From the point of view of convertibility two questions arise, the one concerning the period or duration of the indebtedness and the other the possibility, before final maturity, of a resale of the claim against the debtor. This second question, however, has to do with conditions that are beyond the control of both the banker and his client. It is simply a question of fact, is there or is there not a general market, to which, if necessary, the banker may turn? This is a question of great importance, but it can be more intelligently discussed in connection with the re-quirements of the banking system as a whole. Here will be considered, therefore, simply the question of the duration of the investment.

Loans on other com modities and on real estate are least desirable

The question is one of marketability

Most satisfactory is the "call loan." It is so designated because it is repayable at the option of the bank, the lender, as well as at the option of the borrower. Its field of usefulness, however, is small. The ordinary business man can hardly ever use a loan on call. He borrows from the bank primarily to get "circulating capital," that is, capital which "ripens" fairly rapidly into what is for him finished product. It is out of the sale of his finished product that he expects to obtain the funds wherewith to repay the loan. But in the great majority of cases the transformation of the original capital into finished product occupies an interval of time that precludes the possibility of obtaining such capital on a call-loan basis. The loan might be called considerably before the time when, through the sale of his product, the business man would find himself supplied with funds with which to repay his obligation. Virtually only those dealing in forms of wealth that are instantaneously marketable can afford to borrow on call. In such cases, should the loan be called, the articles purchased with the borrowed funds can be momentarily thrown on the market and disposed of, and funds can be thus obtained to repay the loan. Hence, in the United States it is practically only the operators on the speculative markets who can avail themselves of the call loan. In England owing to the peculiar constitution of the banking system, under which in times of emergency a competent borrower can turn from the ordinary banks to the Bank of England, it is mainly the "discount houses," using discountable bills as collateral, which borrow on call. On the continent of Europe the call loan is of comparatively little significance. Owing, therefore, to the narrow limits within which it finds a field of usefulness, and, in consequence, to the relative preponderance of supply over demand, the rate on the call loan usually ranges considerably below the rate that can be obtained on time loans.

From the point of view of convertibility, the period of the debt and the possibility of resale are important

"Call loans" are most readily convertible

The ordinary business man cannot use it

Short-time loans are next in the order of availability. The distinction between short - and long-time loans is of course purely a relative one. In general practice, however, paper and loans maturing within ninety days are spoken of as short-time credits. Those instruments running longer than ninety days pass into the long-time class.

It is naturally in the field of short-time advances that a bank burdened with heavy demand liabilities finds its safest and most profitable sphere of usefulness. When wisely ordered these loans can be distributed in such a manner that some will fall due each day. Should it then become necessary for the bank to strengthen its reserves, it can do so by simply curtailing further loan and discount operations. The daily receipts accruing from the payment of maturing obligations will then more than offset the added liabilities.

Long-time operations are not only more hazardous, because of the difficulty of accurately forecasting the distant future, but they also tie up funds for longer periods. It may be said, therefore, that, except in sparing proportions, long-time loans are not suited as investments for banks whose liabilities are chiefly in the form of demand obligations.

A glance at almost any bank statement will show that in addition to investments in loans and discounts the bank holds considerable quantities of stocks and bonds and not infrequently real estate and other valuable property. Possession of these different kinds of property is often obtained through the sacrifice of security by a defaulting debtor. More often, however, especially in the case of stocks and bonds, purchases are made for investment purposes in the open market. Moreover, all over the world the commercial bank seems to be invading the field of investment banking, underwriting security issues, etc.

Short-time loans are next in availability

These may be arranged to provide daily maturities

Long-time loans are unacceptable except in sparing proportions

Other forms of property are held by banks

Just how far the commercial bank ought to go in this direction is a serious question. It holds in its control the bulk of the community's liquid capital. The disposition that it makes of its loanable resources determines how that liquid capital is to be used. Investments for a long or for an indefinite period, as in the case of bonds and stocks, represent a tying up of liquid capital in relatively fixed forms. From the social point of view the success of the fixed investment depends upon the steady flow of circulating capital proceeding from it, that is, upon the full utilization of the fixed capital in the transformation of lower forms of wealth into higher. An investment of capital in a rolling mill, for example, pays society best when the mill is being used to capacity. The mill can be used to capacity, however, only when there is a steady flow of raw material through the various stages of manufacture to finished product, and when there is also a rapid absorption of the finished product. The disposition of the finished product and the replenishing of raw material in turn depend upon the diversion to that purpose of a considerable part of the community's purchasing power represented by the loanable resources of the banks. Beyond a certain margin, if those resources are used to stimulate the creation of more plants, etc., as is the case when the bank buys stocks and bonds or underwrites new securities, rather than to facilitate the most economical use of the establishments already created, as is the case when the bank uses its funds in discounting and lending, the community is bound to suffer. In the long run, where banking is unhampered by legal prescription or practical difficulties of any kind the matter from this point of view ould be expected to adjust itself satisfactorily through the normal working of competition; but where there are legal or other impediments obstructing the easy flow and ebb of loans and discounts a critical mal-diversion of capital may result.