From the Federal Reserve Bulletin, April, 1920, pp. 369-371.

(See text, pp. 191-92)

Definition of call loans. - Collateral call loans, in the general acceptance of the term, are made chiefly in New York City, which is practically the only important call-money market in the United States. They are loans which are payable on demand of the lender without previous notice, secured by the pledge of investment securities, i.e., stocks and bonds, generally those which are dealt in on the New York Stock Exchange. The interest rates on these loans, as on other classes of loans, are on the basis of a rate per annum.

The borrowers. - The loans are made for the most part to houses which are members of the stock exchange and the money so borrowed constitutes a portion of the funds employed ordinarily in purchasing and carrying securities for their customers and sometimes for themselves.

The lenders. - The principal supplies of money for collateral call loans are loanable funds of banks and bankers located both in and outside of New York City, including foreign banks and agencies of foreign banks; and similarly the loanable funds of firms, individuals, and corporations seeking temporary investment. The proportion of the whole fund loaned by these several interests varies seasonally and in accordance with the attractiveness of other opportunities for investment, either locally or in other markets. The bulk of call money is lent on the floor of the New York Stock Exchange at "the money post," where through various brokers loanable funds are offered and bids for funds are received. Most of the business is done between the hours of 12 noon and 2.45 p.m. The important relation to the money market of the present system of daily settlement of balances resulting from the purchases and sales of securities on the stock exchange will be discussed more fully hereafter.

Commercial requirements have the prior claim. - In the matter of the supply or attraction of funds to the call-money market, there is generally a definite and well-understood obligation on the part of banks to accommodate first their own commercial clients, so that it only the excess of loanable funds which they may ha from time to time that is available for the collateral call-money market or for the purchase of commercial paper in the open market. This excess of loanable funds available for employment in the securities market varies, therefore, according to the commercial requirements of the country. It has long been recognized that for assurance of a sufficient amount of money to finance the volume of business in securities, reliance cannot be placed on a rate of interest limited to the rates which obtain or are permitted in commercial transactions whose prior claim on banking accommodations is universally conceded.