is, of course, pronounced in those sections of the country in which the crops bulk largest. In these sections the time of crop moving fixes the date of liquidation of the loans, and the maturities must be adjusted accordingly. Temporary accommodation will also be granted where unexpected or large withdrawals of deposits occur, or in the past in connection with government finance. In a few cases continuous borrowing is permitted where banks are located in large cities which lack sufficient banking capital to meet continuous borrowing demands. In granting accommodation, the lending bank considers prominently the profitableness of the account to it, as represented in particular by the balance which is kept with it.

Accommodation may be obtained in a variety of forms. Paper may be rediscounted or a loan may be made. This loan may be unsecured, or else secured by collateral consisting either of bills receivable or of securities. Loans may be made on demand or for a fixed maturity. Finally, the accommodation at times may be extended in a special form, such as through the use of the certificate of deposit, or by sale of securities or bills receivable with repurchase agreement.

The general practice is to extend loans rather than to grant rediscounts. There are relatively few unsecured loans. Collateral is desired for the assurance of safety which it gives. Banks on the whole differ in their preference with respect to the kind of collateral, some preferring bills receivable, while others prefer securities, but on the whole the collateral consists mostly of bills receivable. In the agricultural sections few securities are used. The use of collateral permits a margin which provides further protection to the lending bank. This varies very greatly with the individual case, the customary margin perhaps running, however, from 10 to 25 per cent.

Practice also differs with respect to the maturity of loans. Some institutions usually have demand loans, while others strongly prefer loans for fixed periods. This varies somewhat, according to the form of collateral employed, and loans on bills receivable are usually for fixed periods. A

favorite maturity is 60 to 90 days. The collateral is generally held by the lending institution, although in the case of banks in distant parts of the country another institution may hold it under trust receipt. The collateral is generally returned shortly before maturity to the borrowing institution.

Borrowing against certificate of deposit is relatively rare, although in New England, on the Pacific coast, and in the Northwest it is still stated to be frequent. In some cases, also, officers or directors may arrange for accommodation on their own note, or else may indorse the borrower's paper in order to provide added strength. Purchase of securities or bills receivable under repurchase agreement is at times also found, and this may be done for special purposes, such as in connection with taxation. Most of the special forms of accommodation may be traced to a continuance of the prejudice which formerly existed against banks showing bills receivable or rediscounts in their published statements.

VI

THE NEW YORK CALL-MONEY MARKET

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

(See text, pp. 157-158)

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 callmoney 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 callmoney 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 is only the excess of loanable funds which they may have 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.

CAUSES AFFECTING PRESENT CALL-MONEY RATES

The reference in the congressional resolution to high rates for call money in the financial centers and the inquiry as to their causes requires, it is felt, a survey of the operations of the money markets and the reflection therein of the underlying economic conditions which govern, in varying degrees, all money rates, including those for call money. Present changed conditions of supply.-In former times, and specifically prior to the institution of the Federal Reserve System, bankers, especially in reserve centers, were accustomed to look upon call loans as their principal secondary reserve on the theory that inasmuch as those loans were payable upon demand, funds so invested could always be promptly obtained on short notice to meet withdrawals of deposits or for other use. In these circumstances there

was ordinarily available for collateral call loans a supply of funds sufficient for ordinary market requirements and at low rates, although at times the rates rose to high levels as the supply of funds diminished, or the demands increased. This attitude of the banks toward call loans as their chief secondary reserve has been greatly modified by two causes. The first was the closing of the stock exchange at the outbreak of the European War in the summer of 1914, when it became practically impossible to realize on call loans secured by investment securities, which became, therefore, "frozen loans." This resulted in a more or less permanent prejudice against dependence upon call loans as secondary reserves. The second and more important factor was the creation of the Federal Reserve System.

Under the terms of the Federal Reserve Act provision is made for the rediscount of commercial paper, but the rediscount of loans for the purpose of carrying investment securities, other than United States government obligations, is excluded. Consequently, in order to maintain maximum liquidity, with suitable provision for secondary reserves that can be immediately availed of, banks, including foreign agency banks, now invest a greater proportion of their resources in assets that can be realized upon at the Federal Reserve bank. Another changed factor in the present situation grows out of the fact that the war and post-war conditions have rendered unavailable supplies of money which formerly came from foreign banks. Since the summer of 1914, while total banking resources have largely increased, the volume of bank money available to the securities market at low or normal rates has not increased proportionately, but on the contrary has probably decreased. All of these circumstances explain in some measure the increased rates which have often been required during the past year for money loaned in the securities market.

Present changed conditions of demand.-Changed conditions are also present in the factors governing the demand for money. Prior to the armistice, agencies of government were employed to restrict the issue of new securities for purposes other than those which were deemed essential