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The Loan

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THE LOAN DEPARTMENT—LOANS TO STOCK BROKERS General Functions of the Loan Department It is the function of the loan department to make the loans of the bank and to take care of the collateral securities pledged, as some loans are secured by pledge of collateral. The specializa tion of a department is required for handling collateral loans alone, where their volume is large, a condition which prevails in the vicinity of the stock and commodity exchanges and in the reserve cities, whose banks loan heavily to out-of-town banks and in dividuals on collateral notes.

The collateral tendered varies widely with the location of the bank and its clientele. It usually consists of corporate bonds and stock certificates. In this form it constitutes a very large proportion of the hypothecated instruments in Wall Street banks which facilitate stock exchange transactions. Another form quite common in the case of loans to correspondent banks is bills receivable—the discount paper of their local customers. Ad vances are also made on warehouse receipts covering sugar, cotton, coffee, lead, copper, corn, wheat, and other staple com modities; banks which are located in the receiving and storage centers for these produce or metal exchanges and which cater to certain of these trades naturally loan heavily on pledged ware house receipts, elevator receipts, cotton tickets, etc.

The values of the pledged bonds, stocks, and receipts are determined largely on the organized and "curb" speculative exchanges, and it is necessary that the loan department guard itself in the light of price fluctuations there. To be on the safe side, a certain percentage of margin in excess of the face value of the loan must be asked at first, and then maintained by the required tender of additional collateral in the case of a slump in values; withdrawals may be allowed later when quotations advance. Moreover, during the life of the loan, substitutions of collateral are allowed, made in securities of equal market value and desirability. In the acceptance of substitutions great care must be taken, for, while the collateral offered for exchange may be of equal market value and desirability, the quality may be lower.

As custodian of the collateral held by the bank to secure its loans, besides the safe and orderly keeping of the collateral, certain incidental duties devolve upon the loan department, such as the detachment and delivery of coupons upon the request of the borrower, or crediting them when collected to his account, the confirmation or correction of comparisons as often as the borrower renders the same, and the maintenance of a permanent record and description of incoming and outgoing collateral, closely correlated in each instance to its particular loan.

The loan department proves the computation of interest paid on loans, and prepares lists of proper credits for principal and interest. Statements are rendered periodically on loans made,

being prepared more frequently on brokers' demand loans than on time loans or on depositors' demand loans. The rates on the demand loans are raised and lowered as the money market fluctuates, and the borrower is notified in each instance. The department also keeps a record of the daily, monthly, and yearly average rates on time and demand loans, brokers' balances, day loans, demand loans, bank loans, etc., and prepares for the direc tors' meetings reports of all loans made and remaining unpaid.

Internal Organization The volume of work for the department as a whole, and for the different divisions of the department, fluctuates widely during the day. A slump on the exchange not only suddenly and immensely increases the volume of loans demanded, but partic ularly affects the margin clerk. On the other hand, an upward swing of exchange prices, while increasing the volume of loans to facilitate the greater volume of exchange transactions, leaves the margin clerk at ease. A bulge in the price of one or more securities may induce the owner to sell his holdings, part of which may be pledged for loans at his bank; such a sale will force col lateral substitutions in unusual amounts and crowd the substi tution clerk. Certain other lines of activity, like the care of the interest book, the preparation of statistics, etc., are of more even tenor and less peremptory in their demands.

These fluctuations in the volume and allocation of the depart ment's work react upon its internal organization. It becomes necessary to concentrate the clerical force in accordance with the pressure of work. The clerks do almost any task within the department; while each may be given certain responsibilities, as the care of the daily earnings book or the care of margins, he in addition stands ready to shift at any time to some other pressed station. The department is administered by the loan clerk, or "brokers' cashier," as he is sometimes called; the windowmen are specialized for obvious reasons; but the other groups of clerks, those handling the margins and collateral and those doing the bookkeeping, are general utility men. Working under or co operating with the loan clerk is a regular broker on the exchange in the "money crowd." Classification of Loans of Banks in the United States The classification of loans and discounts of the national banks of the United States and of New York City is shown in the accompanying table. It will be observed that about one-fifth of the loans of the United States are on demand and three-fourths on time, that a larger per cent in New York are on demand, due almost entirely to the proportion of loans secured by stocks and bonds, and that the loans with real estate security are negligible.