The common form used in calling a loan is as follows: Although call loans to brokers are made subject to repayment on demand, it is the custom of Wall Street to consider them as loans for a day; that is, those made today are not in practice subject to call until the next day. Calls are made, by custom and rule of the Street, in the morning and not later than r P.M., and the broker is allowed until 2 :1 5 to make payment and recover his hypothecated securities. If, however, after r o'clock the bank learns something which it does not like about a firm, it can legally call the loans up to 3 P.M. or the close of business.
Call loans to brokers are the most active loans made by the bank and are continually changing both as to rate and collateral. The rates follow those made on the exchange during the day and in active times change very often. For instance, take the figures reported for September ro, 1919, of the amount of call money placed on the floor of the New York Stock Exchange: The collateral deposited as security consists largely of the stocks and bonds which the broker borrowing the money is carry ing on margin for customers, and whenever his customers sell any of these the broker withdraws those sold and substitutes others. The collateral of a broker sometimes completely changes within a few days.
Method of Placing Loans The loaning of money to brokers is accomplished both by direct contact with the borrower and through the agency of money-brokers, who act as middlemen between the lender and the borrower. A large part of the loans is made by the money-broker on the exchange, and the rate for call money is established there. There was formerly on the New York Stock Exchange a regular place, the "money post," in the boardroom, for effecting loans, and the money-brokers, the "money crowd," congregated there. The exchange in 1919 adopted the scheme of a "money table," presided over by a loan expert, who handles the business under the general supervision of a special money committee composed of members of the exchange. To this table each broker submits a memorandum of his money needs, and when loan money comes it is allocated among applicant brokers; the purpose of this arrange ment is to eliminate spasmodic or feverish bidding for loans at different times during the day.
There are some brokers who make the loaning of money their exclusive business. The money-brokers make the loans for
banks, private bankers, some mercantile firms, railroad and insurance companies, and some wealthy individuals. The broker who acts in this way as agent for some bank or banks in lending call money may perform the service gratuitously, hoping thereby to establish himself with the bank and assure himself of banking connections. Some banks pay their brokers an annual salary; in other cases the brokers act for a small per cent brokerage, but there is no recognized commission for the loaning of call money. In the case of time loans the brokerage can be and is added to the charge to the borrowers. A large bank may have its own private broker, who does nothing else than place its loans on the board.
On the receipt of the morning figures from the clearing house, the bank's loan policy for the day is determined; if there is a good balance and it is known that no large drafts are to be presented that day, the bank instructs its broker as to the amount which he may loan, and the rates thereon.
Collateral for Loans As the broker places the loans, he notifies the bank of the name of the borrower, the amount loaned, and the rate. All the collateral is subject, of course, to the bank's approval, and as the securities offered constitute the bank's best protection in this matter they are scrutinized very closely. When the loan is presented at the window, reference is had to the contract made by the bank's money-broker to see that the amount and rate are correct. The securities are then counted and checked with the list given on the envelope in which they are enclosed, and they are carefully examined. The precaution taken is to see that all collateral offered is a strictly "good delivery" according to the rules of the stock exchange, thereby assuring a regularly organized and ready market for immediate liquidation and also protecting the bank against the contingency of being unable to liquidate the collateral in case the company whose securities compose the collateral has temporarily closed its books for some business reason and made transfers impossible.
The broker tenders his collateral in an envelope (Figure 33) on which is written his name and the securities contained therein, with their amounts. The face of this loan envelope appears as shown on page 838.