Checking Commercial Paper
banks in the larger cities a considerable amount of commercial paper is
bought for investment. Since
at least one-half of commercial paper is one-name paper, its strength
depends upon the financial responsibility and assets of the maker as disclosed
by the financial statement. For
this reason the note broker selling commercial paper is required to furnish
a current statement of his or her client's business.
The credit department of a bank in considering the purchase of
commercial paper must conduct an investigation, i.e., "check" the paper.
investigation leading to a recommendation of purchase must show a favourable
condition as disclosed by the analysis of a recent statement; favourable
reports from other banks which have had experience with the name in question;
favourable reports from the trade, preferably several creditors and debtors
and a competitor; and favourable mercantile agency reports.