt should be made to curb the extravagant magnitude to which this detestable practice has been developed. The Bank of England is strictly forbidden to issue a single £5 note of accommodation paper, and is it to be tolerated that any set of adventurers may set afloat many hundred thousand pounds' worth of their accommodation paper?

To deal however legislatively with Accommodation Paper, is the most perplexing commercial problem of the day. The difficulty consists in determining what is really an Accommodation Bill. An Accommodation Bill is defined to be a Bill to which the acceptor, drawer, or indorser, as the case may be, has put his name, without consideration, for the purpose of benefiting or accommodating some other party, who is to provide for the bill when due. But the whole difficulty turns on the consideration. The consideration may be of many sorts, and does not by any means denote a sale of goods at the time. Moreover, a bill may be an Accommodation Bill at its creation, but if any consideration be given during the period of its currency it ceases to be an Accommodation Bill.

Moreover the consideration may be of many sorts. If A