121. Call Loans

Call loans are sometimes made by shopping at the different brokers' offices, i. e., the officer calls a number of brokers on the telephone and offers to loan them any part of the amount he has in excess of his required reserve at a given rate. The broker usually accepts or refuses at the moment. This is a rather slow process, for the bank cares very little which broker has its call money; in fact it would prefer to loan it to those who have no claim upon it and upon whom it can call for repayment without apology. There are a few brokers who keep in touch with the banks and know just where and at what rate and how much can be obtained. The officers of the bank know, as soon as the question is determined, whether the results of clearing have made the bank a debtor or creditor at the clearing house, and if the latter, they communicate with those brokers who make a practice of dealing out the money on the floor of the exchange. The brokers are usually advised about 11 o'clock and offer the money to the brokers who need it, at the rate given them by the bank. They usually charge the borrowers a small commission for placing the loan. The brokers advise the bank, who place money in their hands by telephone, of the names of the brokers to whom they loaned the money.

122. Requisites Of A Call Loan

There is very little danger in this class of loan. The principal points to be observed are: (1) Kind of security; (2) Bank's title; (3) Margin.

(1) Kind of security: Brokers are usually anxious to use as many industrial stocks as the bank will allow. Good railroad stocks are generally less speculative, and the bank will do well to demand at least sixty per cent of railroad stocks in a loan. It would be bad policy to allow borrowers to deposit a large amount of any one stock as collateral even though it is scattered through many loans. Unless the loan clerk has a memory capable of carrying the collaterals in his head, including substitutions, it will be worth while to keep a record of the collaterals of all loans. This record can be kept better on cards, showing as a caption the name of the security, and as a collateral record the number of shares and the loan in which it may be found.

If this record is to be of any value, each loan made during the day must be entered on these cards, and each loan paid must be erased; each substitution must also be entered. Where loans are active this would entail a great amount of labor. A competent loan clerk, with a simple record kept on loan cards described later, will be able to know just how much of any one security the bank holds, and will be able to sound the note of warning without reference to such a laboriously kept record.

(2) The bank's title: The loan clerk should have studied, very carefully, the rules for delivery as prescribed by the New York Stock Exchange. These rules are quoted in full in the Appendix. In general, every certificate of stock should be assigned in blank and witnessed. If the certificate is in the name of one other than a broker, the endorsement should be guaranteed by a broker whose signature the bank knows. Stocks, in the names of persons in fiduciary capacity should not be accepted, nor stocks in the names of married women. The loan clerk should examine all bonds to see that they are all payable to bearer or properly assigned. He should see that the current coupons are all attached.

(3) As to margin. The usual margin required is 20 per cent. The laws of the State of New York require 15 per cent on secured loans. To determine whether a loan is properly margined, the loan clerk must be familiar with the quotations of the market and must have, in addition to a stock ticker, in convenient files for reference, the daily official records of the sales on the floor of the stock exchange and the bid and asked quotations on stocks and bonds for which no sales were made. He should have the current number of the supplements to the Commercial and Financial Chronicle. The daily papers are valuable aids in his work of valuing the securities in loans. For out of town banks, the Chron-icle above mentioned or the "Financial Supplement" of the New York Times are almost indispensable.

All these things must be attended to while the messenger is waiting for the check. The loan clerk must be very careful, but he must also be very quick in inspecting the securities and passing upon their value.